ONE Gas(OGS) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Consolidated Financial Statements The company's unaudited statements show increased net income and total assets of $8.36 billion as of June 30, 2025 Consolidated Statements of Income Highlights (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Total revenues | $1,358,931 | $1,112,457 | | Operating income | $252,354 | $215,140 | | Net income | $151,452 | $126,560 | | Diluted EPS | $2.51 | $2.23 | Consolidated Balance Sheet Highlights | Metric | June 30, 2025 (in thousands) | Dec 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Assets | $8,359,141 | $8,425,571 | | Total Liabilities | $5,174,806 | $5,321,023 | | Total Equity | $3,184,335 | $3,104,548 | | Total Long-Term Debt (net) | $2,370,863 | $2,385,286 | Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Cash from Operating Activities | $448,809 | $250,926 | | Cash used in Investing Activities | $(348,511) | $(341,776) | | Cash provided by (used in) Financing Activities | $(136,114) | $83,929 | Note 2. Revenue Total revenues grew to $1.36 billion for the first six months of 2025, driven by higher natural gas sales Disaggregated Revenue (Six Months Ended June 30) | Revenue Source | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Natural gas sales to customers | $1,239,435 | $987,856 | | Transportation revenues | $74,465 | $69,554 | | Securitization customer charges | $24,842 | $23,226 | | Miscellaneous revenues | $13,317 | $12,065 | | Total revenues from contracts with customers | $1,352,059 | $1,092,701 | Note 3. Regulatory Assets and Liabilities Net regulatory liabilities increased to $211.3 million by June 30, 2025, due to changes in various regulatory accounts Net Regulatory Assets and Liabilities | Date | Total Regulatory Assets (in thousands) | Total Regulatory Liabilities (in thousands) | Net Position (in thousands) | | :--- | :--- | :--- | :--- | | June 30, 2025 | $310,087 | $(521,417) | $(211,330) | | Dec 31, 2024 | $379,216 | $(490,088) | $(110,872) | - Amortization of regulatory assets, representing recovery through rates, was $7.4 million for the six months ended June 30, 2025, compared to $9.5 million for the same period in 2024[44] Note 4 & 5. Credit Facility and Long-Term Debt The company maintained a total debt-to-capital ratio of 50.7% with $2.40 billion in long-term debt as of June 30, 2025 - The company has a $1.35 billion revolving credit facility and a commercial paper program of the same amount, with $872.4 million of commercial paper outstanding at June 30, 2025[45][47][48] Long-Term Debt Composition (June 30, 2025) | Debt Instrument | Amount (in thousands) | | :--- | :--- | | Total Senior Notes | $2,150,000 | | KGSS-I Securitized Utility Tariff Bonds | $272,798 | | Total long-term debt, net | $2,400,627 | - The company's total debt-to-capital ratio was 50.7% at June 30, 2025, in compliance with the credit agreement's covenant of no more than 70%[46] Note 6. Equity The company initiated a forward sale agreement for 2.5 million shares and maintained a $225.5 million ATM program - In May 2025, the company entered into a forward sale agreement for 2.5 million shares of common stock[53] - As of June 30, 2025, the company had $225.5 million of equity available for issuance under its at-the-market (ATM) program[54] - A dividend of $0.67 per share was declared in August 2025, payable in September 2025[55] Note 12. Commitments and Contingencies The company manages environmental remediation costs for former MGP sites and complies with federal pipeline safety regulations - The company is responsible for environmental conditions at 12 former MGP sites in Kansas and is governed by a consent agreement with the KDHE for investigation and remediation[72][73] - In July 2025, the KCC approved an increase in the cap for the Accounting Authority Order (AAO) to recover MGP remediation costs to $32.0 million from $15.0 million[74] - The company is subject to federal pipeline safety regulations from PHMSA, and new rules under the PIPES Act could require material expenditures[79][80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net income rose to $151.5 million in H1 2025, driven by new rates and customer growth, with robust liquidity and ongoing regulatory activities Regulatory Activities The company is actively pursuing and has received approvals for rate increases across Oklahoma, Kansas, and Texas - Oklahoma: A settlement for a $41.1 million base rate revenue increase was approved by the OCC in July 2025[103] - Kansas: The KCC approved a $7.2 million increase related to the Gas System Reliability Surcharge (GSRS), effective August 2025[104] - Texas: Filed a rate case for a $41.1 million revenue increase and received approvals for GRIP filings in the West-North and Central-Gulf areas totaling $23.6 million[105][106][107] Financial Results and Operating Information Operating income increased 17% year-over-year to $252.4 million, driven by new rates and customer growth Selected Financial Results (Six Months Ended June 30) | Metric | 2025 (in millions) | 2024 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total revenues | $1,359.0 | $1,112.5 | 22% | | Cost of natural gas | $630.4 | $455.0 | 39% | | Operating income | $252.4 | $215.1 | 17% | - The $37.3 million increase in six-month operating income was primarily due to an increase of $73.0 million from new rates and $3.9 million from net customer growth, partially offset by higher expenses[117][122] - The average total number of customers increased by 16,000 to 2,303,000 for the six months ended June 30, 2025, compared to the same period in 2024[124] Liquidity and Capital Resources Liquidity remains strong, supported by operating cash flow and a $1.35 billion credit facility, with 2025 capex projected at $750 million - Primary liquidity sources are operating cash flow and commercial paper, supported by a $1.35 billion revolving credit facility[128][133] Credit Ratings (as of June 30, 2025) | Rating Agency | Long-term Rating | Short-term Rating | Outlook | | :--- | :--- | :--- | :--- | | Moody's | A3 | Prime-2 | Stable | | S&P | A- | A-2 | Stable | - Full-year 2025 capital expenditures and asset removal costs are expected to be approximately $750 million[123] Cash Flow Analysis Operating cash flow increased significantly to $448.8 million due to favorable working capital changes Cash Flow Summary (Six Months Ended June 30) | Activity | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Operating Cash Flow | $448.8 | $250.9 | | Investing Cash Flow | $(348.5) | $(341.8) | | Financing Cash Flow | $(136.1) | $83.9 | - The increase in operating cash flow was primarily due to working capital changes related to the recovery of regulatory assets[146] - The increase in cash used in financing activities was primarily due to the repayment of notes payable[147] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks, including commodity, interest-rate, and credit risk, are actively managed and mitigated - Commodity price risk from natural gas price fluctuations is mitigated by purchased-gas cost adjustment mechanisms, which pass costs to customers without profit[169] - Interest-rate risk exists from commercial paper borrowings and future debt financing needs, which the company may manage using fixed-rate debt and swaps[171] - Counterparty credit risk is not material due to a large, diversified customer base of approximately 2.3 million and tariff provisions for security deposits[172] Item 4. Controls and Procedures Disclosure controls and procedures were deemed effective as of June 30, 2025, with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[173] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[174] Part II. Other Information Item 1. Legal Proceedings Ongoing litigation from normal business operations is not expected to have a material adverse effect on the company's financials - The company states that it is involved in various litigation matters from the normal course of operations, but believes the outcomes will not have a material adverse effect on its financials[175] Item 1A. Risk Factors This report references the risk factors disclosed in the company's Annual Report, with no material changes noted - The report directs investors to consider the risks set forth in the company's Annual Report, noting that no material changes have occurred in the risk factors[176] Item 6. Exhibits This section lists filed exhibits, including governance documents, underwriting agreements, and officer certifications - Key exhibits filed include an Underwriting Agreement and a Forward Sale Agreement, both dated May 8, 2025, related to a common stock offering[182] - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[182]