
L.	ONEOK PARTNERS

Equity Issuances - In May 2014, ONEOK Partners completed an underwritten public offering of approximately 13.9 million common units at a public offering price of $52.94 per common unit, generating net proceeds of approximately $714.5 million. In conjunction with this issuance, we contributed approximately $15.0 million in order to maintain our 2 percent general partner interest in ONEOK Partners. ONEOK Partners used the proceeds to repay commercial paper, fund capital expenditures and for general partnership purposes.

ONEOK Partners has an “at-the-market” equity program for the offer and sale from time to time of its common units. The program allows ONEOK Partners to offer and sell its common units at prices ONEOK Partners deems appropriate through a sales agent. Sales of common units are made by means of ordinary brokers’ transactions on the NYSE, in block transactions, or as otherwise agreed to between ONEOK Partners and the sales agent. ONEOK Partners is under no obligation to offer and sell common units under the program.

During the three months ended September 30, 2014, ONEOK Partners sold approximately 1.4 million common units through the “at-the-market” equity program. The net proceeds, including ONEOK Partners GP’s contribution to maintain its 2 percent general partner interest in ONEOK Partners, were approximately $81.3 million, which were used for general partnership purposes.

During the nine months ended September 30, 2014, ONEOK Partners sold approximately 4.4 million common units through this program. The net proceeds, including ONEOK Partners GP’s contribution to maintain our 2 percent general partner interest in ONEOK Partners, were approximately $245.4 million, which were used for general partnership purposes.

As a result of these transactions, our aggregate ownership interest in ONEOK Partners decreased to 38.3 percent at September 30, 2014, from 41.2 percent at December 31, 2013.

In August 2013, ONEOK Partners completed an underwritten public offering of 11.5 million common units at a public offering price of $49.61 per common unit, generating net proceeds of approximately $553.4 million. In conjunction with this issuance, we contributed approximately $11.6 million in order to maintain our 2 percent general partner interest in ONEOK Partners. ONEOK Partners used a portion of the proceeds from its August 2013 equity issuance to repay amounts outstanding under its commercial paper program, and the balance was used for general partnership purposes.

During the three months ended March 31, 2013, ONEOK Partners sold 300,000 common units through the “at-the-market” program that resulted in net proceeds, including ONEOK Partners GP’s contribution to maintain our 2 percent general partner interest in ONEOK Partners, of approximately $16.3 million and used the proceeds for general partnership purposes. There were no common units sold through this program in the second or third quarter 2013.

We account for the difference between the carrying amount of our investment in ONEOK Partners and the underlying book value arising from issuance of common units by ONEOK Partners as an equity transaction. If ONEOK Partners issues common units at a price different than our carrying value per unit, we account for the premium or deficiency as an adjustment to paid-in capital. As a result of ONEOK Partners’ issuance of common units, we recognized an increase to paid-in capital of approximately $138.3 million, net of taxes, for the nine months ended September 30, 2014.

Ownership Interest in ONEOK Partners - Our ownership interest in ONEOK Partners is shown in the table below at September 30, 2014:



General partner interest	2.0	%
Limited partner interest (a)	36.3	%
Total ownership interest	38.3	%

(a) - Represents 19.8 million common units and approximately 73.0 million Class B units, which are convertible, at our option, into common units.

Cash Distributions - We receive distributions from ONEOK Partners on the common and Class B units we own and the 2 percent general partner interest, which includes our incentive distribution rights. Under the Partnership Agreement, distributions are made to the partners with respect to each calendar quarter in an amount equal to 100 percent of available cash as defined in the Partnership Agreement. Available cash generally will be distributed 98 percent to limited partners and 2 percent to the general partner. The general partner’s percentage interest in quarterly distributions is increased after certain specified target levels are met during the quarter. Under the incentive distribution provisions, as set forth in the Partnership Agreement, the general partner receives:


•	15 percent of amounts distributed in excess of $0.3025 per unit;


•	25 percent of amounts distributed in excess of $0.3575 per unit; and


•	50 percent of amounts distributed in excess of $0.4675 per unit.

In October 2014, a cash distribution of $0.775 per unit ($3.10 per unit on an annualized basis), an increase of 1.5 cents from the previous quarter, was declared for the third quarter 2014 and will be paid on November 14, 2014, to unitholders of record at the close of business on November 3, 2014.

The following table shows ONEOK Partners’ distributions paid in the periods indicated:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(Thousands, except per unit amounts)
Distribution per unit	$	0.760	$	0.720	$	2.235	$	2.145

General partner distributions	$	5,501	$	4,512	$	15,361	$	13,399
Incentive distributions	80,381		62,634		220,547		184,647
Distributions to general partner	85,882		67,146		235,908		198,046
Limited partner distributions to ONEOK	70,519		66,807		207,381		199,031
Limited partner distributions to noncontrolling interest	118,644		91,676		324,805		272,904
Total distributions paid	$	275,045	$	225,629	$	768,094	$	669,981

The following table shows ONEOK Partners’ distributions declared for the periods indicated and paid within 45 days of the end of the period:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(Thousands, except per unit amounts)
Distribution per unit	$	0.775	$	0.725	$	2.280	$	2.160

General partner distributions	$	5,683	$	4,795	$	16,195	$	13,776
Incentive distributions	84,452		67,017		236,744		191,226
Distributions to general partner	90,135		71,812		252,939		205,002
Limited partner distributions to ONEOK	71,911		67,271		211,557		200,422
Limited partner distributions to noncontrolling interest	122,105		100,650		345,255		283,365
Total distributions declared	$	284,151	$	239,733	$	809,751	$	688,789

West Texas LPG Acquisition - In October 2014, ONEOK Partners announced that it has agreed to acquire an 80 percent interest in the West Texas LPG Limited Partnership (West Texas LPG) and 100 percent interest in the Mesquite Pipeline (Mesquite) from affiliates of Chevron Corporation for approximately $800 million, subject to customary post-closing adjustments. Closing is subject to customary conditions, including antitrust clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act. Following the closing of the transaction, ONEOK Partners will be the operator of both pipelines. Financing to close this transaction is expected to come from ONEOK Partners’ available cash on hand or borrowing under its existing $1.7 billion commercial paper program or its existing $1.7 billion credit facility. We expect to account for this transaction using the acquisition method of accounting, which requires, among other things, that the asset acquired and liabilities assumed, which could include intangible assets and goodwill, be recognized on the balance sheet at their fair values as of the acquisition date.

