WASHINGTON (dpa-AFX) - ONEOK Inc. (OKE) said Monday it will discontinue operating its energy services segment through an accelerated wind down process, releasing non-affiliated, third-party natural gas transportation and storage contracts to interested parties. The energy services segment is expected to be classified as discontinued operations, effective April 1, 2014.
As a result, ONEOK expects to record a non-cash, after-tax write down of about $75 million in the second quarter 2013, resulting from the release of a significant portion of energy services' natural gas transportation and storage contracts to third parties.
The company also expects to record additional non-cash, after-tax write-downs of up to $25 million between July 1, 2013, and April 1, 2014, with most occurring in 2013, subject to the release or assignment of the remaining energy services' natural gas transportation and storage contracts.
The wind down is expected to be substantially completed by April 2014; however, cash payments are expected to continue on certain natural gas transportation, storage and other contracts with terms expiring after April 2014.
In addition to these one-time charges and as a result of the accelerated wind down process, energy services expects pre-tax operating losses of about $55 million in 2013 and approximately $15 million in 2014.
ONEOK also slashed its net income guidance for 2013 to reflect the expected one-time charges and operating losses in the energy services segment. The company now expects 2013 net income of $235 million to $285 million, down from prior range of $350 million to $400 million.
'Our decision to discontinue operating our energy services segment will reduce ONEOK's earnings risk profile over the long term, while removing any earnings uncertainty associated with this segment in the near term,' said John Gibson, ONEOK chief executive officer.
'The energy services segment continues to face challenging industry conditions that show no signs of improving. Increased natural gas supply and infrastructure, coupled with lower natural gas price volatility, have narrowed seasonal and location natural gas price differentials, resulting in limited opportunities to generate revenues to cover our fixed costs on this contracted storage and transportation capacity,' Gibson stated.
'We also believe that the energy services segment no longer fits into our long-term strategy and vision. We will continue to focus our resources on gathering, processing, transporting, storing, fractionating and distributing natural gas, natural gas liquids and other energy commodities through our ONEOK Partners and natural gas distribution segments,' added Gibson.
The energy services segment currently employs 49 people, primarily in Tulsa. The company anticipates offering affected employees positions in other parts of the company. Those employees not offered positions will be entitled to receive severance benefits.
The company's ONEOK Partners segment will continue to market natural gas, natural gas liquids and condensate as a service to its producers and customers. These marketing activities typically involve buy-sell arrangements that have no commodity-price exposure.
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