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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004.

OR

For the transition period from              to             .

Commission file number 001-13643

ONEOK, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (918) 588-7000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Registration S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨.

Aggregate market value of registrant’s common stock held by non-affiliates based on the closing trade price on June 30, 2004, was $2,264.5 million.

On March 2, 2005, the Company had 104,204,049 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

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ONEOK, Inc.

2004 ANNUAL REPORT ON FORM 10-K

As used in this Annual Report on Form 10-K, the terms “we,” “our” or “us” mean ONEOK, Inc., an Oklahoma corporation, and its predecessors and subsidiaries, unless the context indicates otherwise.

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PART I.

ITEM 1. BUSINESS

General

ONEOK, Inc., an Oklahoma corporation, was organized on May 16, 1997. On November 26, 1997, we acquired the natural gas business of Westar Energy, Inc. (Westar), formerly Western Resources, Inc., and merged with ONEOK Inc., a Delaware corporation organized in 1933. We are the successor to a company founded in 1906 as Oklahoma Natural Gas Company.

ONEOK, Inc. is a diversified energy company. We purchase, gather, process, transport, store, and distribute natural gas. We drill for and produce natural gas and oil; extract, fractionate, store, transport, sell and market natural gas liquids (NGLs); and are engaged in natural gas, crude oil, NGLs and power physical marketing, retail marketing and trading activities. We are the largest natural gas distributor in Oklahoma and Kansas and the third largest gas distributor in Texas, providing service as a regulated public utility to wholesale and retail customers. Our largest markets are Oklahoma City and Tulsa, Oklahoma; Kansas City, Wichita, and Topeka, Kansas; and Austin and El Paso, Texas. Our energy services operations provide services to customers in many states.

Definitions

Following are definitions of abbreviations used in this Form 10-K:

Strategy

Our business strategy is focused on the maximization of shareholder value by integrating our natural gas business operations. We expect to continue evaluating and assessing acquisition opportunities to further complement our existing asset base. We also, from time to time, sell assets when deemed less strategic or as other conditions warrant.

Significant Acquisitions and Divestitures

Acquisition of Northern Plains Natural Gas Company - In November 2004, we acquired Northern Plains Natural Gas Company and its wholly owned subsidiary Pan Border Gas Company (collectively, Northern Plains), which own 82.5 percent of the general partnership interest and 500,000 limited partnership units, together representing a 2.73 percent ownership interest, in Northern Border Partners, from CCE Holdings, LLC for $175 million.

Sale of Transmission and Gathering Pipelines and Compression Facilities - In March 2004, we sold certain natural gas transmission and gathering pipelines and compression facilities for approximately $13 million.

Acquisition of Properties of Wagner & Brown, Ltd. - In December 2003, we acquired approximately $240 million of Texas gas and oil properties and related flow lines from a partnership owned by Wagner & Brown, Ltd. of Midland, Texas. The results of operations for these assets have been included in our consolidated financial statements since that date. The acquisition included approximately 318 wells, 271 of which we operate, and 177.2 Bcfe of estimated proved gas and oil

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reserves as of the September 1, 2003 effective date, with additional probable and possible gas reserve potential. Net production from these properties is approximately 26,000 Mcfe per day.

Acquisition of NGL Storage and Pipeline Facilities - In December 2003, we acquired NGL storage and pipeline facilities located in Conway, Kansas for approximately $13.7 million from ChevronTexaco. In the prior two years, we had leased and operated these facilities.

Sale of Production Assets - In January 2003, we sold approximately 70 percent of the natural gas and oil producing properties of our Production segment for a cash sales price of $294 million, including adjustments. The properties sold were in Oklahoma, Kansas and Texas. The effective date of the sale was November 30, 2002. The sale included approximately 1,900 wells, 482 of which we operated. The statistical and financial information related to the properties sold is reflected as a discontinued component in this Annual Report on Form 10-K. All periods presented have been restated to reflect the discontinued component.

Acquisition of Properties from Southern Union Company - In January 2003, we acquired the Texas gas distribution business and other Texas assets from Southern Union Company (Southern Union). The results of operations for these assets have been included in our consolidated financial statements since that date. We paid approximately $436.6 million for these assets, including $16.6 million in working capital adjustments. The primary assets acquired were gas distribution operations that currently serve approximately 557,000 customers in cities located throughout Texas, including the major cities of El Paso and Austin, as well as the cities of Port Arthur, Galveston, Brownsville and others. Over 90 percent of the customers are residential. The other assets acquired included a 125-mile natural gas transmission system, as well as other energy related domestic assets involved in gas marketing, retail sales of propane and distribution of propane. The purchase also included natural gas distribution investments in Mexico. The assets relating to the propane distribution operations were sold in May and July 2004 and the natural gas distribution investments in Mexico were sold in May 2004. Texas Gas Service operated these assets.

Sale of Midstream Natural Gas Assets - In December 2002, we sold a portion of our midstream natural gas assets for a cash sales price of approximately $92 million to an affiliate of Mustang Fuel Corporation, a private, independent gas and oil company. The assets that were sold are located in north central Oklahoma and include three natural gas processing plants and related gathering systems and our interest in a fourth natural gas processing plant.

Environmental Matters

We are subject to multiple environmental laws and regulations affecting many aspects of our present and future operations, including air emissions, water quality, wastewater discharges, solid wastes and hazardous material and substance management. These laws and regulations generally require us to obtain and comply with a wide variety of environmental registrations, licenses, permits, inspections and other approvals. Failure to comply with these laws, regulations, permits and licenses may expose us to fines, penalties and/or interruptions in our operations that could be material to our results of operations. If an accidental leak or spill of hazardous materials occurs from our lines or facilities, in the process of transporting natural gas or NGLs, or at any facility that we own, operate or otherwise use, we could be held jointly and severally liable for all resulting liabilities, including investigation and clean up costs, which could materially affect our results of operations and cash flows. In addition, emission controls required under the Federal Clean Air Act and other similar federal and state laws could require unexpected capital expenditures at our facilities. We cannot assure you that existing environmental regulations will not be revised or that new regulations will not be adopted or become applicable to us. Revised or additional regulations that result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from our customers, could have a material adverse effect on our business, financial condition and results of operations.

We own or retain legal responsibility for the environmental conditions at 12 former manufactured gas sites in Kansas. These sites contain potentially harmful materials that are subject to control or remediation under various environmental laws and regulations. A consent agreement with the Kansas Department of Health and Environment (KDHE) presently governs all work at these sites. The terms of the consent agreement allow us to investigate these sites and set remediation activities based upon the results of the investigations and risk analysis. We have commenced active remediation on six sites with regulatory closure achieved at two of these locations, and have begun assessments at the remaining sites. The site situations are not similar and we have no previous experience with similar remediation efforts. We have completed some analysis of the remaining six sites, but are unable to accurately estimate individual or aggregate costs to satisfy our remedial obligations.

Our preliminary review of similar cleanup efforts at former manufactured gas sites reveals that costs can range from $100,000 to $10 million per site. These estimates do not give effect to potential insurance recoveries, recoveries through rates or from unaffiliated parties, to which we may be entitled. At this time, we have not recorded any amounts for potential

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insurance recoveries or recoveries from unaffiliated parties, and we are not recovering any environmental amounts in rates. Total costs to remediate the two sites, which have achieved regulatory closure, was approximately $700,000. Total remedial costs for each of the remaining sites are expected to exceed $500,000 per site, but there is no assurance that costs to investigate and remediate the remaining sites will not be significantly higher. As more information related to the site investigations and remediation activities becomes available, and to the extent such amounts are expected to exceed our current estimates, additional expenses could be recorded. Such amounts could be material to our results of operations and cash flows depending on the remediation done and number of years over which the remediation is completed.

Our expenditures for environmental evaluation and remediation to date have not been significant in relation to the results of operations and there were no material effects upon earnings during 2004 related to compliance with environmental regulations.

Employees

We employed 4,627 people at February 28, 2005. The acquisition of Northern Plains, a general partner of Northern Border Partners, added approximately 430 employees to our workforce in 2004 and the acquisition of our Texas assets added approximately 735 employees to our workforce in 2003. At February 28, 2005, Kansas Gas Service employed 818 people who were subject to collective bargaining contracts and we had no other union employees. The following table sets forth our contracts with unions at February 28, 2005.

