Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ONE Gas Inc (OGS, Financial) reported a positive momentum entering the second half of the year with constructive regulatory activity in all jurisdictions.
- The company successfully reduced outside service costs related to line locating by insourcing, leading to a decrease in O&M expenses.
- Revenue from new rates contributed $14.7 million to operating income year over year, with additional growth from residential and commercial customer bases in Oklahoma and Texas.
- ONE Gas Inc (OGS) reaffirmed its 2024 financial guidance, including net income of $214 million to $231 million, and earnings per diluted share of $3.70 to $4.
- The company achieved a AAA ESG rating from MSCI and a prime corporate rating from ISS, highlighting its focus on safety, climate risk management, and sound governance practices.
Negative Points
- Net income for the second quarter decreased to $27 million or $0.48 per diluted share, compared to $33 million or $0.58 per diluted share in the same period of 2023.
- Operations and maintenance expenses increased by 3% year over year, primarily due to expected increases in employee-related costs.
- Interest expenses were approximately $10 million higher than the same period in 2023, reflecting the issuance of $300 million of 5.1% senior notes and the maturity of lower coupon notes.
- Depreciation and amortization expenses were approximately $5 million higher than the prior year, reflecting an increase in net property, plant, and equipment due to higher capital investment.
- The Kansas settlement agreement does not contain a stated ROE, capital structure, or rate base, which may lead to uncertainties in financial projections.
Q & A Highlights
Highlights from ONE Gas Inc (OGS) Q2 2024 Earnings Call
Q: Can you elaborate on the O&M increases and how they are expected to normalize over the year?
A: (Robert McAnnally, CEO) The O&M increases are part of our strategy to bring certain services in-house, which has shown benefits. We saw a 7% year-over-year increase in Q2, but this is expected to normalize as we continue to realize efficiencies. (Curtis Dinan, COO) The insourcing has led to quicker-than-expected benefits, and the new teams are performing well, allowing for additional efficiencies in other tasks. (Christopher Sighinolfi, CFO) Interest expenses were higher due to the issuance of new notes and the maturity of lower coupon notes, but this was anticipated.
Q: Will the Kansas settlement make public the rate base, ROE, and equity ratio?
A: (Curtis Dinan, COO) No, the final order in Kansas will not detail the rate base, ROE, or equity ratio. It will only state the revenue requirement change.
Q: Given the progress made, do you see a possibility of coming in better than the 5% O&M growth expectation?
A: (Robert McAnnally, CEO) While we always strive to be more efficient, we are not updating the 5% number at this time. However, we will continue to work towards lowering that number and provide updates as appropriate.
Q: Are you seeing any potential benefits from lower interest rates?
A: (Christopher Sighinolfi, CFO) Yes, lower interest rates could benefit us, especially if the Federal Reserve lowers its policy rate, which would reduce our commercial paper borrowing costs. Additionally, treasury rates and corporate credit spreads have come in, which is favorable compared to the beginning of the year.
Q: Can you remind me of the cadence for financing and the potential to accelerate terming out commercial paper?
A: (Christopher Sighinolfi, CFO) We enter an open window soon and will consider terming out commercial paper during this period. We also plan to settle equity forwards closer to year-end.
Q: Are the parameters around the Kansas settlement consistent with your current earnings expectations?
A: (Curtis Dinan, COO) Yes, the Kansas settlement fits within the profile we had provided in our guidance, with no major changes to our earnings expectations.
Q: Can you provide more details on the impact of the Kansas securitization on your financials?
A: (Christopher Sighinolfi, CFO) Excluding the Kansas securitization, depreciation and amortization expenses were approximately $5 million higher than the prior year, reflecting increased capital investment. Interest expenses were also higher due to the issuance of new notes and the maturity of lower coupon notes.
Q: What are the expected capital investments for the full year?
A: (Christopher Sighinolfi, CFO) Our capital expenditures and asset removal costs for Q2 were approximately $195 million, and we remain on track with our $750 million forecast for the full year.
Q: Can you provide an update on your regulatory activities in Oklahoma and Texas?
A: (Curtis Dinan, COO) In Oklahoma, we reached a settlement reflecting a $31.4 million rate increase, with new rates implemented on July 1. In Texas, several rate cases and GRIP filings have been approved, with new rates expected to take effect towards the end of the year.
Q: How is the progress on your major system extension West of Austin?
A: (Curtis Dinan, COO) We expect to complete the final phase of the major system extension West of Austin during Q3. These projects are bringing natural gas service to underserved communities and supporting the build-out of large master plan developments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
