ONE Gas, Inc. (NYSE:OGS) is a leading natural gas distribution company serving over 2.3 million customers across Oklahoma, Kansas, and Texas. With a focus on safety, reliability, and operational excellence, the company has consistently delivered strong financial results and positioned itself as a dependable provider of essential energy services.

Financials

For the full year 2023, ONE Gas reported net income of $231.2 million, or $4.01 per diluted share, on revenues of $2.37 billion. The company's operating cash flow for the year reached $939.5 million, while free cash flow came in at $272.9 million. These robust financial metrics underscore the company's ability to generate consistent earnings and cash flow, even in the face of market challenges.

In the first quarter of 2024, ONE Gas reported net income of $99.3 million, or $1.75 per diluted share, on revenues of $758.3 million. While the quarter saw warmer-than-normal weather across the company's service territories, the impact on earnings was mitigated by effective weather normalization mechanisms. Operating expenses for the quarter increased by 5% year-over-year, reflecting the company's ongoing efforts to manage inflationary pressures through process efficiencies and in-sourcing initiatives.

Business Overview

ONE Gas operates as a regulated public utility, delivering natural gas to residential, commercial, and transportation customers in its three divisions: Oklahoma Natural Gas, Kansas Gas Service, and Texas Gas Service. The company's primary focus is on the safe and reliable distribution of natural gas, with a strong emphasis on environmental stewardship and customer satisfaction.

One of the key strengths of ONE Gas is its diversified customer base, with residential customers accounting for the majority of its revenue. This stable customer mix, coupled with the fixed-charge component of the company's natural gas sales revenues, contributes to a predictable cash flow profile. Additionally, the company's rate mechanisms in its various jurisdictions help reduce the lag in earning a return on capital expenditures and provide for the recovery of certain changes in its cost of service.

Regulatory Landscape and Growth Initiatives

ONE Gas operates in a highly regulated industry, and the company's financial performance is closely tied to the decisions of its regulatory authorities. In 2024, the company has several regulatory initiatives underway, including a $58.1 million rate case filing by Kansas Gas Service and a $31.8 million performance-based rate change application by Oklahoma Natural Gas.

The company's growth strategy is focused on expanding its natural gas distribution system to serve new areas and customers. During the first quarter of 2024, ONE Gas added over 7,000 new meters, with 1,900 new meters set in April alone. This growth is driven by the strong economic development in the company's service territories, as new employers and residents continue to move into the region.

Liquidity

ONE Gas maintains a strong liquidity position, with access to a $1.2 billion revolving credit facility and a commercial paper program with a $1.2 billion capacity. As of March 31, 2024, the company had $953.4 million in commercial paper outstanding, with a weighted-average interest rate of 5.61%.

The company's long-term debt-to-capital ratio stood at 44% as of March 31, 2024, with $1.9 billion in outstanding senior notes and $301.5 million in securitized utility tariff bonds. Excluding the non-recourse debt of the Kansas Gas Service Securitization I, L.L.C., ONE Gas' long-term debt-to-capital ratio was 40%.

ONE Gas has also been active in the equity markets, with outstanding forward sale agreements for approximately 3.6 million shares of its common stock, which could provide up to $274 million in net proceeds upon settlement. Additionally, the company has $225 million of equity available for issuance under its at-the-market equity program.

Operational Excellence and ESG Initiatives

ONE Gas has a strong track record of operational excellence, as evidenced by its receipt of the American Gas Association Safety Award for the seventh consecutive year, recognizing the company's industry-leading safety performance. The company has also made significant progress in reducing emissions associated with its natural gas distribution system, achieving a 50% reduction in emissions due to leaks as of December 31, 2023.

In recognition of its environmental, social, and governance (ESG) efforts, ONE Gas has earned a AAA ESG rating from MSCI, reflecting its effective management of safety and climate-related risks. The company remains committed to providing robust ESG disclosures and proactively addressing related risks.

Outlook

For the full year 2024, ONE Gas affirmed its financial guidance, expecting net income to range between $214 million and $231 million, or $3.70 to $4.00 per diluted share. The company also anticipates capital investments of approximately $750 million for the year.

While the company's 2024 financial guidance does not assume any interest rate cuts from the Federal Reserve, ONE Gas has outlined its modeling assumptions in its investor presentations, providing transparency on its multiyear expectations.

Conclusion

ONE Gas, Inc. is a well-positioned natural gas distribution company that has consistently delivered strong financial results and demonstrated a commitment to operational excellence and environmental stewardship. With a diversified customer base, effective regulatory mechanisms, and a solid liquidity position, the company is poised to continue its track record of reliable service and shareholder value creation.