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Executives

Dan Harrison - VP Communications and IR

John W. Gibson - CEO, ONEOK, Inc. - Chairman, President and CEO, ONEOK Partners, L.P.

Curtis L. Dinan

President and Chief Operating Officer

Pierce H. Norton

Analysts

Michael Blum - Wachovia

Kathleen Vuchetich - W.H. Reaves

Jonathan Lanfear - Wachovia

Brooke Mullin - J.P. Morgan

Mark Easterbrook - RBC Capital Markets

Rebecca Followill - Tudor Pickering

Robin Levine - J.P. Morgan

Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

James C. Kneale

Executive Vice President, Natural Gas Liquids

Terry Spencer

Executive Vice President, Natural Gas Liquids

ONEOK, Inc. (OKE) Q1 FY08 Earnings Call May 1, 2008 11:00 AM ET

Operator

Good day, ladies and gentlemen and welcome to the ONEOK and ONEOK Partners First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]

I would now like to introduce your host for today's conference call, Mr. Dan Harrison. You may begin, sir.

Dan Harrison - Vice President Communications and Investor Relations

Thank you. Good morning and welcome everyone. As we begin this morning's conference call, I remind you that any statements that might include ONEOK or ONEOK Partners' expectations or prediction should be considered forward-looking statements, which are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934. It's important to note that actual results could differ materially from those projected in such forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to ONEOK's and ONEOK Partners filings with the Securities and Exchange Commission. And now John Gibson, who serves as CEO of ONEOK and Chairman, President and CEO of ONEOK Partners. John?

John W. Gibson - Chief Executive Officer, ONEOK, Inc. Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Thanks, Dan and good morning everyone. Thank you for participating in our call today. Joining me are Jim Kneale, ONEOK President and Chief Operating Officer; Curtis Dinan, Senior Vice President and Chief Financial Officer for both ONEOK and ONEOK Partners; Pierce Norton, ONEOK Partners Executive Vice President of Natural Gas; and Terry Spencer, ONEOK Partners Executive Vice President of Natural Gas Liquids. Here is our agenda this morning. Following a few opening remarks, we'll discuss ONEOK Partners first and then review ONEOK. Curtis will start us off and review ONEOK Partners financial performance followed by Pierce and Tarry who will review the partnership's operating performance. Then Curtis will return to review ONEOK's financial performance and Jim will review ONEOK's operating performance. Then I'll make a few closing comments before we take your questions.

ONEOK had a solid first quarter with strong performances by ONEOK Partners and the Distribution segment. Energy Services had a good quarter although lower than the first quarter a year ago. ONEOK Partners was up more than 50% in the quarter. Higher commodity prices and wider NGO price spreads as well as volume growth in all four of the partnership’s business segments contributed to the increase. Volume growth was exceptionally strong in both the Natural Gas Liquids segments, which Terry will discuss in more detail. Our Distribution segment’s results were higher than a year ago primarily as a result of colder temperatures and increased volumes in Kansas and Oklahoma. In addition, the segment’s continued focus on reducing operating costs through its process improvement efforts is also yielding results.

Energy Services earned $74.3 million in the quarter, which was lower than the same period last year primarily because of fewer storage and marketing optimization opportunities as a result of colder weather, but still a solid quarter. Jim will review both the Distribution and Energy Services segments first quarter results in more detail in a few minutes.

Also during the quarter, ONEOK purchased additional ONEOK Partners units, reflecting ONEOK's continued belief that investing in partnership provides good opportunities to grow ONEOK's earnings and cash flow to a larger ownership interest. ONEOK Partners equity offerings to both ONEOK and to the public allow the partnership to continue to fund its growth activities while maintaining a balanced capital structure. Curtis will provide more detail on the equity offerings during his comments.

We are reaffirming both ONEOK and ONEOK Partners 2008 earnings guidance provided to you in the early January. We believe it's still too early in the year to make any adjustments, either up or down. While there may be some ups and downs between the various segments, our year-end projections for both ONEOK and ONEOK Partners remain unchanged.

As you will hear from Pierce, Terry and Jim, there are still some uncertainties and opportunities that will unfold as the year progresses. As is our usual practice, we will update earnings guidance when we believe there are material changes.

Now, let's take a more detailed look at ONEOK partners. Curtis Dinan will review the financial highlights and results. Curtis?

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

Thank you, John and good morning. ONEOK partners began 2008 with a really strong first quarter. Net income increased 51% to $145 million or $1.48 per unit compared with $96 million or $1 per unit in the first quarter of 2007. Distributable cash flow increased to $159 million compared with $117 million in the first quarter of 2007. During the first quarter of 2008, our Gathering and Processing segment benefited primarily from strong commodity prices. Looking forward in 2008, we have hedged in excess of 72% of our commodity price exposure providing additional earnings stability.

Our natural gas liquids gathering and fractionation business benefited from wider regional commodity price spreads and increased volumes.

Our natural gas liquids pipeline segment benefited from the North System acquisition that was completed during the fourth quarter of 2007 and increased throughput related to new NGL supply connections.