SEC Filings

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (SEC). You can read and copy any materials we file with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information about the operations of the SEC Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains information we file electronically with the SEC, which you can access over the Internet at www.sec.gov. Our common stock and equity units are listed on the New York Stock Exchange (NYSE: OKE), and you can obtain information about us at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.

Website Information

You can access financial and other information at our website at www.oneok.com. We make available, free of charge, copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and reports of holdings of our securities filed by our officers and directors under Section 16 of the Securities Exchange Act of 1934 as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Copies of our Code of Business Conduct, Corporate Governance Guidelines, Director Independence Guidelines and Board of Directors committee charters, including the charters of our audit, executive, executive compensation and corporate governance committees, are also available on our website and we will make available, free of charge, copies of these documents upon request.

DESCRIPTION OF BUSINESS SEGMENTS

We report operations in the following reportable business segments:

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See Note N of Notes to Consolidated Financial Statements in this Form 10-K for sales to unaffiliated customers, operating income and total assets by business segment.

Production

Segment Description - Our Production segment owns, develops and produces natural gas and oil reserves in Oklahoma through ONEOK Energy Resources and in Texas through ONEOK Texas Energy Resources.

General - Operating income from the Production segment is 9.7 percent, 3.6 percent, and 2.8 percent of our consolidated operating income from continuing operations in 2004, 2003, and 2002, respectively. The Production segment has no single external customer from which it receives ten percent or more of consolidated revenues.

We focus on developmental drilling activities rather than exploratory drilling. As a result of our strategy to grow through acquisitions and developmental drilling, the number of wells we operate increases as we grow our producing reserves. We also seek to serve as operator on wells where we have significant ownership interest. In our role as operator, we control operating decisions that impact production volumes and lifting costs, which are costs incurred to extract natural gas and oil. We strive to reduce finding costs, which is the cost per Mcfe of adding proved reserves through drilling, and minimize production costs. We continue to review opportunities to acquire new properties, develop existing properties and divest of properties when the market offers premium value.

Producing Reserves - Our Production segment primarily focuses on natural gas production activities. We own interests in 885 gas wells and 90 oil wells located in Oklahoma and Texas. A number of these wells produce from multiple zones. Production for 2004 compared to 2003 increased as a result of a full year of production from the Texas gas and oil producing properties acquired in December 2003. New production from the acquired properties was partially offset by the natural decline in production from wells owned prior to the acquisition. During 2004, we participated in drilling 70 wells, which included 66 producing gas wells, three producing oil wells and one dry hole.

Market Conditions and Business Seasonality - - Our goal is to continue to build on and maintain our existing reserve base through developmental drilling. Natural gas prices were generally stronger during 2004 than in prior years. This resulted in increased drilling activity.

We are in a competitive position within our operating regions due to low finding costs and high quality production at locations near transportation points and markets. During 2004, our gas and oil production was sold at market prices to affiliated and unaffiliated companies.

The Production segment’s revenues are impacted by prices, which have been historically higher in the winter heating months when demand is higher. Much of the seasonality has been offset through the utilization of hedging. Oil prices in the United States are also impacted by international production and export policies.

Risk Management - We utilized derivative instruments in 2004 to hedge anticipated sales of natural gas and oil production. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk and Note D of Notes to Consolidated Financial Statements in this Form 10-K.

Gathering and Processing

Segment Description - Our Gathering and Processing segment is engaged in the gathering, processing and marketing of natural gas and fractionation, storage, transportation and marketing of NGLs primarily through its two main subsidiaries, ONEOK Field Services and ONEOK NGL Marketing. These activities are conducted primarily in Oklahoma, Kansas and Texas.

General - Operating income from the Gathering and Processing segment is 26.7 percent, 14.1 percent, and 8.9 percent of our consolidated operating income from continuing operations in 2004, 2003, and 2002, respectively. The Gathering and Processing segment has no single external customer from which it receives ten percent or more of consolidated revenues.

We have active processing capacity of approximately 1.8 Bcf/d. We own approximately 13,800 miles of gathering pipelines that supply gas to our processing plants.

The gathering and processing operations include the gathering of natural gas produced from gas and oil wells. Through gathering systems, these volumes are aggregated into sufficient volumes which can be processed to remove water vapor,

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solids and other contaminants and to extract NGLs in order to provide marketable natural gas, commonly referred to as residue gas. When the liquids are separated from the raw natural gas at the processing plants, the liquids are generally in the form of a mixed NGL stream. This mixed stream is then separated by a distillation process, referred to as fractionation, into component products (ethane, propane, isobutane, normal butane and natural gasoline) by third party and company-owned fractionation facilities. The component products can then be stored, transported and marketed to a diverse customer base of end-users.

We generally gather and process gas under three types of contracts. Factors influencing the contract mix at a particular plant include, among other things:

Characteristics of the contract types are explained below.

We have been successful in amending some of our keep whole contracts to allow us to charge conditioning fees for processing when the keep whole spread is negative. This amendment helps mitigate the impact of an unfavorable keep whole spread by effectively converting a keep whole contract to a fee contract during periods of negative keep whole spread. Additionally, we modify plant operations to take advantage of market conditions. By changing the temperatures and pressures at which the gas is processed, we can produce more of the specific commodities that have the most favorable prices or price spread. These strategies are used to improve the net margin generated by this segment.

We are exposed to volume risk from both a competitive and a production standpoint. We are impacted by producer drilling activity, which is sensitive to geological success as well as capital and commodity prices. We continue to see declines in the fields that supply our gathering and processing operations and the possibility exists that declines may surpass development from new drilling.

ONEOK NGL Marketing sells our NGL production and also purchases NGLs from third parties for resale to a diverse base of customers. We have 89 MBbls/d of mid-continent NGL fractionation capacity. We own and operate two NGL storage facilities in Kansas, with a combined storage capacity of 16 MMBbls, which provide both long- and short-term storage services. The storage facilities have truck and rail loading facilities and have direct pipeline interconnects with the key NGL pipelines, NGL storage facilities and refiners in the mid-continent region. The results of our storage operations are impacted by:

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The main factors that affect our ONEOK NGL Marketing margins are:

Market Conditions and Business Seasonality - During the year, both crude oil and natural gas prices were volatile, with New York Mercantile Exchange (NYMEX) crude oil prices ranging from $33.02 to $54.92 per Bbl and NYMEX natural gas prices ranging from $5.08 to $7.98 per MMBtu.

Despite significant consolidation in the recent past, the U.S. midstream industry remains relatively fragmented, and we face competition from a variety of companies including major integrated oil companies; major pipeline companies and their affiliated marketing companies; and national and local gas gatherers, processors and marketers. Competition exists for obtaining gas supplies for gathering and processing operations, obtaining supplies of raw product for fractionation, and the transportation and storage of natural gas and NGLs. The factors that affect competition typically are:

We have responded to these industry conditions by primarily acquiring assets that are strategically located near our existing assets, making capital investments to improve plant processing flexibility, constructing NGL pipelines, reducing costs, selling assets in non-core operating areas and renegotiating unprofitable contracts. The principal goal of the contract renegotiation effort is to eliminate unprofitable contracts and improve margins, primarily when the keep whole spread is negative.

Some of our products, such as natural gas and propane used for heating, are subject to seasonality resulting in more demand during the months of November through March. As a result, prices of these products are typically higher during that time period. Other products, such as ethane, are tied to the petrochemical industry, while isobutane and natural gasoline are used by the refining industry as blending stocks. As a result, the prices of these products are affected by the economic conditions and demand associated with these various industries.

Government Regulation - The Federal Energy Regulatory Commission (FERC) has traditionally maintained that a processing plant is not a facility for transportation or sale for resale of natural gas in interstate commerce and, therefore, is not subject to jurisdiction under the Natural Gas Act (NGA). Although the FERC has made no specific declaration as to the jurisdictional status of our gas processing operations or facilities, our gas processing plants are primarily involved in removing NGLs and, therefore, we believe, are exempt from FERC jurisdiction. The NGA also exempts natural gas gathering facilities from the jurisdiction of the FERC. Interstate transmission facilities remain subject to FERC jurisdiction. The FERC has historically distinguished between these two types of facilities on a fact-specific basis. We believe our gathering facilities and operations meet the criteria used by the FERC to determine a non-jurisdictional gathering facility status. We can transport residue gas from our plants to interstate pipelines in accordance with Section 311(a) of the Natural Gas Policy Act (NGPA).

