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ONEOK, Inc. (NYSE:OKE)

Q4 2013 Results Earnings Conference Call

February 25, 2014 11:00 AM ET

Executives

T.D. Eureste - Investor Relations

Terry Spencer - President and CEO

Derek Reiners - Chief Financial Officer

Sheridan Swords - SVP of Natural Gas Liquids

Wes Christenson - SVP of Operations

Analysts

Carl Kirst - BMO Capital

Ted Durbin - Goldman Sachs

Jeremy Tonet - JPMorgan

Ethan Bellamy - Baird

Chris Sighinolfi - Jefferies & Comp

Helen Ryoo - Barclays Capital

Becca Followill - U.S. Capital Advisors

Craig Shere - Tuohy Brothers

Lin Shen - HITE Hedge

Operator

Good day everyone and welcome to the ONEOK and ONEOK Partners’ Fourth Quarter 2013 Earnings Call. Today's conference is being recorded. At this time, it is my pleasure to turn the conference over to T.D. Eureste. Please go ahead.

T.D. Eureste

Thank you and welcome to ONEOK and ONEOK Partners' fourth quarter and year-end 2013 earnings conference call. A reminder that statements made during this call that might include ONEOK or ONEOK Partners' expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provisions of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.

Starting our earnings conference call is Terry Spencer, President and CEO of ONEOK and ONEOK Partners. Terry?

Terry Spencer

Thanks, T.D. Good morning. And thanks for joining us today. As always, we appreciate your continued interest and investment in ONEOK and ONEOK Partners. Joining me on the conference call today is Derek Reiners, our Chief Financial Officer, who will review our financial results.

Also with me and available to answer your questions are Rob Martinovich, our Executive Vice President of Commercial; Sheridan Swords, our Senior Vice President of Natural Gas Liquids and Wes Christenson, our Senior Vice President of Operations.

On this morning’s call, we will review our fourth quarter and year-end 2013 financial and operating results, bring you up-to-date on our current capital growth projects and review the NGL markets. We’ll discuss my areas of focus as CEO and what’s important to me and we’ll answer your questions.

Let’s start with our fourth quarter performance. ONEOK’s fourth quarter performance was driven by continued volume growth in ONEOK Partners with increases in natural gas gathered and processed and natural gas liquids gathered as a result of the capital growth projects we completed offset by higher operating costs and one-time costs associated with the separation of our natural gas distribution business into ONE Gas.

ONEOK Partners, fourth quarter 2013 results were up as a result of the volume growth I just mentioned. Derek will now review ONEOK’s and ONEOK Partners’ financial highlights, and then I’ll review our operating performance. Derek?

Derek Reiners

Thanks, Terry. ONEOK’s fourth quarter net income was approximately $91 million or $0.43 per diluted share, including $22 million or $0.11 per diluted share of non-cash charges related to the wind-down of the energy services segment and costs related to the separation of ONEOK’s natural gas distribution business into ONE Gas.

In the fourth quarter 2013, energy services reported a $5 million after-tax net non-cash charge as we continued to reduce capacity contracts to wind-down the business and paid approximately $12 million related to previously released transportation and storage obligations. Also in the quarter ONEOK incurred non-cash after-tax charge of approximately $10 million or $0.05 per diluted share and expenses of approximately $7 million after tax or $0.03 per diluted share, both one-time items related to the separation. Excluding these one-time costs ONEOK’s fourth quarter 2013 net income would have been approximately $113 million or $0.54 per diluted share.

ONEOK’s 2013 net income was approximately $267 million or $1.27 per diluted share. These results include non-cash after tax charges of $87 million or $0.42 per diluted share associated with the energy services segment wind-down and a previously mentioned non-cash after tax charge of approximately $10 million or $0.05 per diluted share and after tax expenses of approximately $9 million or $0.04 per diluted share, both related to the ONE Gas separation.

The energy services charges for the year were $139 million on a pre-tax basis and as cash payments related to the released contracts were approximately $18 million. We expect future cash payments associated with the released transportation and storage capacity for the wind-down to be approximately $80 million on an after tax basis through 2023. 2014 tax payments are expected to be approximately $33 million on an after tax basis, which is included in our 2014 financial guidance.

In 2013, ONEOK received $536 million in distributions from ONEOK Partners, the 23% increase over 2012. In connection with the ONE Gas separation, ONEOK received approximately $1.13 billion from ONE Gas in January of 2014 and used the proceeds to repay approximately $600 million of commercial paper borrowings $150 million of senior notes through an early tender offer and exercised a make/hold call on $400 million of senior notes that we expect to repay in March 2014.