During the first quarter of 2008 the partnership spend $259 million on its internal growth capital program, primarily for the Overland Pass Pipeline and related NGL infrastructure upgrades and the Arbuckle Pipeline. These expenditures were initially financed with our revolving credit agreement.

In March of this year, the partnership completed a public offering of 2.5 million common units and a private placement of 5.4 million common units with ONEOK, Inc. Combined with the 2% general partner contribution and the underwriters exercise of the over allotment option in April, the partnership received net proceeds of approximately $460 million.

A portion of these proceeds were used to repay the amounts outstanding under the partnership’s revolving credit agreement and the remaining proceeds will be used to fund additional capital expenditures during this year. With the completion of these equity offerings, a debt-to-capital ratio of 49% and $1 billion available under the revolving credit agreement, the partnership is well positioned to continue executing on its growth capital program that is expected to contribute incremental EBITDA later this year as the various projects come online.

Recently, ONEOK Partners increased its quarterly distribution to an annualized rate of $4.16 per unit. This is the ninth consecutive distribution increase since the dropdown of the ONEOK assets in April of 2006. During this period, the partnership has increased distributions by 30% demonstrating our commitment to growing unit holder distributions.

John, that concludes my remarks regarding the partnership’s financials.

John W. Gibson - Chief Executive Officer, ONEOK, Inc. Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Thanks, Curtis. Let's now review the operating results of ONEOK Partners, which consists, as a reminder, of four segments, two in natural gas and two in natural gas liquids. First, Pierce Norton will discuss the two natural gas segments Gathering and Processing and Natural Gas Pipelines. Pierce?

Pierce H. Norton - Executive Vice President, Natural Gas Liquids

Thanks, John, and good morning. The Natural Gas Gathering and Processing segment’s first quarter operating income nearly doubled compared with the same period last year. Natural gas liquid, natural gas and crude oil prices were the primary driver of the increase. This segment also benefited from increased throughput, primarily due to a higher drilling activity. Our contract mix by volume remain relatively unchanged at 61% fee based, 31% of proceeds and 8% keep-whole, which are the contracts that are affected by processing spreads.

In addition to having less than 10% of our volumes susceptible to the processing spread, 85% of our keep-whole contracts contain conditioning language, allowing them to convert to a fee when processing spreads are negative. When you combine all of our commodity-affected contracts, percent of proceeds and keep-whole, the greatest sensitivities are to natural gas liquids and crude oil prices. We've taken steps to minimize the risk associated with price movements by locking in prices for the remainder of 2008 on 72% of our expected production on both NGLs and condensate at an average price of $1.39 per gallon. We've also placed hedges for the remainder of the year on our expected natural gas volumes with 78% locked in at $9.23 per MMBtu.

Now taking a look at our growth activity in our Natural Gas Gathering and Processing segment. The final phase of the $110 million Fort Union Gas Gathering system expansion in the Powder River Basin is still expected to go into service during the second quarter. As a 37% owner Fort Union, our equity earnings will continue to increase in the future with the completion of this project. As a reminder, the capital of this expansion was project financed and the additional capacity has been fully subscribed for ten years. We expect to complete the final phase of the Grasslands processing plant expansion later this year. We're poised to capture the growth in and around the Williston Basin in North Dakota and Montana.

The Natural Gas Pipeline segment first quarter 2008 operating income results were stable remaining relatively flat compared with the same period in 2007. Storage margins improved primarily due to new negotiated contracts but was offset by higher general operating expenses. Equity earnings which consist primarily of our 50% interest in Northern Border Pipeline were up 10% in the first quarter when compared with last year. Higher throughput was the driver of the increased transportation revenues on the Northern Border Pipeline.

Looking at the growth projects for Natural Gas Pipelines, this morning we received the notice to proceed on Guardian pipeline from the Federal Energy Regulatory Commission. This allows us to begin construction on the 119-mile pipeline extension and expansion project into the Green Bay area. We've increased our cost of this project to $277 million from $260 million or 6.5% to reflect expected cost associated with scope changes, labor, environmental and inspections. As with any construction projects of this magnitude, there are several variables that could still impact our cost and completion date. Environmental or cultural reroutes, the amount of actual rock encountered and potentially escalating labor cost are some of the most common variables.

Currently the completion of this project is still estimated to occur during the fourth quarter. The expansion of our Guardian pipeline is anchored by 215 new agreements, which provides stable cash flows to the partnership, and because of the additional volumes travel through our existing pipelines, it also brings stability to our base assets going forward.

Finally, we have a stated strategy to connect our interstate pipelines to multiple supplier basins. Consistent with this strategy, Northern Border Pipeline recently announced a binding open season on the Bison Pipeline, which will end mid-May. The 289-mile proposed pipeline would extend from Powder River Basin and connects Northern Border Pipeline in Morton County, North Dakota.

As John mentioned, ONEOK Partners reaffirmed its earnings guidance for the year. The natural gas business had an outstanding quarter and we are reaffirming the guidance ranges provided in January.

John, that concludes my remarks.

John W. Gibson - Chief Executive Officer, ONEOK, Inc. Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Thanks, Pierce. Now, Terry Spencer will review the two natural gas liquid segments, Gathering and Fractionation in NGL Pipelines. Terry?