The states of Oklahoma, Kansas and Texas also have statutes regulating, in various degrees, the gathering of gas in those states. In each state, regulation is applied on a case-by-case basis if a complaint is filed against the gatherer with the appropriate state regulatory agency.

Risk Management - Derivative instruments can be used to minimize volatility in NGL, condensate and natural gas prices. Accordingly, we use derivative instruments to hedge the cash flows generated by the purchase and sale of natural gas, condensate and NGLs used for, or produced by, our operations. We use physical forward sales and derivative instruments to secure a certain price for natural gas, condensate and NGL products. The processing spread on our keep whole contracts may be hedged with a combination of derivative instruments and physical forward sales. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk and Note D of Notes to the Consolidated Financial Statements in this Form 10-K.

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Transportation and Storage

Segment Description - Our Transportation and Storage segment provides natural gas transportation, storage, and some gas gathering services. These operations are primarily conducted through ONEOK Gas Transportation, ONEOK WesTex Transmission, ONEOK Gas Storage, ONEOK Texas Gas Storage, ONEOK Gas Gathering, ONEOK Transmission, and Mid Continent Market Center. The Texas Railroad Commission (RRC) regulates both ONEOK Texas Gas Storage and ONEOK WesTex Transmission. ONEOK Gas Storage operates under market-based rate authority granted by the FERC. Mid Continent Market Center’s and ONEOK Gas Transportation’s operations are regulated by the Kansas Corporation Commission (KCC) and the Oklahoma Corporation Commission (OCC), respectively.

General - Operating income from the Transportation and Storage segment is 12.2 percent, 11.4 percent, and 14.4 percent of our consolidated operating income from continuing operations in 2004, 2003, and 2002, respectively. The Transportation and Storage segment has no single external customer from which it receives ten percent or more of consolidated revenues.

We own storage facilities with a working storage capacity of approximately 59.6 Bcf, of which 8.0 Bcf is temporarily idle, and approximately 5,600 miles of intrastate pipeline.

In Oklahoma, we operate both transmission and gathering pipelines and storage facilities connected to our transmission pipelines. We have access to the major natural gas producing areas in Oklahoma allowing for gas to be moved throughout the state. In Kansas, we have access to the major natural gas producing area in south central Kansas. In Texas, we are connected to the major natural gas producing areas in the Texas Panhandle and the Permian Basin, providing for gas to be moved to the Waha Hub where other pipelines may be accessed for transportation east to the Houston Ship Channel market and west to the California market.

The majority of the Transportation and Storage segment’s revenues are derived from services provided to affiliates.

Market Conditions and Seasonality - The Transportation and Storage segment primarily serves local distribution companies (LDCs), large industrial companies, irrigation customers, power generation facilities and marketing companies. We compete directly with other intrastate and interstate pipelines and storage facilities. Competition for transportation services continues to increase as the FERC and state regulatory bodies continue to encourage more competition in the natural gas markets. Factors that affect competition are location, natural gas prices, fee for services and quality of services provided. We believe that our transportation and storage assets enable us to compete effectively.

Our business is affected by the economy, price volatility and weather. The strength of the economy has a direct relationship on manufacturing and the resulting demand for natural gas used in the manufacturing process. Transportation throughput fluctuates due to rainfall that impacts irrigation demand, hot temperatures that affect power generation demand and cold temperatures that affect heating demand. Volatility in the natural gas market also impacts our customers’ decisions relating to injection and withdrawal of natural gas in storage.

Government Regulation - Our transportation assets in Oklahoma, Kansas and Texas are regulated by the OCC, KCC and RRC, respectively. We have flexibility in establishing transportation rates with customers. However, there is a maximum rate that we can charge our customers in Oklahoma and Kansas and if a rate cannot be agreed upon in Texas then the rate is established by the RRC.

In January 2001, our Yaggy storage facility’s operating parameters were changed as mandated by the KDHE following natural gas explosions and eruptions of natural gas geysers in or near Hutchinson, Kansas, which idled 3 Bcf of our storage capacity. In April 2004, we entered into a Consent Order with the KDHE. As a part of the Consent Order, we are to conduct an environmental remediation and a geoengineering study.

Customers - The Transportation and Storage segment serves affiliated companies in the Distribution and Energy Services segments, as well as a number of commercial, industrial, power generation and fertilizer transporters.

Oklahoma Natural Gas and Kansas Gas Service are the Transportation and Storage segment’s major customers for intrastate natural gas pipeline transportation in Oklahoma and Kansas. Capacity in the storage facilities is leased to ONEOK Energy Services, Oklahoma Natural Gas, Kansas Gas Service and third parties under terms determined by contract or the market.

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Distribution

Segment Description - Our Distribution segment provides natural gas distribution services to approximately 2 million customers in Oklahoma, Kansas, and Texas. Operations are conducted through Oklahoma Natural Gas, Kansas Gas Service, and Texas Gas Service, which serve residential, commercial, industrial and transportation customers in all three states. In Oklahoma and Kansas, we also serve wholesale customers and in Texas, we also serve public authority customers. This segment also includes an interstate gas transportation company, OkTex Pipeline.

General - Operating income from the Distribution segment is 22.5 percent, 26.4 percent, and 25.6 percent of the consolidated operating income from continuing operations in 2004, 2003, and 2002, respectively. The Distribution segment has no single external customer from which it receives ten percent or more of consolidated revenues.

In 2004, Oklahoma Natural Gas delivered natural gas to approximately 808,000 customers in 328 communities in Oklahoma. Oklahoma Natural Gas’ largest markets are the Oklahoma City and Tulsa metropolitan areas. Oklahoma Natural Gas also sells natural gas to other local gas distributors serving 40 Oklahoma communities.

In 2004, Kansas Gas Service supplied natural gas to approximately 644,000 customers in 333 communities in Kansas. It also makes wholesale delivery to 16 customers. Kansas Gas Service’s largest markets served include Kansas City, Wichita, and Topeka.

In 2004, Texas Gas Service delivered natural gas to approximately 557,000 customers in 181 communities in Texas. Texas Gas Service’s largest markets served include Austin and El Paso.

On July 1, 2004, Kansas Gas Service and the United Steelworkers of America Locals 12561, 13417, and 14228, the Gas Workers Metal Trades of the United Association of Journeyman and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada Local 781 and the International Union of Operating Engineers Local 126 labor unions agreed to a five-year contract expiring June 30, 2009. Approximately 467 Kansas Gas Service employees are members of these three labor unions, comprising approximately 41 percent of the Kansas Gas Service workforce. The parties agreed to a three percent wage increase effective June 1, 2004 and an increase for each of the next four years as follows:

In 2003, Kansas Gas Service and the International Brotherhood of Electrical Workers labor union entered into a three-year bargaining agreement expiring June 30, 2006. Approximately 351 of our Kansas Gas Service employees are members of this labor union, comprising approximately 31 percent of our Kansas Gas Service workforce. The parties agreed to a two percent wage increase effective July 1, 2004 and an additional two percent wage increase effective July 1, 2005.

Currently, we have no ongoing labor negotiations and there are no other unions representing our employees.

Gas Supply - Gas supplies available to Oklahoma Natural Gas for purchase and resale include supplies of gas under both short and long-term contracts with gas marketers, independent producers and other suppliers. Oklahoma is the third largest gas producing state in the nation. Oklahoma Natural Gas has access to all of the major gas producing areas in Oklahoma through transmission systems belonging to affiliated and nonaffiliated entities. A majority of Oklahoma Natural Gas’ gas supply and transportation contracts were competitively bid and awarded for service beginning in the 2000/2001 heating season for a five-year term. As a result of the process, the majority of Oklahoma Natural Gas’ gas supply and gas transportation needs has been met by two affiliates, ONEOK Energy Services for supply and ONEOK Gas Transportation for upstream transportation service. A portion of the supply contracts expire in 2005. We anticipate renewing or replacing these contracts through a competitive bid process.