The West Texas LPG and Mesquite systems consist of approximately 2,600 miles of NGL gathering pipelines extending from the Permian Basin in southeastern New Mexico to East Texas and Mont Belvieu, Texas. The West Texas LPG and Mesquite systems are expected to provide ONEOK Partners additional fee-based earnings and its NGL infrastructure with access to a new NGL supply basin. The pipelines are expected to initially add an additional 230,000 bpd of unfractionated NGLs to ONEOK Partners’ expanding NGL systems. The West Texas LPG and Mesquite pipelines access NGL supply from producers actively developing the Delaware, Midland and Central Basins in the Permian Basin, in addition to the Barnett Shale, East Texas and north Louisiana regions.

Sage Creek Acquisition - On September 30, 2013, ONEOK Partners completed the Sage Creek acquisition for $305 million of certain natural gas gathering and processing, and natural gas liquids facilities in Converse and Campbell counties, Wyoming, in the NGL-rich Niobrara Shale formation of the Powder River Basin. The Sage Creek acquisition consists primarily of a 50 MMcf/d natural gas processing facility, the Sage Creek plant, and related natural gas gathering and natural gas liquids infrastructure. Included in the acquisition were supply contracts providing for long-term acreage dedications from producers in the area, which are structured with POP and fee-based contractual terms.

ONEOK Partners accounted for this acquisition as a business combination, which, among other things, requires assets acquired and liabilities assumed to be measured at their acquisition-date fair values. ONEOK Partners allocated $152 million to the Natural Gas Gathering and Processing segment, and allocated $153 million to the Natural Gas Liquids Segment. The excess of the purchase price over the fair values of the identifiable assets acquired of $92 million was recorded as goodwill.

Revenues and earnings related to the Sage Creek acquisition are included within the Consolidated Statement of Income since the acquisition dates. Supplemental pro forma revenue and earnings reflecting this acquisition as if it had occurred as of January 1, 2013, are not materially different from the information presented in the accompanying Consolidated Statement of Income and are, therefore, not presented.

Relationship - We consolidate ONEOK Partners in our consolidated financial statements; however, we are restricted from the assets and cash flows of ONEOK Partners except for the distributions we receive. Distributions are declared quarterly by ONEOK Partners’ general partner based on the terms of the Partnership Agreement. See Note N for more information on ONEOK Partners’ results.

Affiliate Transactions - We have certain transactions with ONEOK Partners and its subsidiaries.

Prior to the wind down of our energy services business, ONEOK Partners sold natural gas from its natural gas gathering and processing operations to our energy services business. In addition, a portion of ONEOK Partners’ revenues from its natural gas pipelines business were from our former energy services and natural gas distribution businesses, which contracted with ONEOK Partners for natural gas transportation and storage services. ONEOK Partners also purchased natural gas from our former energy services business for its natural gas liquids and its natural gas gathering and processing operations.

As a result of the wind down discussed in Note B, our energy services business no longer executes affiliate transactions with ONEOK Partners. Beginning in the second quarter, ONEOK Partners enters into all commodity derivative financial contracts with unaffiliated third parties. ONEOK Partners continues to provide natural gas transportation and storage services to ONE Gas after the separation.

We provide a variety of services to our affiliates, including cash management and financial services, employee benefits, legal and administrative services by our employees and management, insurance and office space leased in our headquarters building and other field locations. Where costs are incurred specifically on behalf of an affiliate, the costs are billed directly to the affiliate by us. In other situations, the costs may be allocated to the affiliates through a variety of methods, depending upon the nature of the expenses and the activities of the affiliates. Beginning in the second quarter 2014, we allocate substantially all of our general overhead costs to ONEOK Partners as a result of the separation of our natural gas distribution business and the wind down of our energy services business in the first quarter 2014. For the first quarter 2014 and the three and nine months ended September 30, 2013, it is not practicable to determine what these general overhead costs would have been on a stand-alone basis.

The following table shows ONEOK Partners’ transactions with us for the periods indicated:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(Thousands of dollars)
Revenues	$	—	$	81,324	$	53,526	$	255,298
Expenses
Cost of sales and fuel	$	—	$	9,562	$	10,835	$	27,855
Administrative and general expenses	84,221		58,549		240,172		192,906
Total expenses	$	84,221	$	68,111	$	251,007	$	220,761

Prior to the ONE Gas separation, ONEOK Partners provided natural gas sales and transportation and storage services to our former natural gas distribution business. Prior to February 1, 2014, these revenues and related costs were eliminated in consolidation. Beginning February 1, 2014, these revenues represent third-party transactions with ONE Gas and are not eliminated in consolidation, as such sales and services have continued subsequent to the separation and are expected to continue in future periods. Prior to the completion of the energy services wind down, ONEOK Partners provided natural gas and natural gas liquids sales and transportation and storage services to our energy services business. While these transactions were eliminated in consolidation in previous periods, they are now reflected as affiliate transactions and not eliminated in consolidation as these transactions have continued with third parties. See Note B for additional detail on these revenues.