Terry Spencer - Executive Vice President, Natural Gas Liquids

Thank you, John, and good morning everyone. The natural gas liquid segments had another exceptional quarter. Let's take a look at both the NGL segments. The Natural Gas Liquids Gathering and Fractionation segment’s first quarter operating income increased 42% over the same period last year. Higher product price spreads between Conway, Kansas and Mont Belvieu, Texas were the main driver of the increase allowing us to capture optimization opportunities across the system. Mid-continent NGLs gathered and fractionated continued to grow and have increased more than 20% when compared with the same period in 2007. And looking back over the times, since we acquired the NGL assets in July 2005, we have grown volumes 30% adding over 60,000 barrels of the NGLs per day. This growth has led to asset utilization rates of more than 90% and one of the key drivers for our $216 million in expansion projects underway in our NGL storage fractionation and pipeline infrastructure in Kansas and Oklahoma.

This increased infrastructure capacity coming online during 2008 will accommodate our new NGL supplies from the Rockies as well as future growth in the Mid-Continent. We also recently announced another expansion of our Oklahoma gathering system to connect two new processing plants in the Woodford Shale and Southeast Oklahoma. The $25 million expansion of 6 inch and 8-inch gathering pipeline is currently under construction and scheduled for completion in the second quarter of 2008. These new plants will have the ability to produce approximately 25,000 barrels per day of NGLs. During 2008, we will remain focused on adding new NGL supplies to our Mid-Continent system and by year-end we expect to have added approximately 36,000 barrels per day of NGLs from new plant connections.

Our Natural Gas Liquids Pipeline segment also had an outstanding first quarter with operating income increasing 60% over the same period in 2007 and NGL volumes transported increasing nearly 50% over the same time. Most of these increases are due primarily to the addition of 16,00 mile NGL and refined petroleum products pipeline system we acquired in October 2007, as well as continued supply growth that I previously mentioned in our NGL gathering and fractionation segment.

Our NGL Pipeline segment continues to develop new growth opportunities across the Rockies, Mid-Continent, the Midwest and in Texas, primarily from new supplies, opportunities to expand our services to refineries and to provide products to dilute heavy crude oil entering the U.S. from Canada.

Now let's review the status of some of our large projects. Construction on the Overland Pass Pipeline continues. Considering the unusually severe weather conditions along the route, particularly in Southern Wyoming, we are very pleased with the progress we have made. We have essentially completed construction on more than 700 miles of the 760 total miles of the pipeline.

As you may recall from our last earnings call, the Wyoming office of the Bureau of Land Management requested that we temporarily idle pipeline construction in certain restricted areas to accommodate the seasonal migration patterns of big game animals, the nesting activities of birds of prey and sage grouse habitat. We continue to work diligently in cooperation with the BLM to develop timely plans for the completion of construction within those restricted areas. However, due to continued construction restrictions imposed by the BLM, we are now targeting a third quarter 2008 partial start-up of the pipeline.

In late 2007, we announced Overland Pass would cost approximately $535 million to construct. As a result of the numerous delays and interruptions we've encountered due to restrictions in wildlife sensitive areas I just mentioned, along with the worst winter weather in Southern Wyoming in recent history, project costs will likely rise. But we currently expect those increases to be less than 10% of our $535 million estimate.

Supply activities on Overland Pass continue to progress as we are negotiating with NGL suppliers to commit as much as 50,000 barrels per day of additional supplies to the pipeline, which would bring the total commitments to Overland Pass to approximately 140,000 barrels per day. Some of these negotiations have resulted in agreements, subject to the completion of executed contracts.

The initial design capacity of Overland Pass is 110,000 barrels per day of unfractionated NGLs and we have mentioned one pump facility can increase that capacity to 150,000 barrels per day. As a result of the continued strong NGL supply environment in Southern Wyoming and in the Piceance Basin of the Northwestern Colorado, we have the ability to increase the capacity of Overland Pass to over 220,000 barrels per day by the addition of more pump facilities. So even though we will likely experience some cost increases on Overland Pass due to regulatory delays and weather, we remain confident in the economic merits of this project.

New NGL development potential in the region continues to exceed our original expectations. We also continue to make good progress on permitting in rights-of-way acquisition for the Arbuckle pipeline. Today, more than 90% of the total 440 mile Arbuckle route has been surveyed. Pipe at the steel mill continues to be rolled with more than 400 miles of pipe already delivered. The $260 million project is designed with the capacity to transport 160,000 barrels per day of unfractionated NGLs and can be expanded to over 210,000 barrels per day with additional pump facilities.

As with any project of this magnitude and scope, completion, timing and cost can be impacted by risk factors beyond our control such as the weather, landowner uncertainties relating to right-of-way acquisition and increasing demand in the construction labor market. The outlook for growth along Arbuckle pipeline is on track to exceed our expectations. Natural gas production growth from new drilling along the route primarily in the Barnett Shale and North Texas continues at a rapid pace, leading to the development of new gas process and plant projects. We are currently negotiating with the owners of pending new plant projects for supply dedications to our pipeline.