Additionally we reduced ONEOK’s credit facility to $300 million from $1.2 billion and terminated its commercial paper program. The future cash distribution [proceeds] from ONEOK Partners are expected to be the principal source of cash for ONEOK defined quarterly cash dividends.

We are affirming ONEOK’s 2014 guidance and expect cash flow available for dividends to be in the range of $560 million to $640 million reflecting growth in cash distributions received from our general partner and limited partner interest in ONEOK Partners. Please refer to our earnings release and Investor Day materials for more information on our 2014 guidance.

Now let’s move on to ONEOK Partners. ONEOK Partners’ fourth quarter net income was $228 million or $0.67 per unit and full year 2013 net income was $804 million or $2.35 per unit. In the fourth quarter distributable cash flow was $245 million resulting in coverage ratio of 1.02 times for the quarter and nearly $950 million for the year resulting in a 1.03 times coverage ratio.

We increased the distribution by $0.005 per unit to $0.73 for the fourth quarter of 2013, the increase of 3% from the fourth quarter of 2012. In the earnings news release we provided some updates on our hedges as we continue to hedge commodity risk when appropriate.

At the end of the fourth quarter, the partnerships had $135 million in cash and cash equivalents, no commercial paper or borrowings on our credit facility outstanding, long-term debt-to-capitalization ratio of 55% and a debt-to-adjusted EBITDA ratio of 4.0 times. As a result of the debt and equity financings, we completed in the second half of 2013, we began 2014 with $135 million of cash, full access to our credit facility that has been increased to $1.7 billion and our at-the-market equity programs available to fund our ongoing capital growth rate.

With the ample liquidity, we are able to be opportunistic in the timings of putting place permanent financings. We are affirming the partnerships’ 2014 financial guidance and expect the partnerships’ distributable cash flow to range from $1.15 billion to $1.25 billion. Please refer to the earnings release and our Investor Day material for complete ONEOK Partners guidance.

Terry, that concludes my remarks.

Terry Spencer

Thank you Derek. Let's start with our former natural gas distribution segment. It is fourth quarter 2013 earnings benefited from new rates, which were more than offset by higher operating costs and onetime charges related to the separation into ONE Gas.

The energy services segment’s fourth quarter 2013 operating loss was higher than the same quarter in 2012 and reflects the non-cash charges related to the wind down of the segment which is expected to be completed by the end of the first quarter of 2014.

At ONEOK Partners, the natural gas gathering and processing segment’s fourth quarter operating income was slightly lower. It benefited from higher natural gas volumes gathered and processed, offset by lower realized NGL product prices and higher operating costs and depreciation expense due to completed capital growth projects.

Natural gas volumes gathered and processed continue to grow driven by increased well connections in the Williston Basin as a result of more efficient drilling programs. While the absolute number of Williston Basin rigs has decreased, multi-well pad drilling has increased significantly. In addition, the quality of the producing acreage yields some of the highest returns in our producers’ portfolios. Also the transition to the manufacturing mode from exploration continues to accelerate. We expect to see continued drilling in the Williston Basin as more than 90% of economics come from crude oil production.

We connected 210 wells in the fourth quarter and 1,160 wells in 2013 compared with 940 wells in 2012. And we expect to connect approximately 1,300 wells to our Williston Basin and Mid-Continent gathering systems in 2014.

We experienced extreme weather conditions in the Williston Basin and Mid-Continent in the December that marginally affected our processed volumes which increased by almost 25% in the fourth quarter 2013 compared with the same period last year. We plan accordingly for these conditions and the loss of productivity during the winter months.

ONEOK Partners’ natural gas liquids segment’s fourth quarter results were higher due to increased NGL volumes gathered and more favorable NGL product price differentials. NGL exchange-services margins and NGL volume gathered continued to grow and we saw an increase in marketing margins compared with the same period in 2012. Our integrated NGL system enabled us to capture higher margins from more favorable NGL product price differentials.

The NGL exchange-services business will continue to see volume growth in Williston Basin and Niobrara, not only from our natural gas processing plants but also from third party plants connected to our system. This volume growth also was occurring in the Mid-Continent region through connections to our plants and others. We expect 10 plus new natural gas processing plants to connect to our system in 2014. The partnership’s natural gas pipeline segment’s fourth quarter 2013 results were slightly higher compared with the same period in 2012.

Equity earnings from Northern Border Pipeline were lower in the fourth quarter 2013 due to reduced transportation rates that became effective January 1, 2013. Northern Border’s long-haul transportation capacity continues to be the most cost advantage provider from Western Canada and the Williston Basin. Substantially all of Northern Border’s long-haul transportation capacity has been contracted through June 2015.