Oklahoma Natural Gas has reserved storage capacity of 0.9 Bcf with Southern Star Central Gas Pipeline, Inc. (Southern Star), 5.4 Bcf with an affiliate, and another 4.0 Bcf of additional storage with OGE Energy Resources, Inc., Tenaska Gas Storage LLC, and Enogex, Inc. All of these contracts combined give Oklahoma Natural Gas a reserved storage capacity of approximately 10.3 Bcf. As these contracts expire, we expect to renew or replace the contracts using a competitive bid process.

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In 2004, Kansas Gas Service had reserved capacity of 14.9 Bcf with Southern Star, 0.4 Bcf with Panhandle Eastern Pipeline Company (Panhandle) and 2.4 Bcf with an affiliate. These contracts combined give Kansas Gas Service a reserved storage capacity of approximately 17.7 Bcf.

Kansas Gas Service has long-term gas purchase contracts with BP PLC (BP) for the purpose of meeting the requirements of the customers served over the Southern Star system. We anticipate that these contracts will supply between 70 and 80 percent of Kansas Gas Service’s demand served by the Southern Star system. BP is one of various suppliers over the Southern Star system. Management believes that if these contracts were cancelled the gas supplied by BP could be replaced with gas from other suppliers. Gas available under these contracts that exceeds the needs of our residential and commercial customer requirements is also available for sale to other parties, known as “as available” gas sales.

The remainder of Kansas Gas Service’s gas supply is purchased from a combination of direct wellhead production, natural gas processing plants, natural gas marketers and production companies.

Kansas Gas Service has transportation agreements for delivery of gas with remaining terms of one to 14 years with the following nonaffiliated pipeline transmission companies: Southern Star, Enbridge Pipelines - KPC, Inc., Kinder Morgan Interstate Gas Transmission, L.L.C., Wyoming Interstate Gas Company, Panhandle, Northern Natural Gas Company, Natural Gas Pipeline Company of America and Cheyenne Plains Gas Pipeline Company LLC. Additionally, approximately eight percent of Kansas Gas Service’s transportation service is provided by Mid Continent Market Center, which is an affiliated company.

Kansas Gas Service also has a service agreement with Cheyenne Plains Gas Pipeline Company, LLC for capacity on the Cheyenne Plains pipeline. This pipeline will provide Kansas Gas Service access to the Rocky Mountain gas supply basin, which currently has excess supply. This will facilitate Kansas Gas Service’s ability to maintain a reliable gas source for our current customers through an interconnection with Southern Star and the Kansas Gas Service transmission system. The Cheyenne Plains pipeline originates at the Cheyenne Hub in northeast Colorado and terminates with deliveries to several pipelines in Kansas. This pipeline went into service in December 2004.

The majority of Texas Gas Service’s 2004 gas requirements for its operations were delivered under short and long-term transportation contracts through four major pipeline companies: Enterprise Texas Pipeline L.P., Kinder Morgan Texas Pipeline L.P., El Paso Natural Gas Company, and Houston Pipe Line Company L.P. Texas Gas Service purchases significant volumes of gas under short and long-term arrangements with suppliers. The amounts of such short-term purchases are contingent upon price and demand needs. Texas Gas Service has firm supply commitments that are supplied with gas purchased under short-term and long-term arrangements. Texas Gas Service also holds rights to 5.2 Bcf of a combination of storage capacity and pipeline operational balancing capacity that acts as storage to assist in meeting peak demands in El Paso, Austin and Breckenridge service areas.

Texas Gas Service is committed under various agreements to purchase certain quantities of gas in the future. These commitments may extend over a period of several years depending upon the terms in each gas supply contract.

There is an adequate supply of natural gas available to our utility systems, and we do not anticipate problems with securing additional gas supply as needed for our customers. However, if supply shortages occur, Oklahoma Natural Gas’ rate schedule “Order of Curtailment” and Kansas Gas Service’s rate order “Priority of Service” provide for first reducing or totally discontinuing gas service to large industrial users and graduating down to requesting residential and commercial customers to reduce their gas requirements to an amount essential for public health and safety. Texas Gas Service gas transportation contracts with interruption provisions require large volume users to purchase their gas with the understanding that they may be forced to shut down or switch to alternate sources of energy at times when the gas is needed for higher priority customers. In addition, during times of special supply problems, curtailments of deliveries to customers with firm contracts may be made in accordance with guidelines established by appropriate federal, state and local regulatory agencies.

Residential and Commercial Customers - Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service distribute natural gas as public utilities to approximately 86 percent, 71 percent and 14 percent of Oklahoma’s, Kansas’ and Texas’ distribution markets, respectively. Natural gas sold to residential and commercial customers, which is used primarily for heating and cooking, accounts for approximately 68 and 22 percent of gas sales, respectively, in Oklahoma, 58 and 16 percent of gas sales, respectively, in Kansas, and 64 and 23 percent of gas sales, respectively, in Texas.

A franchise, although nonexclusive, is a right to use the municipal streets, alleys, and other public ways for utility facilities for a defined period of time for a fee. Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service hold franchises in 40, 280 and 83 municipalities, respectively. In management’s opinion, our franchises contain no unduly burdensome restrictions and are sufficient for the transaction of business in the manner in which it is now conducted.

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Industrial Customers - Under our transportation tariffs, qualifying industrial and commercial customers are able to purchase gas from the supplier of their choice and have it transported for a fee by Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service.

Because of increased competition for the transportation of gas to commercial and industrial customers, some of these customers may be lost to affiliated or unaffiliated transporters. If the Transportation and Storage segment gained some of this business, it would result in a shift of some revenues from the Distribution segment to the Transportation and Storage segment.

Market Conditions and Business Seasonality - The natural gas industry is expected to remain highly competitive resulting from initiatives being pursued by the industry and regulatory agencies that allow industrial and commercial customers increased options for energy supplies and service. We believe that we must maintain a competitive advantage in order to retain our customers and, accordingly, we focus on providing reliable, efficient service and reducing costs.

The Distribution segment is subject to competition from other pipelines for our existing industrial load. Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service compete for service to the large industrial and commercial customers and competition continues to lower rates. A portion of Oklahoma Natural Gas’ and Kansas Gas Service’s transportation services are at negotiated rates that are generally below the approved transportation tariff rates, and increased competition potentially could lower these rates. In Texas Service’s service area, transportation service is negotiated only when a competitive pipeline is in proximity to bypass Texas Gas Service or another energy option is available. Any negotiated transportation service contract is filed under a separate, confidential tariff at the RRC. Industrial and transportation sales volumes tend to remain relatively constant throughout the year.

Gas sales to residential and commercial customers are seasonal, as a substantial portion of gas is used principally for heating. Accordingly, the volume of gas sales is consistently higher during the heating season (November through March) than in other months of the year. Oklahoma Natural Gas’ and Kansas Gas Service’s tariff rates include a temperature normalization adjustment clause during the heating season, which mitigates the effect of fluctuations in weather. Additionally, with prior KCC approval, Kansas Gas Service has a gas hedging program in place to reduce volatility in the gas price paid by consumers. The costs of this program are borne by the Kansas Gas Service customers. Approximately 83 percent of Texas Gas Service’s revenues are protected from abnormal weather due to a flat fee rate or a weather normalization adjustment clause. Texas Gas Service’s weather normalization adjustment clause is in 19 Texas towns and cities, including Austin, Galveston and Mineral Wells, to stabilize earnings and neutralize the impact of unusual weather on customers. A flat monthly fee is included in the authorized rate design for El Paso and Port Arthur to protect customers from abnormal weather. From time to time, Texas Gas Service uses derivative instruments to mitigate the volatility of the cost of gas to protect its customers in the city of El Paso.

Government Regulation - Rates charged for gas services are established by the OCC for Oklahoma Natural Gas and by the KCC for Kansas Gas Service. Texas Gas Service is subject to regulatory oversight by the various municipalities that it serves, which have primary jurisdiction in their respective areas. Rates in areas adjacent to the various municipalities and appellate matters are subject to regulatory oversight by the RRC. Gas purchase costs are included in the Purchased Gas Adjustment (PGA) clause rate that is billed to customers. Our distribution companies do not make a profit on the cost of gas. Other changes in costs must be recovered through periodic rate adjustments approved by the OCC, KCC, RRC and various municipalities in Texas. See pages 43-44 for a detailed description of our various regulatory initiatives.