At the time of start up in early 2009, we currently expect Arbuckle to be shipping approximately 65,000 barrels per day of dedicated NGLs to our Mount Belvieu fractionator and other facilities in the Texas Gulf Coast with another 20,000 barrels per day expected from new plant dedications also currently under negotiation. When combined with our existing infrastructure, we remain confident in the Arbuckle project’s ability to serve the growth occurring in the mid-continent and Texas. With about $1.2 billion in growth activities underway in our NGL businesses, our focus remains on the successful execution of these projects and continued growth in our NGL supply portfolio. We are currently evaluating more new expansion opportunities within our core footprint and in those regions that can be accessed by the large pipeline projects we have underway.

As John mentioned, ONEOK Partners reaffirmed its guidance for the year. The construction challenges we are facing on the Overland Pass Pipeline will have an impact on the timing of and earnings in our NGL Pipeline segment. But because of better than expected performance on our NGL Gathering and Fractionation segment, we currently expect the combined earnings of our natural gas liquids businesses to remain in the guidance range provided in January.

John, that concludes my remarks.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Thanks Terry. Let's now turn our focus for ONEOK, where Curtis Dinan will now review ONEOK's first quarter financials highlights. Curtis?

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

Thanks, John. ONEOK's net income in the first quarter of 2008 was $144 million or $1.36 per diluted share compared with net income of $153 million or $1.36 per diluted share in 2007. While net income decreased slightly, the share repurchase we completed in 2007 positively affected earnings per share. All of ONEOK segments performed very well during the quarter. As Jim will describe in more detail, the Distribution segment's operating income increased slightly to $109 million and Energy Services operating income was strong at $74 million but under the last year's $120 million.

As previously described, our ONEOK Partners segment performed very well during the quarter. Following the partnership’s recent distribution announcement, its annualized distribution has increased by $0.20 compared with one year ago. This distribution increase creates an additional $8.5 million of annual cash flow from the limited partner units that ONEOK owns. Also compared with one year ago, the insinuate [ph] distributions to ONEOK's general partner interest had increased by $23 million annually. With the growth forecast by ONEOK Partners from its $1.6 billion of internal growth projects in the recently completed North System acquisition, we expect future distribution increases will continue to create earnings and cash flow growth for ONEOK.

During the quarter, ONEOK invested approximately $300 million to acquire an additional 5.4 million common units from one of ONEOK Partners in a private placement transaction demonstrating a significant commitment to ensure the continued growth of ONEOK Partners. Including the general partner interest ONEOK, now owns 47.7% of ONEOK Partners.

During the first quarter of 2008, ONEOK retired $400 million of matured long-term debt and ended the quarter with a stand-alone debt to capital ratio of 48%. Stand-alone cash flows from operations excluding the effects of working capital exceeded capital expenditures and dividends by $79 million. For 2008, we anticipate that free cash flows will be in the $160 million to $200 million range.

John, that concludes my remarks.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Thanks, Curtis. Now, Jim Kneale will review ONEOK's operating performance. Jim?

James C. Kneale - President and Chief Operating Officer

Thanks, John and good morning. As Curtis just mentioned, the Distribution segment delivered solid results with operating income of $109 million in the first quarter. Margins were up and expenses down as compared with the same period last year. Volumes were positively affected by colder weather in Oklahoma and Kansas. However, margins were moderated somewhat by weather normalization mechanisms, but reflect a slight increase due to new rates in Oklahoma and Texas. Transportation volumes were also higher in both Oklahoma and Kansas.

From an expense standpoint, our focus on cost control that John mentioned through process improvement initiatives has helped us manage our operating cost as we improve and standardize business practices across our three utilities. In addition, our bad debt levels have remained stable even in this high natural gas price environment. We also continue to work on the regulatory front.

A new capital recovery mechanism in Oklahoma that was approved in February is allowing us to recover and earn a return on certain capital investments more quickly. It is expected to add $7.6 million in margins this year.

Last week the Texas Railroad Commission approved a $1 million rate case in our South Texas jurisdiction. Included in this decision are a returns on equity of 10.425% and increased monthly residential customer charge from $5 to $15, a weather normalization adjustment clause, recovery of gas related bad debts and authorization to hedge the cost of gas using financial instruments. These new rates will become effective with the May billing cycles.

Looking forward, the Distribution segment will continue to execute on its integrated strategy focusing on rates and growth through efficient investment and cost control.

Now, turning to our Energy Services segment. We had a good first quarter in a challenging market environment with operating income of $74 million, which as Curtis mentioned, was lower than 2007. The quarterly decrease was due to lower realized storage spreads and colder than forecasted and anticipated weather that increased our supply requirements to our LDC customers.

As a result of the colder weather, we had to withdraw more gas from storage and purchase higher price spot gas to meet our customer obligations, which were based on a lower first-of-the-month index price. These additional supply requirements, combined with steadily increasing natural gas prices left little volume available to sell into the market, which gave us few opportunities for storage optimization activities.

These events also affected our financial trading margins, which were down as compared with the first quarter last year. Our transportation margins were up $7 million because of improved hedging effectiveness on derivative instruments related to our hedged transport positions and the receipt of $2.4 million in insurance proceeds related to the 2007 Cheyenne Plains outage.