Now an update on our capital growth projects. The MB-2 NGL fractionator at Mont Belvieu was placed in service in December 2013. The Sterling III Pipeline is expected to be completed in March 2014 with the flexibility to transport either unfractionated NGLs or NGL purity products from Mid-Continent region to the Texas Gulf Coast.

The Canadian Valley plant, a 200 million cubic feet per day natural gas processing facility in the Cana-Woodford Shale of Oklahoma is also expected to be completed in March 2014. And the Mont Belvieu ethane -- propane splitter, a 40,000 barrel per day deethanizer also is expected to be completed in March 2014.

Now a brief review of our outlook on the NGL markets. We still believe that ethane rejection by natural gas processing plants connected to our NGL system will continue through much of 2016, after which new world scale ethylene production capacity is expected to begin coming on line.

The industry experienced a volatile propane market in January and February as a result of higher seasonal demand from lake drying in the upper Midwest followed by extensive and prolonged cold weather covering much of the U.S. and the decision by many NGL producers to access the traditionally higher valued Mont Belvieu NGL markets which have been bolstered by strong propane demand. These events led to a significant decline in Mid-Continent propane inventories and periods when the propane price at Conway was higher than at Mont Belvieu. This propane price volatility highlights the fact that much of the NGL industry’s infrastructure is primarily designed to move products from the producing basins to the Gulf Coast markets.

Our fully integrated NGL system with its connectivity to major supply basins and market hubs has on a limited basis the flexibility to deliver certain NGL products between Conway and Mont Belvieu. While we don’t comment on the specific operational actions we have taken, we did utilize the flexibility of our assets to help meet the Midwest propane demand.

In closing, I would like to make a few comments about my new role and areas of focus. ONEOK is a different company today than it was a month ago following the separation of our natural gas distribution business into ONE Gas. But the talented, experienced and dedicated team of employees executing our growth plans remained the same. However, our vision for the future is different, as a pure play general partner we will provide the management and resources for ONEOK Partners to continue to grow so that ONEOK can continue to increase its dividend.

We will maintain prudent financial strength and flexibility while focusing on attracting, selecting and retaining a diverse group of employees to execute our growth strategy which will not change. It goes without saying that I will focus on successfully executing our 2014 to 2016 strategic and financial plan that we shared with you all in December.

We will continue to foster a culture that enables us to be successful as a company and as employees with special emphasis on being more entrepreneurial which means understanding how our customers view us and making sure it’s how we want to be viewed.

We need to be creative, fast moving, responsive, committed to continuing to solve customers’ problems and reducing the time it takes to get things done and satisfy our customers. We will maintain and continue to strengthen our strong commercial and operating capabilities and focus on developing new supplies in markets either organically or through acquisitions in our natural gas and natural gas liquids businesses as well as develop a new growth platform in the energy value chain.

We will continue to provide reliable energy and energy related services in a safe and environmentally responsible manner to our stakeholders. We will continue to seek opportunities to acquire assets at ONEOK Partners that fit with the partnership’s vision while maintaining financial discipline to ensure they create exceptional value for our investors as our internal growth projects do.

And finally, we will continue executing our long-term growth objectives at ONEOK Partners to continue increasing distributions to the partnership’s unit holders and giving ONEOK the flexibility or the ability rather to continue to increase dividends to its shareholders.

As I have assumed the CEO role, I’d like to thank the ONEOK and ONEOK Partners Boards for their support of and confidence in me and in particular John Gibson for his willingness to help prepare me for this new role through mentoring, guidance and encouragement as well as the many other people, who have helped me during my 30 plus year career in the energy industry.

John has been an exceptional leader, trusted advisor and coach, but more importantly, a good friend. He will continue to play an important role in ONEOK and ONEOK Partners through his new role as Non-Executive Chairman. His accomplishments as our CEO are many, but most easily summarized in his genuine desire to help people and a balanced and tireless approach to creating value for all of our stakeholders, employees, customers, communities and our investors.

As in employees, I think we’ll all agree that ONEOK is a wonderful place to work due to John’s many contributions over the years. And for all of our stakeholders, I look forward to continuing to build on the accomplishments of John and the leaders before him. I’m honored and appreciative of the opportunity to lead this growing and dynamic company and its hardworking and dedicating employees. And I look forward to 2014 and the opportunities ahead.

I’d also like to congratulate Pierce Norton and the 3,000 employees who now work for ONE Gas on the successful completion of the transaction. And thanks to 2,000 employees of the new ONEOK whose commitment, dedication, skills and experience allow us to operate our assets safely, reliably and environmentally responsibly everyday and create exceptional value for our investors and customers. Our entire management teams appreciate their commitment and hard work to make our company successful.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question will come from Carl Kirst with BMO Capital.

