) has announced its plan to terminate operations of its energy
services segment. Prolonged weak market conditions with no hope
of improvement in the near term and narrowed seasonal as well as
location natural gas price differentials have led to the
termination of this segment. The segment restructuring activity
is expected to be settled by Apr 2014.
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Further, continuous segmental loss for the last seven quarters
forced ONEOK to halt this business. In the first quarter of 2013,
the energy services segment reported an operating loss of $4.4
million primarily due to reduction in contracted transportation
The energy services segment engages in providing premium natural
gas marketing services to its customers across the U.S. The
segment delivers physical natural gas products and risk
management services through its network of contracted
transportation and storage capacity, and natural gas supply. Its
customers primarily comprise local distribution companies -
electric utilities and industrial end-users.
ONEOK intends to complete the segment discontinuation process in
a faster pace and will discharge non-affiliated third-party
natural gas transportation and storage contracts to the
interested parties. The company's ONEOK Partners segment will
continue to market natural gas, natural gas liquids and
condensate to the customers.
Post restructuring, ONEOK intends to offer positions to the
affected employees in its other divisions. Further, if the
company fails to offer jobs to the employees, it is bound to
provide severance benefits.
As a result of this transaction, ONEOK is anticipated to report
non-cash, after-tax write down of roughly $75 million in
second-quarter 2013 and up to $25 million within Jul 1, 2013 and
Apr 1, 2014. These write downs will take place primarily due to
the release of a significant portion of energy services' natural
gas transportation and storage contracts to the third parties.
ONEOK expects termination of the energy services segment to
negatively impact its full-year 2013 net income due to a pre-tax
operating loss of approximately $55 million related to one-time
charges. This factor propelled the company to lower its full-year
2013 guidance to $235 - $285 million from its earlier guidance of
$350 - $400 million. ONEOK also expects to report a pre-tax
operating loss of approximately $15 million in 2014.
We believe the decision to discontinue this loss making segment
will enable ONEOK to assign resources and redeploy existing
capital as per market conditions and strategic preferences along
with identifying own capability for its future growth.
Post restructuring, we believe that ONEOK will focus on achieving
reasonable revenue, optimizing cost structure, and maintaining
robust margins and strong liquidity position in the future.
ONEOK currently has a Zacks Rank #3 (Hold). The other stocks in
the industry that are worth considering include
Atmos Energy Corporation
Chesapeake Utilities Corporation
) with a Zacks Rank #2 (Buy).