Our retail marketing margins also increased as a result of higher sales margins and volumes. We ended the first quarter with 14.6 Bcf of natural gas in the ground compared with 37.3 Bcf a year earlier. As John mentioned, we are confirming our guidance for 2008.

Looking at Energy Services specifically, currently the summer-to-winter spreads are tighter than in previous years and natural gas volatility is low even though natural gas prices remain historically high. As we move forward, we will continue to manage our storage and transportation position and credit exposure in a very high priced natural gas market, meaning that we will remain sharply focused on our injection and withdrawal strategies and the overall carrying cost associated with natural gas held in inventory.

With natural gas prices at more than $10 on the NYMEX, we believe opportunities may develop for volatility to increase and storage and transportation spreads to widen out to levels we have experienced over the past 2.5 years throughout the remainder of this year and in the next heating season.

John, that concludes by remarks.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Thanks, Jim. Before we open it up to questions, let me make just a few additional comments. As you've just heard ONEOK Partners is making good progress on its internally generated growth projects, closely managing those things we can control and staying on top of costs and completion time lines. While execution of these projects is and will remain a top priority, we are looking toward the future. We are currently evaluating additional internal growth projects that will require an average of $300 million to $500 million per year of capital. And based on our current evaluations these projects should occur in the 2010 to 2015 timeframe.

These future investments along with strategic acquisitions will enable us to continue to grow partnership distributions benefiting not only ONEOK Partners unit holders but also as we have discussed today ONEOK shareholders.

As we have stated previously, ONEOK Partners is ONEOK's growth engine. To fund the partnerships growth we have strategically redeployed capital from ONEOK to ONEOK Partners over the last year enabling the partnership to finance these growth projects, which will allow ONEOK Partners to raise its distribution to unit holders in the future and allow ONEOK to grow its earnings and cash flow to its ownership position in the partnership.

Considering this over the last 12 months ONEOK redeployed more than a $1 billion of capital, $370 million to buy back 7.5 million shares of stock, $400 million to retire long-term debt and more than $300 million to purchase additional units in the partnership. During that same period of time, the partnership has raised more than a $1 billion to fund its growth, a $600 million long-term debt offering last fall, and more than $460 million in public and private placement unit offerings. These actions at ONEOK and ONEOK Partners, we believe, are creating and increasing shareholder and unit holder value.

In closing, I would like to thank all of our 4,500 plus employees who make our performance possible. Without their contributions and commitment, our continued success would not be possible. Again, many thanks to them.

Operator, we're now ready for questions.

Question and Answer

Operator

[Operator Instructions] Our first question comes from Michael Blum with Wachovia.

Michael Blum - Wachovia

Hi, good morning everyone.

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Hello, Michael.

Michael - Blum Wachovia

Couple of questions, one if you just... I just want to make sure I heard that right, you commented John at the end, did you say you're looking at potential projects that would cost in a range of $3 million to $500 million per year for those five years that you'd outlined?

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

That's correct.

Michael - Blum Wachovia

Okay.

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

But just to be... just to clarify that those expenditures would occur in that timeframe. They're not occurring between now and 2010.

Michael - Blum Wachovia

Okay, understood. Second question was just as it relates to the guidance for ONEOK Partners. So, I guess, the question really is are you not increasing the guidance? Is that conservatism, do you have a particular view of commodity prices going forward or is it or is it just related to the comments you made on Overland Pass?

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, actually, I think you may have answered your question for us. We do have a fairly wide range and we feel very confident in that range. As it relates to, in particular Gathering and Fractionation as Terry pointed out, we see increasing margins and have seen increasing margins in that business. And that has helped us, as we look forward today to potential offsets and the delay with Overland Pass Pipeline revenues inside the Natural Gas Liquids Pipeline segment. So, we feel pretty confident in that piece. And this issue of conservatism, I think that is a long standing... that's hard to say reputation but trade of our company.

Michael - Blum Wachovia

Okay. Last question.

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Touch the two. That's okay.

Michael - Blum Wachovia

I'll be quick. Do you see consolidation happening in MLP space this year in the next 12 months and could you potentially see yourself being involved as a consolidator?

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, that's an interesting question. If there is consolidation, we see ourselves as a participant and as consolidator. Will we see at this year, as we stand here today, I don't see or nor have any signs. And going along with our conservatism, we're probably also not going to be real disclosing about our views of the future either.

Michael - Blum Wachovia

Thank you very much.

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Yes, sir.

Operator

Our next question comes from Dave Morrin [ph] with Merrill Lynch.

Unidentified Analyst

Hi, good morning everybody. This is Tom Kinkade [ph] calling in for Dave Morrin.

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Good morning.

Unidentified Analyst

Firstly, could you talk a bit about the drivers behind year-over-year increase in Keep-Whole contracts as a percentage of net margin at the Gathering and Processing segment?

John W. Gibson

- Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Pierce? We'll give that one to Pierce and then I'll add a little color.

Pierce H. Norton - Executive Vice President, Natural Gas Liquids

I'll tell you what I'm going to... I might ask you to repeat the question, because I couldn't really hear you.

