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ONEOK's move away from commodity price exposure pays off in Q1'16

ONEOK PartnersLP's efforts to restructure contracts to reduce commodity priceexposure are helping the ONEOK family navigate the low price environment.

Complimenting steady earnings from its long-term contractson natural gas transmission pipelines, ONEOK Partners' gathering and processingcontracts have become more fee-based over the past year, CEO Terry Spencer saidduring the partnership's May 4 earnings call.

"Contract restructuring in the natural gas gatheringand processing segment has significantly decreased the segment's commodityprice sensitivity and was another major contributor to the partnership's firstquarter results," he said. "The segment's average fee rate increasedto $0.68 per MMBtu compared with $0.35 in the same period last year and $0.55in the fourth quarter 2015. We expect the segment's earnings to increase tomore than 75% fee-based this year, driven by these contract restructuringefforts."

ONEOK Partners' reported adjusted EBITDA for the firstquarter of $444.6 million, compared to $324.3 million in the year-agoquarter. Its distributable cash flow also soared 60% to $347.6 million.

The results also reflect improvements year-over-year innatural gas gathering and processed volumes, which jumped 18% and 20%respectively. Spencer noted that sector headwinds have held back plenty ofproduction, but ONEOK's diverse footprint has held up well.

"Our competitive advantage is our integrated network ofassets that fit and work well together," President and CEO Terry Spencersaid, highlighting natural gas exports to Mexico via the pipeline,its NGL systems throughout Oklahoma, Texas and the Rockies, and its G&Pfootprint in the Williston Basin.

Spencer noted that the company's transmission pipelinecustomers kept volumes flowing for the quarter. "These customers, such aslarge utility companies, electric generation facilities and industrials, havespecific volume needs that don't fluctuate based on commodity prices," hesaid.

Looking forward, Spencer highlighted a recovery in theethane market as being a potential boost to ONEOK. In the first quarter, ONEOKaveraged 175,000 barrels a day of ethane rejection on its system. But Spencersaid some of their processing plants have started to recover ethane as theeconomics have improved.

"We continue to expect a meaningful amount ofprocessing plants to move into … full recovery in early 2017," he said. "Weare well-positioned to benefit from this ethane opportunity and have more thanenough infrastructure to bring these incremental barrels, or approximately $200million in annual earnings, to our system with no additional capitalrequirements."

ONEOK Partners' distribution coverage increased from 1.03xin 2015's fourth quarter to 1.06x in the 2016 first quarter.

ONEOK the general partner and, as of year-end 2015, owned 41.2% of ONEOK Partners.