Oklahoma Natural Gas has settled all known claims arising out of long-term gas supply contracts containing “take-or-pay” provisions that purport to require us to pay for volumes of natural gas contracted for but not taken. The OCC has authorized recovery of the accumulated settlement costs over a 20-year period expiring in 2014, or approximately $7.0 million annually, through a combination of a surcharge from customers, revenue from transportation under Section 311(a) of the NGPA and other intrastate transportation revenues. There are no significant potential claims or cases pending against us under “take-or-pay” contracts.

OkTex Pipeline transports gas in interstate commerce under blanket authority of the FERC and is treated as a separate entity by the FERC. Accordingly, OkTex Pipeline is subject to the regulatory jurisdiction of the FERC under the NGPA with respect to rates, accounts and records, the addition of facilities, the extension of services in certain cases, the abandonment of services and facilities, the curtailment of gas deliveries and other matters. OkTex Pipeline has the capacity to move up to 1,100 MMcf/d.

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Energy Services

Segment Description - Our Energy Services segment conducts its business through ONEOK Energy Services and its subsidiaries. ONEOK Energy Services is actively engaged in the marketing and trading of natural gas to both wholesale and retail customers throughout the United States using gas storage and pipeline capacity, including firm transportation capacity, leased from related parties and others. The combination of owning supply and controlling strategic assets allows us to provide customers with enhanced services in return for premium value. This combination also allows us to capture incremental value from the volatility in the energy markets.

We have a large leased storage and pipeline capacity position, primarily in the mid-continent region of the United States, with total transportation capacity of 1.7 Bcf/d. With total cyclical storage capacity of 83.5 Bcf, maximum withdrawal capability of 2.3 Bcf/d and maximum injection capability of 1.5 Bcf/d spread across 18 different facilities, we have direct access to most regions of the country and flexibility to capture volatility in the energy markets. We recently extended our energy services operations into Canada by leasing storage and pipeline capacity in Canada, allowing us to bring gas supply from western Canada into the market areas of the upper Midwestern and Northeastern parts of the United States. We also trade power on a smaller scale.

General - Operating income from our Energy Services segment is 28.1 percent, 44.2 percent, and 48.9 percent of our consolidated operating income from continuing operations in 2004, 2003, and 2002, respectively. A $14.0 million gain related to the sale of Enron claims is included in 2002. In 2004, we were required to repurchase a portion of the Enron claims and we are now providing the defense in two Enron related matters. See Item 3, Legal Proceedings in this Form 10-K for additional discussion. In 2004, the Energy Services segment had one customer, BP, from which it received $664.4 million, or approximately 11 percent, of consolidated revenues. We maintain a reasonable, balanced position with BP in order to minimize our credit exposure. Our exposure is also mitigated by existing netting arrangements. A significant supply agreement with BP expires in May 2005. The net margin impact would be minimal if the agreement is not extended and we no longer conduct business with BP. In 2003 and 2002, the Energy Services segment had no single external customer from which it received ten percent or more of consolidated revenues.

At the beginning of the third quarter of 2004, we completed a reorganization of our Energy Services segment and renewed our focus on our physical marketing and storage business. We separated the management and operations of our wholesale marketing, retail marketing and financial trading activities and began accounting separately for the different types of revenue earned from these activities. Prior to the third quarter, we managed the Energy Services segment on an integrated basis and presented all energy trading activity on a net basis, in the Consolidated Statements of Income.

We continue to enhance our customer-focused strategy by providing reliable service during peak demand periods through the use of our storage and transportation capacities. The physical and financial energy services we provide help our customers execute their commodity procurement and asset management strategies.

Through our wholesale and retail marketing, trading and risk management capabilities, we provide commodity-diverse products and services designed to meet each of our customers’ needs. Our retail operations successfully expanded throughout much of the United States.

In October 2003, we signed a tolling arrangement with a third party for their power plant in Big Springs, Texas, which is connected to our gas transmission system. The agreement, which expires in December 2005, allows us to sell the steam and power generated in the Electric Reliability Council of Texas (ERCOT). This agreement increased our owned or contracted power capacity from 300 to 512 megawatts.

ONEOK Energy Services was the successful bidder to supply gas to Oklahoma Natural Gas, an affiliated company, for its gas sales requirements for five years beginning in November 2000. In response, we entered into firm supply arrangements with major producers and large independents that average in length from two to five years.

Market Conditions and Business Seasonality - In response to a very competitive marketing environment resulting from deregulation of the retail natural gas markets and the restructuring of the U.S. retail and wholesale electricity markets, our strategy is to concentrate our efforts on providing reliable service during peak demand periods and capture opportunities created by short-term pricing volatility through our leased storage, generation and transportation assets. We focus on building and strengthening supplier and customer relationships to execute our strategy.

Due to seasonality of supply and demand balances, earnings will be significantly higher during the winter months than the summer months. The Energy Services segment’s margins are subject to fluctuations during the year primarily due to the impact certain seasonal factors have on sales volumes and the price of natural gas, electricity, and crude oil. Natural gas sales

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volumes are typically higher in the winter heating months than in the summer months, reflecting increased demand due to greater heating requirements and, typically, higher natural gas prices that occur during the winter heating months.

Risk Management - In order to mitigate the risks associated with our energy marketing and trading activities, we manage our portfolio of contracts and its assets in order to maximize value, minimize the associated risks and provide overall liquidity. In doing so, we use price risk management instruments, including swaps, options, futures and physical commodity-based contracts to manage exposures to market price movements. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk and Note D of Notes to Consolidated Financial Statements in this Form 10-K for further discussion.

Other

Segment Description - The primary companies in our Other segment include Northern Plains, which owns a 2.73 percent interest in Northern Border Partners, ONEOK Leasing Company and ONEOK Parking Company. Northern Plains was acquired in November 2004 and was not material to us in 2004. Through ONEOK Leasing Company and ONEOK Parking Company, we own a parking garage and lease an office building (ONEOK Plaza) in downtown Tulsa, Oklahoma, where our headquarters are located. ONEOK Leasing Company leases excess office space to others and operates our headquarters office building. ONEOK Parking Company owns and operates a parking garage adjacent to our corporate headquarters.

General - The Other segment has no single external customer from which it receives ten percent or more of consolidated revenues.

On March 15, 2002, Magnum Hunter Resources (MHR) merged with Prize Energy Corp., which reduced our direct ownership to approximately 11 percent. During the second quarter of 2002, we sold our remaining shares of MHR common stock for a pretax gain of approximately $7.6 million, which is included in other income in 2002. We retained approximately 1.5 million stock purchase warrants with an exercise price of $15 per share, which we exchanged for 1.5 million shares of MHR common stock in February 2005.

Segment Financial Information - For financial and statistical information regarding our business units by segment, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note N of Notes to the Consolidated Financial Statements in this Form 10-K.

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Executive Officers

All executive officers are elected at the annual meeting of directors and serve for a period of one year or until successors are duly elected.

No family relationships exist between any of the executive officers, nor is there any arrangement or understanding between any executive officer and any other person pursuant to which the officer was selected.

ITEM 2. PROPERTIES

DESCRIPTION OF PROPERTIES

Production

We own varying economic interests, including working, royalty and overriding royalty interests in 885 gas wells and 90 oil wells that are related to both our Oklahoma and Texas operations, some of which are in multiple producing zones. We own 91,908 net onshore developed leasehold acres and 9,721 net onshore undeveloped acres located in Oklahoma and Texas. We do not own any offshore acreage.

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Gathering and Processing

We own and operate, lease and operate, or own an interest in natural gas processing plants in Oklahoma, Kansas and Texas with active processing capacity of approximately 1.8 Bcf/d. We own a total of approximately 13,800 miles of gathering pipelines that supply our gas processing plants.

Our natural gas processing operations utilize two types of gas processing plants - field plants and straddle plants. Processing plants extract NGLs and remove water vapor and other contaminants from the raw natural gas stream. Field plants, representing 42 percent of our processing capacity, are located in Texas, Oklahoma and Kansas and aggregate gathered volumes of unprocessed gas from multiple producing wells into quantities that can be processed. Straddle plants, representing about 58 percent of our processing capacity, are situated on mainline natural gas pipelines in Kansas and allow us to extract NGLs under contract from a natural gas stream.