Unidentified Analyst

Okay. Could you talk a bit about the drivers behind the year-over-year increase in Keep-Whole contracts as a percentage of net margins at the G&P segment?

Pierce H. Norton - Executive Vice President, Natural Gas Liquids

Well, I don't think that the percentage increase, number one, was material, but we've taken enterprise look at all of our portfolio of that we have and we look at it in terms of natural gas liquids and natural gas and assess our long or short position. So, hopefully I answered your question, but I don't think it's really a material look in that.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Yes, I might add the margin increased... not the volume under Keep-Whole but the margin... percent of margin increased, in assets which you are referring to, it's primarily because the spreads increased so much more related to a year ago. I think in the press release, I can't remember, I think we went from 6% to 18% or 20%.

Unidentified Analyst

Yes, that's 18%.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

If you look at the shrink volume or MMBtus, I think you'll see that that was the relatively the same which indicates the volume hasn't changed, but what has changed is that spread and of the top of my head, I just can't remember what that was, but it's like maybe as much as twice as much.

Unidentified Analyst

Okay.

Pierce H. Norton - Executive Vice President, Natural Gas Liquids

Which would make sense.

Unidentified Analyst

Okay. Thanks. And secondly, at some of your expansion projects, has your strategy with respect to signing on incremental volumes changed at all as a result of confidence in capital cost and any cost inflation there?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

No, it hasn't. I mean, our philosophy has been, if you just start from the beginning, we look for… we try to understand as best we can, what's going on in this world of supply, regardless of the commodity and likewise demand and then we look for opportunities to remove constraints. And so, we go out and try to get anchored tenants, if you will, to our projects and then we optimize that position by adding incremental barrels. And as both Terry and Pierce have commented, we remain very active on, with producers in particular our primary customer, on adding incremental barrels to our... barrels or Mcfs to our projects.

Unidentified Analyst

Okay. Thanks very much.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Yes, sir.

Operator

[Operator Instructions]. Our next question comes from Kathleen Vuchetich with W.H. Reaves.

Kathleen Vuchetich - W.H. Reaves

Good morning.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Good morning, Kathleen.

Kathleen Vuchetich - W.H. Reaves

How are you guys doing?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Fine, thank you.

Kathleen Vuchetich - W.H. Reaves

Good. I was wondering if you could give me what the capital budget is currently for both OKS and OKE this year. Have you dialed in the higher cost into capital budget expectations?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Let me turn that over to Curtis, I think he has got the numbers. He is frantically --.

Kathleen Vuchetich - W.H. Reaves

And do you have a view of whether or not the '09 capital budgets for both companies will decline as a lot of these projects start to come on line? Do you expect the budgets next year to be lower than the '08 number?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, let's... I just want to make sure we make the distinction clear that the capital that you're referring to will be within cap... ONEOK Partners.

Kathleen Vuchetich - W.H. Reaves

Right. I understand that.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Okay. I'm sorry. Well, with that caveat, then we can --.

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

Kathleen, at the partnership growth capital is just a little bit under $1 billion, are updated for 2008 and then the maintenance dollars are flat still at $91 million.

Kathleen Vuchetich - W.H. Reaves

Okay. And for Distribution and Energy Services at OKE?

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

Distribution, we haven't had any change. It's still at $170 million.

Kathleen Vuchetich - W.H. Reaves

Okay.

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

And then the balance that we have at corporate and Energy Services is that combined about $12 million.

Kathleen Vuchetich - W.H. Reaves

Thank you. So, should we accept the OKS $1.1 billion to decline in '09 as these projects start to near completion?

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

Yes. And then in the comments we gave you some color as to what we think you could assume going forward from say 2010 to 2015.

Kathleen Vuchetich - W.H. Reaves

Okay. So, '09 will be kind of an interim year, that’s what we are kind of thinking on capital spending?

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

Yes, it's a year of completion.

Kathleen Vuchetich - W.H. Reaves

Okay. That’s fair

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

2008 and 2009 and then we have other things that will be kicking off.

Kathleen Vuchetich - W.H. Reaves

Okay. Having had, at Energy Services, having had a year where you had to buy some spot gas because of the real surge in demand due to cold weather, are you looking at adding additional storage capacity to avoid having that, occur again or do you feel that... because the winter was so extremely cold there was an [inaudible] and not really needing additional storage capacity?

James C. Kneale - President and Chief Operating Officer

Kathleen, good morning, this is Jim.

Kathleen Vuchetich - W.H. Reaves

Hi, Jim.

James C. Kneale - President and Chief Operating Officer

That's a good question and the short answer and then let me give you more background, just to overcome that phenomena, we don't anticipate acquiring more storage.

Kathleen Vuchetich - W.H. Reaves

Okay.

James C. Kneale - President and Chief Operating Officer

And the longer answer is... this is probably the third time that I can recall over our ten years that we have seen this phenomena where it just all of the weather forecast indicated it was going to be a warm first quarter and it turned out to be cold. So as we set up our months, we weren't as long flowing gas as we could have been had we suspected it was going to be that cold.

Kathleen Vuchetich - W.H. Reaves

Okay.

