ONE Gas, Inc. (OGS) is a 100% regulated natural gas utility that has consistently delivered strong financial performance and reliable service to its growing customer base. With a history dating back to 1906, the company has weathered various economic cycles and industry challenges, emerging as a resilient and forward-looking energy provider in the Midwest and Southwest regions of the United States.
Business Overview ONE Gas was founded in 1906 as the Oklahoma Natural Gas Company and later became a subsidiary of ONEOK, Inc. in 1980. In 2014, the company officially separated from ONEOK and began trading on the New York Stock Exchange under the ticker symbol OGS. Today, ONE Gas serves approximately 2.3 million customers across Oklahoma, Kansas, and Texas, making it one of the largest natural gas distributors in the country.
Throughout its history, ONE Gas has faced numerous challenges, including adapting to changing regulatory landscapes and environmental regulations. During the 1970s energy crisis, the company worked diligently to ensure reliable natural gas supply and maintain affordable rates for customers. In the 1980s and 1990s, ONE Gas focused on system modernization and the integration of new technologies to improve safety and efficiency.
A major milestone for the company was the completion of its cast iron pipe replacement program in 2019, which eliminated the most leak-prone pipe from its distribution system. This initiative helped ONE Gas reduce leak-related emissions by over 50% since 2005, demonstrating its commitment to environmental stewardship and operational excellence.
The company's operations are divided into three primary divisions: Oklahoma Natural Gas, Kansas Gas Service, and Texas Gas Service. Each division serves residential, commercial, and transportation customers, with a focus on providing safe, reliable, and affordable natural gas services. ONE Gas' business model is centered on strategic investments in its distribution infrastructure, leveraging regulatory mechanisms to recover costs, and maintaining a strong balance sheet to support its growth initiatives.
Financial Performance and Liquidity
Financials Over the past five years, ONE Gas has demonstrated consistent financial growth and stability. In 2024, the company reported annual net income of $222.9 million, or $3.91 per diluted share, compared to $231.2 million, or $4.14 per diluted share, in 2023. The slight year-over-year decline in earnings was primarily attributable to higher operating expenses, including increased depreciation and amortization, as well as higher interest costs.
ONE Gas' total revenue in 2024 amounted to $2.08 billion, a decrease from $2.37 billion in the previous year, largely due to fluctuations in natural gas costs that are passed through to customers. The company's operating cash flow remained strong at $368.4 million in 2024, providing ample liquidity to fund its capital expenditure program and maintain a healthy balance sheet.
In the most recent quarter, ONE Gas reported revenue of $630.7 million, representing a 4.1% increase compared to the prior year quarter. Net income for the quarter rose by 8.4% to $77 million. The increase in revenue was primarily driven by a $24.6 million increase from new rates, while the growth in net income was partially offset by a $4.6 million decrease in other income, net and a $10.4 million increase in interest expense, net.
ONE Gas' financial performance is heavily dependent on natural gas sales volumes and the regulatory construct in its service territories. The company's primary source of revenue comes from natural gas sales to customers, with fixed and variable charges related to the delivery of natural gas and the recovery of natural gas costs. In 2024, approximately 90%, 56%, and 70% of revenues from sales customers, excluding the cost of natural gas, were recovered from fixed charges for Oklahoma Natural Gas, Kansas Gas Service, and Texas Gas Service, respectively.
The company also generates revenue from transportation services and securitization customer charges. In 2024, ONE Gas recorded $44.39 million in revenue from securitization customer charges related to the extraordinary costs incurred during Winter Storm Uri in Kansas. Other revenues, including miscellaneous service charges, totaled $37.69 million in 2024.
Liquidity As of December 31, 2024, ONE Gas had $914.6 million in commercial paper outstanding with a weighted-average interest rate of 4.77%. The company's total debt-to-capital ratio stood at 51.8%, well within its regulatory and financial covenants. ONE Gas' credit ratings from S&P and Moody's remained at A- and A3, respectively, with stable outlooks, reflecting the company's sound financial profile and conservative risk management.
ONE Gas' debt-to-equity ratio was 0.298 as of December 31, 2024, indicating a relatively low level of leverage. The company had cash and cash equivalents of $58 million and access to a $1.35 billion revolving credit agreement, providing substantial financial flexibility. ONE Gas' current ratio of 0.638 and quick ratio of 0.464 suggest a solid short-term liquidity position.
Growth and Regulatory Initiatives ONE Gas has a well-defined growth strategy that focuses on strategic capital investments, customer acquisition, and operational excellence. In 2024, the company invested $762.1 million in its distribution system, a 5% increase from the previous year, primarily to enhance the safety, reliability, and integrity of its infrastructure.
The company's capital expenditure program is supported by various regulatory mechanisms in its service territories, including performance-based rate adjustments in Oklahoma, gas system reliability surcharges in Kansas, and gas reliability infrastructure programs in Texas. These mechanisms allow ONE Gas to recover its investments and operating costs in a timely manner, providing a level of stability and predictability to its financial performance.
One notable project in 2024 was the Austin system reinforcement initiative, which will increase the company's natural gas supply capacity and diversify its sources of gas to support growing demand in the Austin metropolitan area. This project, along with other targeted investments, is expected to contribute to ONE Gas' long-term growth and enhance its value proposition to customers.
Customer growth remains strong, with ONE Gas adding 23,000 new customers in 2024, continuing a trend of healthy customer additions across its service territories. The company's authorized rate base as of year-end 2024 was approximately $5.4 billion, with an estimated average rate base for 2025 of approximately $5.8 billion.
Navigating Market Challenges Despite the challenges posed by the COVID-19 pandemic and volatile energy markets, ONE Gas has demonstrated its resilience and ability to adapt to changing circumstances. The company's diversified customer base, geographic footprint, and proactive risk management strategies have helped it navigate these turbulent times effectively.
In 2023, ONE Gas successfully weathered the impact of Winter Storm Uri, which caused significant disruptions and cost increases in the Texas natural gas market. The company's prudent hedging practices and well-diversified supply portfolio allowed it to minimize the financial impact on its customers, underscoring its commitment to reliability and affordability.
Looking ahead, ONE Gas remains vigilant in monitoring and mitigating potential risks, such as cybersecurity threats, regulatory changes, and weather-related events. The company's strong balance sheet, disciplined capital allocation, and focus on operational excellence position it well to continue delivering value to its shareholders and customers.
Human Capital and Safety As of February 1, 2025, ONE Gas employed approximately 3,900 people, including 700 employees at Kansas Gas Service who are subject to collective bargaining agreements. The company places a strong emphasis on safety as a core value, pursuing a zero-incident safety culture through various safety metrics and initiatives to enhance the safety of its operations.
Future Outlook ONE Gas has consistently met or exceeded the midpoint of its year-ahead EPS guidance for the 11th consecutive year since separating from ONEOK in 2014. For 2025, the company is reiterating its financial guidance, including net income of $254 million to $261 million, earnings per diluted share of $4.20 to $4.32, and capital expenditures and asset removal costs of approximately $750 million.
Conclusion ONE Gas' proven track record of steady growth, sound financial management, and customer-centric operations make it a compelling investment opportunity in the regulated utility sector. The company's strategic initiatives, supported by favorable regulatory frameworks, are designed to enhance its long-term competitiveness and solidify its position as a leading natural gas distributor in the Midwest and Southwest regions. As ONE Gas navigates the evolving energy landscape, investors can take comfort in the company's resilience, operational efficiency, and unwavering commitment to serving its communities.