We own and operate two NGL storage facilities in Kansas. We have recently completed the construction of an NGL pipeline joining our two storage facilities and now operate over 160 miles of NGL pipelines in Kansas. The total capacity of the facilities is approximately 16 MMBbls. We own and operate two fractionation facilities, one in Oklahoma and one in Kansas. The total fractionation capacity of the two facilities is approximately 89 MBbls/d.

Transportation and Storage

We own approximately 5,600 miles of transmission pipeline with approximately 3,000 miles in Oklahoma, approximately 200 miles in Kansas, and approximately 2,400 miles in Texas. We have a peak transportation capacity of 2.9 Bcf/d and have compression and dehydration facilities located at various points throughout the pipeline system.

In addition, we own or reserve capacity in five underground storage facilities in Oklahoma, three storage facilities in Kansas and three storage facilities in Texas. The storage facilities primarily consist of land and leasehold agreements with mineral and surface owners, wells and equipment, rights of way, and cushion gas. The total working storage capacity of these facilities is approximately 59.6 Bcf, of which 8.0 Bcf is currently idle. Four of the Oklahoma storage facilities are located in close proximity to large market areas.

Our transportation and storage facilities have interconnects with 31 different intrastate and interstate companies at 109 interconnect points, connecting 37 processing plants and approximately 139 producing fields, providing our customers with access to multiple markets and allowing gas to be moved throughout the mid-continent and west Texas areas.

Distribution

We own approximately 17,500 miles of pipeline and other distribution facilities in Oklahoma, approximately 12,300 miles of pipeline and other distribution facilities in Kansas and approximately 8,500 miles of pipeline and other distribution facilities in Texas. We own a number of warehouses, garages, meter and regulator houses, service buildings and other buildings throughout Oklahoma, Kansas and Texas. We also own or lease a fleet of trucks and maintain an inventory of spare parts, equipment and supplies.

Energy Services

We own a 300-megawatt gas-fired merchant power plant located in Logan County, Oklahoma adjacent to an affiliate’s gas storage facility. This plant is configured to supply electric power during peak periods with four gas-powered turbine generators.

Other

We own a parking garage and land, subject to a long-term ground lease. Located on this land is a seventeen-story office building with approximately 517,000 square feet of net rentable space. We also lease our office building under a lease term that expires in 2009 with six five-year renewal options. After the primary term or any renewal period, we can purchase the property at its fair market value. We occupy approximately 232,000 square feet for our own use and lease the remaining space to others.

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GAS AND OIL RESERVES

As defined by the SEC, gas and oil production includes NGLs in their natural state. Our Gathering and Processing segment produces NGLs. The SEC excludes the production of NGLs resulting from the operations of gas processing plants as gas and oil activity. Accordingly, the following tables exclude information concerning the production of NGLs by our processing operations.

As of December 31, 2004, all of the gas and oil reserves for our Production segment are located in Oklahoma and Texas.

For quantities of our gas and oil reserves and the present value of estimated future net margins from our gas and oil reserves, see Notes T and U of the Notes to Consolidated Financial Statements included within this Annual Report on Form 10-K.

We report our proved reserves on our operated gas and oil properties to the Energy Information Agency. These reported reserves are the same as the proved reserve amounts for these same properties used in our disclosures to the SEC, prior to applying the net ownership to the properties. We do not file our reserve estimates with any other governmental agency.

Quantities of Gas and Oil Produced

The following table sets forth the net quantities of natural gas and oil produced and sold, including intercompany transactions for the Production segment, for the periods indicated.

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Average Sales Price and Production (Lifting) Costs

The following table sets forth the average sales prices and production costs for our Production segment for the periods indicated.

Wells and Developed Acreage

The following table sets forth the gross and net wells in which the Production segment had an interest at December 31, 2004.

Gross developed acres and net developed acres by well classification are not available. Gross developed acres for both gas and oil are 166,021 acres. Net developed acres for both gas and oil are 91,908 acres.

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Undeveloped Acreage

The following table sets forth the gross and net undeveloped leasehold acreage for our Production segment at December 31, 2004.

Of the net undeveloped acres, approximately 99 percent are in the Anadarko Basin and Anadarko Shelf area of Oklahoma. The balance is located in Gregg and Upshur counties in east Texas.

Net Development Wells Drilled

The following table sets forth the net interest in total development wells drilled, by well classification, for our Production segment for the periods indicated.

We did not drill any exploratory wells in 2004, 2003 or 2002.

Present Drilling Activities

At December 31, 2004, the Production segment was participating in the drilling of six wells. Our net interest in these wells amounts to 1.7 wells.

Future Obligations to Provide Gas and Oil

Our Production segment does not have any future obligations to provide gas and oil.

ITEM 3. LEGAL PROCEEDINGS

United States ex rel. Jack J. Grynberg v. ONEOK, Inc., et al., No. CIV-97-1006-R, United States District Court for the Western District of Oklahoma, transferred, In re Natural Gas Royalties Qui Tam Litigation, MDL Docket No. 1293, United States District Court for the District of Wyoming. We, along with two of our subsidiaries, were served on June 21, 1999 as defendants in an action brought under the False Claims Act by Mr. Grynberg, ostensibly on behalf of the United States. Approximately 70 other substantially identical lawsuits were filed against other companies in the natural gas industry. The main claim against the defendants alleges that they intentionally provided false information to the government concerning the volume and heating content of natural gas produced from lands in which the Federal Government or Native Americans owned the royalty rights. Grynberg seeks to recover $5,000 to $10,000 for each violation of the False Claims Act as well as treble damages for any underpayment. The actions brought by Grynberg have been transferred to the United States District Court for the District of Wyoming for coordination of pretrial proceedings. That Court overruled the defendants’ initial motion to dismiss, but granted the motion of the United States to dismiss certain portions of the complaints. On June 4, 2004, we joined with the numerous other defendants in filing a motion to dismiss contending that Grynberg has not satisfied the unique jurisdictional prerequisites for maintaining an action under the False Claims Act. The motion to dismiss is set for hearing in March 2005.

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Will Price, et al. v. Gas Pipelines, et al. (f/k/a Quinque Operating Company, et al. v. Gas Pipelines, et al.), 26th Judicial District, District Court of Stevens County, Kansas, Civil Department, Case No. 99C30 (“Price I”). Plaintiffs brought suit on May 28, 1999 against us, five of our subsidiaries and one of our divisions as well as approximately 225 other defendants. Plaintiffs sought class certification for its claims that the defendants had underpaid gas producers and royalty owners throughout the United States by intentionally understating both the volume and the heating content of purchased gas. After extensive briefing and a hearing, the Court refused to certify the class sought by plaintiffs. Plaintiffs then filed an amended petition limiting the purported class to gas producers and royalty owners in Kansas, Colorado and Wyoming and limiting the claim to undermeasurement of volumes. The Plaintiffs’ Motion to Certify this suit as a class action is set for hearing on April 1, 2005.

Will Price and Stixon Petroleum, et al. v. Gas Pipelines, et al., 26th Judicial District, District Court of Stevens County, Kansas, Civil Department, Case No. 03C232 (“Price II”). This action was filed by the plaintiffs on May 12, 2003, after the Court had denied class status in Price I. Plaintiffs claim that 21 groups of defendants, including us and four of our subsidiaries, intentionally underpaid gas producers and royalty owners by understating the heating content of purchased gas in Kansas, Colorado and Wyoming. Price II has been consolidated with Price I for the determination of whether either or both cases may properly be certified as class actions. The Plaintiffs’ Motion to Certify this suit as a class action is set for hearing on April 1, 2005.

In the Matter of the Natural Gas Explosion at Hutchinson, Kansas during January, 2001, Case No. 02-E-0155, before the Secretary of the Kansas Department of Health and Environment. On July 23, 2002 the Division of Environment of the Kansas Department of Health and Environment (“KDHE”) issued an administrative order which assessed a $180,000 civil penalty against our Kansas Gas Service division. The penalty was based upon allegations of violations of various KDHE regulations relating to our operation of hydrocarbon storage wells, monitoring requirements applicable to stored hydrocarbon products, and spill reporting in connection with the gas explosion at our Yaggy gas storage facility in Hutchinson, Kansas in January 2001. In addition, the order required us to monitor existing unplugged vent wells, drill additional observation, monitoring and vent wells as directed by the KDHE, perform cleanup activities relating to certain brine wells, and prepare a geoengineering plan with respect to the Yaggy gas field. On April 5, 2004, we entered into a Consent Order with the KDHE in which we paid a civil penalty in the amount of $180,000 and reimbursed the KDHE for its costs related to the investigation of the incident in the amount of approximately $79,000. Remediation required under the consent order is ongoing.