James C. Kneale - President and Chief Operating Officer

So but that said, the impact of that part of the business and that... where we had to grow wasn't the main driver of the change from '07 to '08. It was more... I'll just take you back, there were still a lot of impact from the hurricanes in the first quarter of '06, '07.

Kathleen Vuchetich - W.H. Reaves

Yes.

James C. Kneale - President and Chief Operating Officer

And spreads were extremely high, summer to winter that we had been able to lock in, as compared to what they were at this first quarter, which again gets back to the basis of this business as I know you understand.

Kathleen Vuchetich - W.H. Reaves

Sure.

James C. Kneale - President and Chief Operating Officer

Summer-winter spread is important.

Kathleen Vuchetich - W.H. Reaves

Jim, with the extraordinarily cold weather, have you had interest from additional utility customers given how difficult it was for some of them to manage supply with the cold surges. Does this help your marketing efforts?

James C. Kneale - President and Chief Operating Officer

Kathleen, not yet. I think everybody is still coming out of the winter and then they will begin assessing their next winter supply probably in the next few months. I think that's... that means probably a logical conclusion but we haven't seen that yet.

Kathleen Vuchetich - W.H. Reaves

Okay. Thanks very much guys.

James C. Kneale - President and Chief Operating Officer

You're welcome.

Operator

Our next question comes from the Jonathan Lanfear with Wachovia.

Jonathan Lanfear - Wachovia

Good morning, guys

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Good morning, Jonathan.

Jonathan Lanfear - Wachovia

Just a quick question following up on the last caller, Energy Services, could you give us an idea, what percentage of operating income is contracted and maybe not subject to some of the volatility? And just secondly if maybe you can comment, if you continue to see some of this abnormal extraordinary weather patterns, would you consider scaling back in that business?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, let me… we've known for some time that this business is a business that’s subject to basis and spread. And on some of our past presentations, we've talked about how... what those sources of income are on a relative basis and of course our Energy Services people are always looking for opportunities to take advantage of market inconsistencies. The optimization piece that you're referring to in the past is represented roughly about 10% of our business and thereabouts. But scaling backward a relative percentage, I don't know Jim, I might ask if you have any comments you want to make?

James C. Kneale - President and Chief Operating Officer

I would just probably add to that. First, John, I mean... I don't mean this as an excuse, but the business is pretty complex and in past presentations, we've tried to just kind of point to a few things that drive it. And of course, that I just said, the summer-to-winter spread, when you have 90 Bcf to 100 Bcf of gas storage that’s one big driver. But you can't take it in the vacuum, because we also pay for leasing storage, we receive demand fees from customers. If there is volatility in the market, we are able to roll gas in and out of storage and capture additional margins. So I guess what I'm trying to say is there is not any one indicator, but there are a couple indicators that can give you a sense of the business that summer-to-winter spread being one and just the volatility and natural gas price being the other. So in terms of our scaling the business back, we continually look at the assets we lease, the returns we're getting from those and making decisions on what to renew or not we know. So that's just an ongoing part of our business.

Jonathan Lanfear - Wachovia

Great. I appreciate it. Thanks.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Jonathan, did that answer your question?

Jonathan Lanfear - Wachovia

I think so, yes.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Okay.

Operator

Our next question come from Brooke Mullin with J.P. Morgan.

Brooke Mullin - J.P. Morgan

Thank you. On the --

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Good morning.

Brooke Mullin - J.P. Morgan

On the Overland Pass, you mentioned the ability to increase the capacity there with pump facility. Could you give us a sense of the capital cost?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, as we mentioned, there is a couple of charges. The first one is an incremental move to, I think, a 150 and then it goes to like 220. So you have different levels and Terry, do you have any direction here?

Terry Spencer - Executive Vice President, Natural Gas Liquids

Sure John. As far as the increase in capacity, generally what we're looking at are additional pump facilities that we would install along the pipeline. And those pump facilities come generally the cost in the neighborhood of $3 million to $5 million per pump station. So if you looked at an increase to 220,000 barrels per day, we're looking at an increase in pump facilities of about seven... that is seven separate pump stations. So you can do the math on that and get a feel for it and a flavor for the cost. So, it's not like a major line loop that you might expect. So, it's... we designed the pipe with sufficient diameter where we could easily layer in fairly low cost incremental capacity expansions.

Brooke Mullin - J.P. Morgan

Great, thank you.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Yes. I would add one of the unique things about expanding our NGL pipeline infrastructure is the low cost of capital required to add these increments and you add these increments when you have a need or a demand and so usually they are backed by a producer or a customer. But we always had the probity to increase the pipeline capacity at risk.

Operator

Our next question comes from Mark Easterbrook with RBC Capital Markets.

Mark Easterbrook - RBC Capital Markets

Hi, good morning. Quick question again on CapEx. Aside from the Guardian project, has any cost of any project changed materially since January?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

The only comment... the answer is no. But the only comment that was made was by Terry Spencer, which not knowing where we are going to end up. We know where we are going to end up, which is we are going to finish the last 60 miles of the pipeline. When we do that, we are in the process of working with the various federal agencies involved and so we're just, I think we said something in the order of magnitude that we don't expect anything beyond 10% but, certainly there... our inability to agree is to when we can go back and finish that pipe is doing nothing but delaying us. And there... we're just saying there may be some cost associated with that.

