ONE Gas(OGS) - 2023 Q2 - Quarterly Report

Part I. Financial Information Consolidated Financial Statements (Unaudited) The company presents unaudited financial statements for Q2 and H1 2023, showing stable net income and total assets of $7.34 billion Consolidated Statements of Income Highlights (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $398,114 | $428,975 | $1,430,257 | $1,400,434 | | Operating income | $64,022 | $58,569 | $213,252 | $199,326 | | Net income | $32,689 | $32,075 | $135,310 | $131,009 | | Diluted EPS | $0.58 | $0.59 | $2.42 | $2.42 | Consolidated Balance Sheets Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total cash, cash equivalents and restricted cash | $39,338 | $18,127 | | Net property, plant and equipment | $5,856,628 | $5,628,840 | | Total assets | $7,335,122 | $7,776,396 | | Total long-term debt, excluding current maturities | $1,876,212 | $2,661,743 | | Total equity | $2,654,826 | $2,584,426 | Consolidated Statements of Cash Flows Highlights (Six Months Ended, in thousands) | Metric | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Cash provided by operating activities | $748,742 | $286,677 | | Cash used in investing activities | ($321,416) | ($251,501) | | Cash used in financing activities | ($406,115) | ($36,643) | Notes to Consolidated Financial Statements This section details accounting policies, financing activities, and the impact of the Texas storm cost securitization - The company operates as a single reportable business segment, delivering natural gas to approximately 2.3 million customers[29][30] - In March 2023, the company received approximately $197 million in net proceeds from the securitization of extraordinary costs related to Winter Storm Uri in Texas[42] - The company entered into a forward sale agreement for 2.0 million shares and has $226.1 million available for issuance under its at-the-market equity program[61][62] - The reserve for Manufactured Gas Plant (MGP) site remediation was $14.8 million as of June 30, 2023[80][83][84] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results for H1 2023, highlighting increased operating income driven by new rates and key regulatory events Financial Results Summary (in millions) | Financial Results | Q2 2023 | Q2 2022 | Y/Y Change | H1 2023 | H1 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating income | $64.0 | $58.6 | $5.4 | $213.3 | $199.3 | $14.0 | | Capital expenditures | $190.2 | $149.1 | $41.1 | $354.8 | $272.0 | $82.8 | - The increase in operating income for Q2 2023 was primarily due to a $14.1 million increase from new rates, partially offset by a $6.7 million increase in employee-related costs[127] - For the first six months of 2023, operating income increased due to $31.4 million from new rates, partially offset by higher employee costs and bad debt expense[127] - Full-year 2023 capital expenditures and asset removal costs are expected to be approximately $675 million[134] Regulatory Activities The company details recent regulatory outcomes, including rate increases in Oklahoma and Texas and storm cost recovery - Oklahoma Natural Gas implemented a $26.3 million base rate revenue increase in June 2023 following an approved settlement[109] - Texas Gas Service received approximately $197 million in net proceeds in March 2023 from the securitization of Winter Storm Uri costs[113] - Texas Gas Service implemented an $11.5 million rate increase in its Central-Gulf service area and a $7.3 million increase in its West-North service area[114][115] Liquidity and Capital Resources The company maintains liquidity through a $1.0 billion credit facility and commercial paper, with a total debt-to-capital ratio of 52% - The company extended its $1.0 billion revolving credit facility maturity to March 16, 2028, with a total debt-to-capital ratio of 52% as of June 30, 2023[142][144] - The company has outstanding forward sale agreements for a total of 3,215,868 shares, which could generate net proceeds of approximately $248.7 million upon settlement[156] Debt and Credit Ratings (as of June 30, 2023) | Item | Value | | :--- | :--- | | Commercial Paper Outstanding | $217.1 million | | Senior Notes Outstanding | $2.4 billion | | Credit Rating (Moody's) | A3 (Stable) | | Credit Rating (S&P) | A- (Stable) | Cash Flow Analysis Operating cash flow increased significantly in H1 2023 due to Texas securitization, while investing and financing cash usage also grew Cash Flow Summary (Six Months Ended June 30, in millions) | Cash Flow Activity | 2023 | 2022 | Variance | | :--- | :--- | :--- | :--- | | Operating activities | $748.7 | $286.7 | $462.0 | | Investing activities | ($321.4) | ($251.5) | ($69.9) | | Financing activities | ($406.1) | ($36.7) | ($369.4) | - The significant increase in operating cash flow for H1 2023 was primarily due to the recovery of the winter weather event regulatory asset for Texas Gas Service through securitization[160] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include commodity prices, interest rates, and credit, which are managed through various mitigation strategies - Commodity price risk from natural gas price fluctuations is mitigated by passing costs to customers through regulatory purchased-gas cost adjustment mechanisms[184] - Interest-rate risk is associated with commercial paper, credit agreement borrowings, and new debt financing, and is managed through a mix of debt instruments[185] - Counterparty credit risk is not considered material due to a large customer base of approximately 2.3 million and established credit control measures[186] Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes to internal controls in Q2 2023 - The CEO and CFO have concluded that disclosure controls and procedures were effective as of the end of the reporting period, June 30, 2023[187] - No changes in internal control over financial reporting occurred during the second quarter of 2023 that have materially affected, or are reasonably likely to materially affect, internal controls[188] Part II. Other Information Legal Proceedings Ongoing legal proceedings from normal business operations are not expected to have a material adverse effect on the company - The company states that ongoing legal proceedings arising from normal operations are not expected to have a material adverse effect on its financial results, position, or cash flows[189] Risk Factors This section refers to the comprehensive risk factor disclosure in the company's Annual Report on Form 10-K - The report directs investors to the Risk Factors section in the company's Annual Report for a comprehensive discussion of risks affecting the business[190] Unregistered Sales of Equity Securities and Use of Proceeds This item is reported as not applicable for the period - Not applicable[191] Defaults Upon Senior Securities This item is reported as not applicable for the period - Not applicable[192] Mine Safety Disclosures This item is reported as not applicable for the period - Not applicable[193] Other Information This item is reported as not applicable for the period - Not applicable[194] Exhibits This section lists all exhibits filed with the report, including SOX certifications and XBRL interactive data files - Lists filed exhibits, including officer certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and XBRL data files[197]