Loyd Smith, et al v. Kansas Gas Service Company, Inc., ONEOK, Inc., Western Resources, Inc., Mid Continent Market Center, Inc., ONEOK Gas Storage, L.L.C., ONEOK Gas Storage Holdings, Inc., and ONEOK Gas Transportation, L.L.C., Case No. 01-C-0029, in the District Court of Reno County, Kansas, and Gilley et al. v. Kansas Gas Service Company, Western Resources, Inc., ONEOK, Inc., ONEOK Gas Storage, L.L.C., ONEOK Gas Storage Holdings, Inc., ONEOK Gas Transportation L.L.C. and Mid Continent Market Center, Inc., Case No. 01-C-0057, in the District Court of Reno County, Kansas. Two separate class action lawsuits were filed against us and several of our subsidiaries in early 2001 relating to certain gas explosions in Hutchinson, Kansas. The court certified two separate classes of claimants, which included all owners of residential real estate in Reno County, Kansas whose property had allegedly declined in value, and owners of businesses in Reno County whose income had allegedly suffered. Both cases were adjudicated in September 2004 and resulted in jury verdicts. In the class action relating to the residential claimants, the jury awarded $5 million in actual damages, which is covered by insurance. In the business owners’ class action, the jury rendered a defense verdict awarding no actual damages. The jury rejected claims for punitive damages in both cases. In a separate hearing on Plaintiffs’ attorney fees, the Judge awarded $2,047,406 in fees and $646,090.78 in expenses, which is also covered by insurance. We are reviewing our options for appeal of the residential claimants’ class action verdict and subsequent award of attorney fees. With the exception of a related lawsuit that was filed in Sedgwick County, Kansas, which is now on appeal (see Note L of the Notes to Consolidated Financial Statements included in this Form 10-K for additional discussion on this matter), all other litigation regarding the gas explosions has been resolved.

Loyd Smith, et al v. Kansas Gas Service Company, Inc., ONEOK, Inc., Western Resources, Inc., Mid Continent Market Center, Inc., ONEOK Gas Storage, L.L.C., ONEOK Gas Storage Holdings, Inc., and ONEOK Gas Transportation, L.L.C., Case No. 03-C-0029, in the District Court of Reno County, Kansas. This class action lawsuit was filed against us, several of our subsidiaries, and others on January 17, 2003 relating to the same gas explosions in Hutchinson, Kansas referenced in the above paragraph. The petition seeks recovery on behalf of the residents of Reno County, Kansas, who have suffered or will suffer damage and/or economic losses relating to personal property and displacement costs as a result of the explosion. We have never been served in this matter.

Cornerstone Propane Partners, L.P., et al. v. E Prime, Inc., ONEOK Energy Marketing and Trading Company, L.P., ONEOK, Inc., and Calpine Energy services, L.P., United States District Court for the Southern District of New York, Case No. 04-CV-00758. We and our wholly owned subsidiary, ONEOK Energy Services, L.P. (formerly ONEOK Energy Marketing and Trading Company, L.P.) were named as two of the defendants in the above-captioned lawsuit filed February

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2, 2004 in the United States District Court for the Southern District of New York brought on behalf of persons who bought and sold natural gas futures and options contracts on the New York Mercantile Exchange during the years 2000 through 2002. The Complaint seeks class certification, actual damages in unspecified amounts for alleged violations of the Commodities Exchange Act, recovery of costs of the suit, including attorney’s fees, and other appropriate relief. On August 17, 2004, this case was consolidated for all purposes with a related lawsuit which names a number of other defendants in the energy industry. Plaintiffs in the related case assert allegations similar to those alleged against us in this case. As of this date no class has been certified and discovery is commencing.

Enron Corp. v. Silver Oak Capital, LLC and AG Capital Recovery Partners III, LP, Adversary Proceeding No. 03-93568, relating to Case No. 01-16034, in the United States Bankruptcy Court for the Southern District of New York. Enron Corp. filed a complaint on November 28, 2003 against Silver Oak Capital, LLC and AG Capital Recovery Partners III, LP (“AG”), instituting an adversary proceeding seeking to avoid as a fraudulent transfer, under Section 548 of the Bankruptcy Code, certain guaranties of obligations of Enron North America Corp. (“ENA”) that Enron Corp. issued to one of our subsidiaries, ONEOK Energy Services, L.P. (formerly ONEOK Energy Marketing and Trading Company, L.P.). At that time, AG was the owner of claims filed in the bankruptcies of Enron Corp. and ENA that ONEOK Energy Services, L.P. originally sold on a recourse basis to Bear Stearns & Co. Inc. in May 2002 (the “Claims”). The filing of that complaint triggered repurchase obligations that ONEOK Energy Services, L.P. honored in April 2004, and accordingly ONEOK Energy Services, L.P. purchased from AG $25 million of the Claims against Enron Corp. (the “Repurchased Claims”). ONEOK Energy Services, L.P. now owns and is enforcing the Repurchased Claims in the Enron bankruptcy case, and ONEOK Energy Services, L.P. is also defending the adversary proceeding. Additionally, Enron Corp. and ENA have filed separate objections to a portion of the Claims, alleging that the applicable proofs of claim, as filed by AG, were overstated. The filing of those objections may trigger obligations of ONEOK Energy Services, L.P. to repurchase additional portions of the Claims (the “Additional Contested Claims”), which ONEOK Energy Services, L.P. would then enforce in the same manner as the Repurchased Claims. If ONEOK Energy Services, L.P. did repurchase some or all of the Additional Contested Claims, it would then potentially be entitled to distributions under the confirmed Enron bankruptcy plan on account of those claims that would be less than the amount for which ONEOK Energy Services, L.P. might have to repurchase the Additional Contested Claims.

Samuel P. Legget, et al. v. Duke Energy Corporation et al; Case No. 13847 in the Chancery Court of Tennessee for the Twenty-Fifth Judicial District at Somerville. This action was filed against us and our wholly owned subsidiary, ONEOK Energy Services Company (formerly ONEOK Energy Marketing and Trading Company, L.P.) and several other energy trading companies on January 28, 2005. The lawsuit seeks a class certification of residential and business classes in Tennessee for recovery of damages based upon allegations of conspiracy to violate the Tennessee Trades Practices Act and injunctive relief.

In the Matter of the Application of Oklahoma Natural Gas Company, a Division of ONEOK, Inc., for a Review and Change or Modification in its Rates, Charges, Tariffs and Terms and Conditions of Service, Oklahoma Corporation Commission, Cause No. PUD 200400610. On January 28, 2005, Oklahoma Natural Gas Company, a division of ONEOK, Inc., filed an application at the Oklahoma Corporation Commission (the “OCC”) requesting annual rate relief of approximately $99.4 million, of which $38.5 million would be paid in additional income taxes. This amount includes $10.7 million of interim rate relief granted by the OCC in January 2004. Pursuant to Oklahoma statute, the OCC must hear the case and issue an order within 180 days of the date of filing. If an order does not issue within the required period, Oklahoma Natural Gas may place the rate increase into effect, subject to refund.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of our security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report.

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PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information and Holders

Our common stock is listed on the New York Stock Exchange under the trading symbol OKE. The corporate name ONEOK is used in newspaper stock listings. The following table sets forth the high and low closing prices of our common stock for the periods indicated.

There were 14,748 holders of record of our common stock at February 28, 2005.

Dividends

The following table sets forth the quarterly dividends paid on our common stock during the periods indicated.

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Equity Compensation Plan Information

The following table sets forth certain information concerning our equity compensation plans as of December 31, 2004.

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Issuer Purchases of Equity Securities

The following table sets forth information relating to our recent purchases of our common stock.