Carl Kirst - BMO Capital

Thank you. Good morning everybody. I’ve got a micro question maybe on hedging and then maybe more of a macro question and just happen to [newest] that the NGL price realizations in the fourth quarter for instance were sequentially down from third quarter with the market I think sort of more advancing. I did know that was basically just due to entering fourth quarter with essentially and just full hedged profile. And I just want to confirm that it was that reversal say for instance perhaps wider structural basis being experienced?

Terry Spencer

Carl, you are correct. That’s exactly right. We came into the quarter fully hedged basically and so the prices that were carried into the quarter obviously were slightly lower than where the actual market turned out third quarter.

Carl Kirst - BMO Capital

No, I understood, I appreciate that. And so we look at say for instances fourth quarter and you all may obviously wretch it up prudently, the hedging profile for 2014. Is that something that we should take as roughly equal through the year or is that something where again maybe because there has been so much price also in the first quarter, should we be thinking that the first quarter is already fully hedged out at that same level, I just don’t know if there is maybe any additional color you can provide there?

Terry Spencer

Yes Carl, I think that would be true statement. We’re going fairly levelly hedged throughout the year. So I think that’s right.

Carl Kirst - BMO Capital

Okay. And then lastly and I understand this is maybe more challenging to answer, given the volatility that we have seen in the first quarter, I didn’t know if there was any additional color you could provide on optimization opportunities in the first quarter, I think there maybe desire to look back on some prior years given how well the optimization had done in periods of volatility, but the same token with exchange services ramping which seem to be not quite to say an exposure, and then with Sterling III kind of now coming in March maybe there wasn’t the same opportunity to perhaps capture those spreads. I didn’t know if there was any color you could provide as far as what the market should be expecting or not expecting given the volatility?

Derek Reiners

Well Carl, we can’t give you, we can’t talk about first quarter financial performance obviously, but what we can do is talk about what happened in the first quarter, what was the market response if you will. And really what we saw in the first quarter was just unprecedented demand driven by going into the winter obviously with low inventories and unusually cold winter.

We have seen producers have an increased desire to move their production to Mont Belvieu that obviously to take advantage of more attractive prices at Belvieu. So that all equated to what we saw, a shortage of propane. January and February heavy demand pool have subsided though as we look at the market currently, prices are now trading today by down below $1.20 a gallon and clearly the market has demonstrated that it’s getting the volume that it needs and at least as far as that relates to ONEOK certainly we were able to utilize the flexibility of our assets to make sure the propane got to where it needed to go. And as far as we are aware, there are absolutely no customers that did without propane during this season.

So that’s really about all I can say. I think that propane demand will continue to be somewhat robust as we move into the year. Certainly as we go into the sales seasons, we won’t see prices back at these levels. During the year, we will see prices certainly moderate.

So I think one of the key things too that I’ll say is that we will see more propane supply come online during the year to satisfy the market, market needs. So we feel pretty good about where we are and with respect to the propane markets. Does that help you?

Carl Kirst - BMO Capital

No, it does and I understand you can’t talk about the first quarter at this point, but I do appreciate all the color. So, thank you very much.

Derek Reiners

You bet.

Operator

Our next question will come from Ted Durbin, Goldman Sachs.

Ted Durbin - Goldman Sachs

Thank you.

Terry Spencer

Hey, Ted.

Ted Durbin - Goldman Sachs

Hey, so I want to talk a little bit about you’ve sighted this favorable NGL product price differentials as being helpful to you, I am just wonder if you can give us a little more commentary around that just sort of a normal butane to iso-butane spread or where are you benefiting from the price differentials?

Terry Spencer

Sure. I think well, at least as far as the location differentials with Conway-to-Mont Belvieu, I think we guided you to about $0.07 to $0.08 a gallon. And so that’s what we expect for the balance of the year. I think in iso to normal spread we’re in that $0.10 to $0.15 a gallon range for the balance of the year.

So I mean compared to last year, we see significant improvement in that iso to normal spread, I think we averaged less than a nickel last year. So this year we are looking for some improvement.

Ted Durbin - Goldman Sachs

Got it, okay. So it’s really on the prices (inaudible) looks fine. And then next question from me was just in the Bakken itself, the outlook here for need for additional processing plants up there, how are you thinking about the contract structure if you were to go forward with that, maybe just talk about your plans in the Bakken?