Mark Easterbrook - RBC Capital Markets

Okay.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

But, we are hopeful that they... we are hopeful that they, although we all have the best interests of the wildlife and the sage grouse in mind, we're hopeful that we are able to find a way we can move forward quickly.

Mark Easterbrook - RBC Capital Markets

Okay. And my question is more related to projects outside of Guardian, MG&A cost for materials or labor in other projects?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

No.

Mark Easterbrook - RBC Capital Markets

No? Okay. And then secondly, just looking out into the futures market. I mean obviously you're benefiting from a very strong commodity pricing environment and the second quarter is probably going to play out very much in the same fashion. How much longer can this type of environment go forward, if you look out into the futures market… I guess my question is how far out can you guys hedge?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, I'm pretty sure in the press release we are hedged... we have information with regard to gathering and processing, which is where most of our exposure is for the balance of this year. Pierce is --

Pierce H. Norton - Executive Vice President, Natural Gas Liquids

I think the question was how far out have we hedged, that's through 2008.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

So which is the balance of this year?

Pierce H. Norton - Executive Vice President, Natural Gas Liquids

Right.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Your question is for as how long.

Mark Easterbrook - RBC Capital Markets

Yes.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, that's a tough one for us to answer. I think there are... I think you all read the same things we read. There is just a whole lot of different external factors that affect the price of crude and affect the price of natural gas. We are not predictors rather we structure our business so that we can may make money in any environment and our people are always attempting to do so. It appears this is editorial, but it appears that this strong price environment will continue. And there are... as I said others much smarter than we that are also saying the same.

Mark Easterbrook - RBC Capital Markets

Okay, thanks.

Operator

Our next question comes from Rebecca Followill with Tudor Pickering.

Rebecca Followill - Tudor Pickering

Hi, two more questions for you. On storage, given the lower spreads and the lower volume [ph], would you guys consider dropping some of the lease storage that you have?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, Rebecca…

Rebecca Followill - Tudor Pickering

Not renewing contracts?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, we’d look at that constantly, but again the storage that we lease is, I mean its sort of a continuous process. As we sign up LDC customers to sell gas to, we've got to have storage to sell that service and the variable there is how wide is the summer-to-winter spread going to be. That said, we every year go through and try to look at our various facilities and the returns we might make and try to make predictions about the summer-winter spread and volatility. So that's a long way to say, yes. There is a potential, we could not renew some storage.

Pierce H. Norton - Executive Vice President, Natural Gas Liquids

And in fact, we... there has been storage we have not renewed. So the energy services people do, if you will, a marginal analysis on their storage positions to determine whether or not the value created by that storage position is flowing through to the demand fees that we are receiving. Obviously, we benefit from the partnership with rising storage fees that disadvantage to Energy Services and so they are always in this risk reward review.

Rebecca Followill - Tudor Pickering

Thanks. And then the other question is on the new areas that you talked about CapEx 2010 to 2015. Is that... or the new capital that you would spend, is that in the existing core areas where you really operate or would you branch out?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Well, the short answer is we would branch out if we felt it was strategic and would benefit the company long-term. The numbers that we're referring to are primarily what I will say are either internal to the footprint, expansions or add-on as opposed to step out.

Rebecca Followill - Tudor Pickering

Thank you very much.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

You're welcome.

Operator

[Operator Instructions] Our next question comes from Robin Levine with JPMorgan.

Robin Levine – J.P. Morgan

Hi, how are you?

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Hi, Robin, how are you doing?

Robin Levine – J.P. Morgan

Good. I had a question on the debt side. You mentioned your revolver availability at OKF is completely available to you. If you could give me the revolver availability at the OKE level and if you might comment on your appetite if any to access debt markets at either entity?

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

Yes, Robin, this is Curtis. At ONEOK, we have a $1.2 billion revolver and we actually used that to backstop our commercial paper program. At the end of the quarter, we had about $265 million of commercial paper outstanding. So more than 1 billion of capacity there. In terms of accessing the debt markets this... next year or the balance of 2008, we don't have any current plans to do that. We feel pretty good position with both of the companies.

Robin Levine – J.P. Morgan

Thank you.

Curtis L. Dinan - Senior Vice President, Chief Financial Officer and Treasurer, ONEOK, Inc. and ONEOK Partners, L.P.

You are welcome.

John W. Gibson - Chief Executive Officer, ONEOK, Inc.; Chairman, President and Chief Executive Officer, ONEOK Partners, L.P.

Okay, well. Thank you everyone. This concludes the ONEOK and ONEOK Partners call. As a remainder, our quite period for the second quarter will start when we close our books in early July and will extend until earnings are released. We will provide you with the reporting date and conference call information for the second quarter at a later date. Christy Williamson and I are available throughout the day for any follow-up questions. Thanks for joining us, and have a good day.

Operator

Ladies and Gentlemen, this does conclude today’s presentation. You may now disconnect.

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