Wes Christenson

Sure, Ted. As far as contract structures, we don’t anticipate any changes at all. We continue to enter into acreage dedications with percent of proceeds contracts with the fee-based component. In certain areas where there might be heated competition, we may have to flex that percentage upward a bit, but for the most part, we have been able to stay pretty much in line with our historical percentages that have support the past capital investments for the future.

Ted Durbin - Goldman Sachs

Got it. And then how the conversations going around your need for additional process, obviously lot of flaring going out there?

Terry Spencer

Yes. I mean, we continue to have a lot of planning going on. We are doing a pretty good job up there keeping the flairs inline, we have actually we’re at about 30% flaring within our footprint even in the midst of just tremendous growth that we have experienced, producers have a very high sense of urgency to get these players put out and to reduce the flaring level. We've got a targeted expectation of around 10% to 15%, down from 30% to 10% to 15% over the next couple of years. So yes, high sense urgency and as a result it's certainly increasing the need for more processing capacity and gathering systems.

Ted Durbin - Goldman Sachs

Got it. And then if I could just ask one more, the operating cost here particularly the gathering and processing segment looks like they have continued to pick up pretty quickly. I'm just wondering in particular this is continue to go up here, do you have the new processing plant capacity or there is some maybe operational synergies that we should see as you bring on additional plants are unable to do some shared services or what not let’s say in the Bakken?

Terry Spencer

Well, Ted yes, some of our operating costs and I’m going to let some of these other guys talk about this. But some of our operating costs are kind of more fixed. And so you are feeling that right now, now as we low these plants up and feel that capacity, there will be less and less incremental operating cost to go against that revenue.

So, I mean we don't -- nothing here surprises us from an operating cost standpoint. And so, what I'm saying on a per unit basis, we'll see those operating cost continue to drop as we fill these plants.

Ted Durbin - Goldman Sachs

Perfect. That's very helpful. That's all I had. Thank you.

Terry Spencer

Great, thank you.

Operator

Our next question will come from Jeremy Tonet, JPMorgan.

Jeremy Tonet - JPMorgan

Good morning.

Terry Spencer

Good morning, Jeremy.

Jeremy Tonet - JPMorgan

I was just wondering after the OGS spin, if you could provide any updated thoughts on, does this change ONEOK's appetite for strategic or transformational acquisitions. Just any thoughts you have on M&A would be great?

Terry Spencer

Sure, I would be glad to. Certainly as I said in my remarks ONEOK is a different company today. And our strategy certainly in terms of maximizing the dividend is to do of course in fact that and to operate this company as more of a holding company. Our strategy is for our M&A opportunities to be done at ONEOK Partners and so I don’t see ONEOK considering M&A opportunities that we can’t, we can’t keep blinders on, we can’t ignore the fact that we have got a great currency at ONEOK.

But as we sit today our strategy is pretty straight forward and at this point in time, I don’t have any intentions of pursuing M&A opportunities at the OKE level.

Jeremy Tonet - JPMorgan

Okay. That's helpful, I was just wondering if you could might be able to bite a little bit of color as far as CapEx timing throughout the year, it seems like there is a lot of projects. It could be coming on early in the year, is that CapEx more weigh towards the front end?

Terry Spencer

Actually for 2014 our CapEx spend is going to be weighted more towards the backend. Those projects that are coming online early in 2014 their capital spend is winding down of course, but that we've got other projects that are coming online during the year and that will heavily weight capital towards the backend.

Jeremy Tonet - JPMorgan

Got you. That's it from me. Thank you.

Terry Spencer

Thank you.

Operator

Our next question will come from Ethan Bellamy, Baird.

Ethan Bellamy - Baird

Good morning gentlemen. How is the Sage acquisition tracking versus your expectations at the time of purchase?

Terry Spencer

Well the acquisition actually is going very well. We are having considerable success at signing up new acreage dedication from producers. We’ve generated a lot of interest and certainly as you’ll recall as we said many times before this is a significantly underserved basin which fits well for us having the ability to not just gather and process gas but as importantly transport natural gas liquids out of this basin. So, because of that flexibility we’re able to generate a lot of interest and have a lot of success at signing up customer. So it’s going very well.

Ethan Bellamy - Baird

That’s good to hear. With respect to your 2014 guidance can you give us the delta that you would expect from if you did not reject ethane this year?

Terry Spencer

We actually have not provided that level of detail. So I can’t really comment on that. So that’s better what I got to say about that.

Ethan Bellamy - Baird

Okay.

Terry Spencer

It’s the only I can't anything.

Ethan Bellamy - Baird

Yes, sure, all right. What impact if any has there been positive or negative on the timing or the amount of maintenance capital spending due to weather?

Terry Spencer

Well good question. There really has not been that much impact from weather as it relates to the maintenance capital spending. The weather is occurred over such a very short period of time, so it really hasn’t impacted us. I think we’ve probably been more impacted by our decisions as it relates to discretional capital spending. So there is a tranche within all of our maintenance capital budgets discretional spending that we may choose from time-to-time during the year to do or not do and we had some of that this year and that’s one of the reasons why our maintenance capital is lower.

Ethan Bellamy - Baird

Okay. Last question should we be worried about any issues with natural gas pipeline volumes just maybe Northern Border or anything long term obviously that’s been a big question for the industry?

Terry Spencer

Really as it relates to our assets, all of our assets including Northern Border are market connected direct market connected and they don’t really -- they are not really exposed to the classic base spreads that you might see in other pipelines that are kind of more hub connected. So the end user customers have to have gas, they have got to have the gas. And in many cases they don’t have the economic alternatives. So in that scenario that need the service. So from a re-contracting standpoint, we really don’t anticipate any problems in particular in the case of border, it’s a very low cost provider, so it’s extremely competitive in the marketplace as the rest of our asset.

So they are very well connected that needs specific customer needs. So when we get to point in time, where renew contracts, we generally don’t have any problem renewing them. Certainly as long as the right and fees which are for the services are fair.

From a macro perspective our typical contract life is about seven years across all our interstates and intrastate. So we are really in pretty good shape.

Ethan Bellamy - Baird

Okay, thanks much.

Terry Spencer

You bet. Thank you.

Operator

Our next question will come from Chris Sighinolfi with Jefferies & Comp.

Chris Sighinolfi - Jefferies & Comp

Hey, Terry, how are you.

Terry Spencer

Hey, Chris. How are you doing?

Chris Sighinolfi - Jefferies & Comp

I am great, thanks. I was just hoping to hit real quickly on a couple of points Carl had asked about the NGL price realization. I was curious, if you could add some color to what happened on the condensate front? Seems like they are very similar step down. We obviously saw natural gas do sort of a similar head take last quarter and you explained it was related to some acute issues in the Bakken. I was just curious if you could comment on the condensate front.

Terry Spencer

I think some of it’s the same as what you, what I indicated at the call, but I think in particular why you see a lower condensate price is; in that realized price we have transportation costs that are netted out, okay. And so in the case of condensate we will see anywhere from $10 to $15 a barrel transportation charge applied to that net realized price. So that’s why you can’t get that price to really correlate to the WTI posting.

Chris Sighinolfi - Jefferies & Comp

Got it, okay.

Terry Spencer

Does that help?

Chris Sighinolfi - Jefferies & Comp

That does, that’s very helpful, thanks. And then I guess one comment obviously a lot of commentary about what NGL pricing supply and demand trends have meant for the ONEOK assets and sort of responding to the market. I was wondering within that given the strong propane price particularly in Conway that 4Q and that’s why 1Q what have you seen ethane rejection wise across the system, is that sort of create a corresponding desire to recover more in order to boost up the propane yield, can you comment about that?

Terry Spencer

Yes Chris that’s a great question. We really have actually not seen that, we have actually seen a slight ever so slight increase in amount that we are rejecting actually. Part of it is from new supplies that we are connecting that are not recovering ethane. So our impact from ethane rejection actually is slightly higher, you think you -- you understand what I am saying? We haven’t seen ethane come off, so what we have seen is from the new supplies that we have connected they are not coming out of the box recovering ethane.

Chris Sighinolfi - Jefferies & Comp

Understood. So on a total basis the implied rejection number then picks up?

Terry Spencer

Sure, that’s correct.

Chris Sighinolfi - Jefferies & Comp

Okay, understood. And then I guess a final question from me. Can you give a little bit of color around the delay for Sterling III sort of -- I know you still had a bit in the last, naturally some capital to deploy on that, we’re saying March in service, just an update on that and update real quickly on the outage you had at to Belvieu frac and Belvieu plant outage in January, just if everything went sort of to plan on that and then a reminder on Sterling I, just the size of that pipe.

Terry Spencer

Chris, we’d be glad to that. So, I’m going to let Wes Christenson take that Sterling III and Mont Belvieu frac question.

Wes Christenson

Sure (inaudible). Sterling III pipeline construction was primarily delayed due to the weather conditions we had from both (inaudible) and we had construction [period] that was primarily (inaudible). In the Mont Belvieu area, we took -- we started in the two (inaudible) capacity as well as (inaudible).

Chris Sighinolfi - Jefferies & Comp

Okay. I had a little bit of difficulty hearing, but I’ll look for the transcript for details, I’ll hop back in the queue. Thanks for your time, Terry.

Terry Spencer

Okay, great. Thanks Chris.

Operator

Our next question will come from Helen Ryoo, Barclays Capital.

Helen Ryoo - Barclays Capital

Thank you. So Terry, I appreciate your color on the NGL market and I realize that it’s difficult for you to comment on Q1, but just so that I understand in general how your optimization business works the -- are you limited by your physical capacity to move product from ONEOK to the other or is some part of your optimization business entails barrel exchanges and therefore you are not limited by actual -- the amount of barrels you have to move around?

Terry Spencer

Well, it’s a combination of all those things, Helen. We are in fact affected by unlimited, not just by the capacity of the pipelines themselves as we have multiple diameter pipes between the Mid-Continent and the Gulf Coast. The other thing that affects us to capacity is the type of product, what product you are actually moving and to where. So that can affect you as well. The heavier the barrel, the more difficult it is to pump those barrels, it requires more horsepower per mile. So that will affect you as well. And we did -- we had extreme demand and certainly when you have periods of extreme demand, you may or may not be able to meet on an hourly basis the delivery rates that are required. So, we did have some of that.

Helen Ryoo - Barclays Capital

Okay. And does it matter in general which hub has a higher price, let’s say, like in this quarter, propane -- Conway propane so much higher than Belvieu, but in the past it was always the other way around. Does it matter which hub has a higher price or as long as there is a deepen spread, I mean it’s the absolute level of spread that matters more?

Terry Spencer

Helen, I’m going to let our resident expert Sheridan Swords answer that question.

Sheridan Swords

Helen, I think your answer is that our systems are designed to move barrels from Conway to Belvieu because as you’ve said, historically that’s been a higher price. So it’s actually more advantageous for us, most of the time at Belvieu it’s higher than Conway.

Helen Ryoo - Barclays Capital

Okay. But I guess given that you have these projects coming on line, I mean with Sterling I and II, having by directional capability, does that change the ability or not really?

Sheridan Swords

Actually, only Sterling I has bidirectional capabilities.

Helen Ryoo - Barclays Capital

Okay. That’s right.

Sheridan Swords

So, you are limited even if that was the choice to do that, you would be limited by that capacity.

Helen Ryoo - Barclays Capital

Okay, got it. That’s helpful. And then just switching on to your comment on these 10 more -- 10 plus processing plants being connected to your systems during 2014, are these plants like solely connected to your system, or you guys be sole, sort of NGL takeaway solutions for these new plants or are they connected to I guess other third-party lines?

Sheridan Swords

These plants will be solely connected to our system.

Helen Ryoo - Barclays Capital

Okay, great. And then just lastly, what’s the size of the ATM program you have in place?

Derek Reiners

It’s a $300 million program.

Helen Ryoo - Barclays Capital

Have you used any of that?

Derek Reiners

We have, we’ve used a little bit during 2013. We just kicked that off during 2013, I think I said in the last quarter remarks that we expect to use that bit more heavily in 2014.

Helen Ryoo - Barclays Capital

Got it, all right. Thank you very much.

Terry Spencer

Thank you, Helen.

Operator

Our next question will come from Becca Followill, U.S. Capital Advisors.

Becca Followill - U.S. Capital Advisors

Good morning guys.

Terry Spencer

Good morning.

Becca Followill - U.S. Capital Advisors

Could you talk a little bit about your expectations, [wasn’t a lot of] changes in your expected volume growth in the NGL segment for gathered volumes to be up 13% and fracs volumes to be up 8% given that volumes were down sequentially and that 2013 came in a little bit below guidance?

Sheridan Swords

Becca, I think the answer to your question is, is that fractionated volumes are down because we frac some barrels that we don’t gather especially coming off of OPPL. So, we saw a bigger decrease in volume coming off of OPPL. We continue to think that we will meet our guidance for 2014. The new plants that are coming on which most of them we will be gathering as well.

Becca Followill - U.S. Capital Advisors

Thank you. And then can you discuss on those 10 plus coming online what’s the capacity of those plants?

Terry Spencer

They range from $50 million to over $200 million.

Becca Followill - U.S. Capital Advisors

But in total, do you have that capacity?

Terry Spencer

That I don’t have them top of my head right now what they are total have to be.

Becca Followill - U.S. Capital Advisors

Okay. Thank you. And then last question is you guys have a meaningful storage position in Mid-Continent area to store LPGs. Can you talk a little bit about how this winter’s shortfall or shrink conditions have impacted producers’ decisions to maybe contract down the road, is that storage formally fall, what happens to rate as a result of this?

Terry Spencer

Sure. The storage season, back of the storage season, we are confident to use the storage about March when we start re-contracting and that goes through April. It’s kind of the season for the next year for re-contracting, so we will see as we get into that time period if this winter has change the appetite of the end users on the propane side for more or less storage.

Becca Followill - U.S. Capital Advisors

So it’s truly to talk at this point.

Terry Spencer

Yes.

Becca Followill - U.S. Capital Advisors

Okay, great. Thank you, guys.

Derek Reiners

Thank you, Becca.

Operator

Our next question will come from Craig Shere with Tuohy Brothers.

Craig Shere - Tuohy Brothers

Good morning.

Terry Spencer

Good morning, Craig.

Craig Shere - Tuohy Brothers

Terry congratulations on running your first policy year.

Terry Spencer

Thank you, sir.

Craig Shere - Tuohy Brothers

So kind of a follow-up question here, given your existing contract structures and the capacity of existing Sterling pipelines, when into does the capacity to take advantage of the by directional nature Sterling I in other words reverse flow north increase of Sterling III comes online?

Derek Reiners

No, it does not.

Craig Shere - Tuohy Brothers

Okay. And can you provide some color around trends and bundled NGL services from the Bakken down to Belvieu maybe something directional than not absolute natures response like the proportion of such business represents a contract to capacity on the Bakken NGL line now or say on the Sterling lines now down to Belvieu?

Terry Spencer

Craig let me take this question at a high level then Sheridan kind of cleaned it up. The barrels that we move out of the Bakken you understand originate from our own processing plant, our third party volumes will grow.

So we’ve contracted those volumes at competitive rates. That business because it is some of longest haul business that we got it is those barrels are the furthest away, we move those barrels through multiple pipes, and fractionation facilities those will be some of the highest per unit margin barrels that we move. So from a revenue standpoint much like the margin we generated in the Bakken these would be some of the highest margin barrels and most valuable barrels, yet the volumes are going to be relatively speaking small.

So to get to your question, they are not going to take up a whole lot of capacity in the downstream infrastructure relative to movement say out of the Midcontinent or other parts of our system. Sheridan anything?

Sheridan Swords

I don’t have anything to add to that.

Terry Spencer

Okay. I didn’t do that bad, good.

Craig Shere - Tuohy Brothers

So, just as a follow-up, I think historically one of the concerns the margins has had is that on the optimization revenue there was always a little unclear for commercial proprietary reasons, what was available and obviously no one knew the future. And so there wasn't much of a multiple put on those types of revenues. And of course you didn’t distribute them when you got win falls.

But to the degree you are able overtime to make this a little more of a bundled less volatile, more bundled fee based type business as far as these spreads between basins or hubs. Then obviously you should get more of a multiple on that. Are you saying that though the Bakken margins are very high, there is never going to substantially derisk some of these basis points?

Terry Spencer

Well, okay Craig let me try and address your question this way. We have hand for some time. And we've been very open about this, a strategy to reduce our exposure to that Conway to Belvieu build this spread i.e. our optimization business. We've been very successful at doing that and contracting that capacity under fee-based contract. And I guess included in some of that is the Bakken barrels move through some of that capacity.

What happens during 2013 is the ethane rejection created some available capacity that we wouldn't otherwise have. So as I result, we took advantage of that available capacity and captured whatever spread was there. So generally speaking, we are making very good headway with taking that volatility out and our associated dependents on that spread.

Craig Shere - Tuohy Brothers

Okay. And there is still a market for long-term contracting regardless of the level you have currently in the very high single-digits maybe upwards to the dime with Belvieu and Conway, I’m sorry.

Terry Spencer

Sheridan is looking at me; I’ll let him handle that question.

Sheridan Swords

I think to answer your question is when we look at our bundled service, if we have a customer that wants to go down to Mont Belvieu, it all comes down to where they are located at (inaudible) determine what the rates going to be and what the competitive position there in at that time.

Craig Shere - Tuohy Brothers

Okay, understood. Thanks for all the answers.

Terry Spencer

Thanks Craig.

Operator

(Operator Instructions). Our next question will come from Lin Shen, HITE Hedge.

Lin Shen - HITE Hedge

Thank you. My question has been answered. Thanks.

Operator

At this time there appears to be no further questions in queue.

T.D. Eureste

Thank you for joining us. Our (inaudible) to the first quarter starts and close both in early April and extend into earnings or after market closes on May 6th followed by our conference call on May 7th. We’ll provide a detailed in the conference (inaudible) I’ll be available throughout the day to answer your follow-up questions. Thank you for joining us and have a great day.

Operator

Thank you. Once again that will conclude our call for today. Thank you all for your participation. You may now disconnect.

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