53,890 shares for the period October 1-31, 2004

20,859 shares for the period November 1-30, 2004

19,848 shares for the period December 1-31, 2004

five shares for the period October 1-31, 2004

77 shares for the period November 1-30, 2004

137 shares for the period December 1-31, 2004

Employee Stock Award Program

Under our Employee Stock Award Program, we issued, for no consideration, to all eligible employees (all full-time employees and employees on short-term disability) one share of our common stock when the closing price of our common stock on the New York Stock Exchange (NYSE) was for the first time at or above $26 per share, and we will issue, for no consideration, one additional share of our common stock to all eligible employees when the closing price on the NYSE is for the first time at or above each one dollar increment above $26 per share. A total of 50,000 shares of our common stock are reserved for issuance under this program.

The following table sets forth information on the number of shares issued under this program during 2004.

On February 4, 2005, our stock closed at $29.00 per share which resulted in 4,637 shares being issued to eligible employees.

The issuance of shares under this program has not been registered under the Securities Act of 1933, as amended (1933 Act) in reliance upon SEC releases, including Release No. 6188, dated February 1, 1980, stating that there is no sale of the shares in the 1933 Act sense to employees under this type of program.

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ITEM 6. SELECTED FINANCIAL DATA

In accordance with a pronouncement of the Financial Accounting Standards Board’s (FASB) Staff at the Emerging Issues Task Force (EITF) meeting in April 2001, codified as EITF Topic No. D-95 (Topic D-95) and subsequently superceded by EITF Issue No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128”, we revised our computation of earnings per common share (EPS). We restated the EPS amounts for all periods to be consistent with the revised methodology. See Note R of the Notes to our Consolidated Financial Statements in this Form 10-K.

In February 2003, we purchased approximately 9 million shares of our Series A Convertible Preferred Stock (Series A) from Westar and exchanged the remaining 10.9 million shares of Series A for 21.8 million shares of Series D Convertible Preferred Stock (Series D) reflecting the two-for-one stock split in 2001. The Series D had a fixed annual cash dividend rate of 92.5 cents per share. As a result of this transaction, the EITF for participating securities no longer applied to our computation of EPS beginning in February 2003. In November 2003, the Series D was converted to common stock and sold to the public by Westar. Effective January 6, 2004 the Series D was retired. There are no shares of Series A currently outstanding.

The following table sets forth our selected financial data for each of the periods indicated.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Executive Summary

We are a diversified energy company with nearly a century of experience in the natural gas business. Since 1906, we have grown from an Oklahoma intrastate natural gas pipeline business to an integrated natural gas company with operations throughout the mid-continent area of the United States and, more recently, in Canada.

The following discussion highlights some of our achievements and significant issues affecting us this past year. You should read the relevant sections of Management’s Discussion and Analysis and the Financial Statements for a complete explanation of the following items.

In 2004, we saw our income from continuing operations increase to $242.2 million from $214.3 million in 2003, a 13 percent increase. Operating income increased to $490.0 million in 2004 from $446.1 million in 2003, and cash flow from operations increased to $204.8 million in 2004 from $0.7 million in 2003. Our dividend was increased each quarter during 2004, to a current annual dividend of $1.00 per share of common stock. This follows two increases in our dividend during 2003.

EPS is one of the key indicators that we use to evaluate our success. Other key indicators that we use are shareholder appreciation as compared to our peer companies and return on invested capital.

Our business strategy is focused on the maximization of shareholder value by integrating our natural gas business operations. We expect to continue evaluating and assessing acquisition opportunities to further complement our existing asset base. We also, from time to time, sell assets when deemed less strategic or as other conditions warrant.

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The contribution to our earnings from the gas and oil reserves we acquired in December 2003 was primarily responsible for the $31.7 million increase in operating income in our Production segment.

In 2004, our gathering and processing segment increased operating income by $68.3 million over 2003, or an increase of 109 percent. This followed an 89 percent increase in 2003 over 2002. The third and fourth quarter of 2004 had the most favorable pricing environment for natural gas and NGL products as any period in the last five years.

In November 2004, we closed the purchase of Northern Plains and became the holder of the majority of the general partnership interest in the limited partnership. We will operate more than $2.5 billion of assets in a mix of mostly natural gas assets, including interstate pipelines, gathering pipelines and processing plants located in an area stretching from the Canadian Border and the Rockies to the upper Midwest.

We filed for $99.4 million in rate relief in Oklahoma on January 28, 2005, of which $38.5 million would be paid in additional income taxes. This amount includes $10.7 million of the interim rate relief granted in January 2004. We have not had an increase to our base rates in Oklahoma since 1995. Under Oklahoma state law, the OCC has 180 days to conduct a review and issue an order in response to our application. This means that any approved rate relief would be in effect prior to the 2005/2006 heating season.

The September 2003 rate increase in Kansas was in effect for the entire 2004 year. This provided $16.2 million in additional operating income, as compared to 2003, which included the rate increase for a portion of the year.

A reorganization in the Energy Services segment at July 1, 2004, changed the way we do business and present revenues in that segment. As a result of separating the management and operations of our physical marketing, retail marketing and financial trading activities, we began accounting separately for the different types of revenue earned from these activities.

Significant Acquisitions and Divestitures

In November 2004, we acquired Northern Plains, which owns 82.5 percent of the general partnership interest and 500,000 limited partnership units, together representing a 2.73 percent ownership interest, in Northern Border Partners, from CCE Holdings, LLC for $175 million. Income derived from this investment is included in other income in our Other segment.

In March 2004, we sold certain natural gas transmission and gathering pipelines and compression facilities for approximately $13 million and recorded a pre-tax gain of $6.9 million, which is included in other income in our Transportation and Storage segment.

In December 2003, we acquired approximately $240 million of Texas gas and oil properties and related flow lines from a partnership owned by Wagner & Brown, Ltd. of Midland, Texas. The results of operations for these assets have been included in our consolidated financial statements since that date. The acquisition included approximately 318 wells, 271 of which we operate, and 177.2 Bcfe of estimated proved gas and oil reserves as of the September 1, 2003 effective date, with additional probable and possible reserve potential. Net production from these properties is approximately 26,000 Mcfe per day.

In December 2003, we acquired NGL storage and pipeline facilities located in Conway, Kansas for approximately $13.7 million from ChevronTexaco. In the prior two years, we had leased and operated these facilities.

In January 2003, we sold approximately 70 percent of the natural gas and oil producing properties of our Production segment for a cash sales price of $294 million, including adjustments. The properties sold were in Oklahoma, Kansas and Texas. The effective date of the sale was November 30, 2002. The sale included approximately 1,900 wells, 482 of which we operated. We recorded a pretax gain of approximately $61.2 million in 2003 related to this sale. The statistical and financial information related to the properties sold is reflected as a discontinued component in this Annual Report on Form 10-K. All periods presented have been restated to reflect the discontinued component.

In January 2003, we acquired the Texas gas distribution business and other Texas assets from Southern Union. The results of operations for these assets have been included in our consolidated financial statements since that date. We paid approximately $436.6 million for these assets, including $16.6 million in working capital adjustments. The primary assets acquired were gas distribution operations that currently serve approximately 557,000 customers in cities located throughout Texas, including the major cities of El Paso and Austin, as well as the cities of Port Arthur, Galveston, Brownsville and others. Over 90 percent of the customers are residential. The other assets acquired include a 125-mile natural gas transmission system, as well as other energy-related domestic assets involved in gas marketing, retail sales of propane and distribution of propane. The purchase also included natural gas distribution investments in Mexico. The assets relating to the

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propane distribution operations were sold in May and July 2004 and the natural gas distribution investments in Mexico were sold in May 2004. Texas Gas Service operated these assets.

In December 2002, we sold a portion of our midstream natural gas assets for a cash sales price of approximately $92 million to an affiliate of Mustang Fuel Corporation, a private, independent oil and gas company. We recorded a loss of approximately $3.7 million in 2002 related to this sale. The assets that were sold are located in north central Oklahoma and include three natural gas processing plants and related gathering systems and our interest in a fourth natural gas processing plant.

Regulatory

Several regulatory initiatives positively impacted the earnings and future earnings potential for the Distribution segment. These are discussed beginning on pages 43-44.

Off-Balance Sheet Arrangements

We lease various buildings, facilities and equipment, which are accounted for as operating leases. We lease vehicles, which are accounted for as operating leases for financial purposes and capital leases for tax purposes. For a summary of scheduled future payments, see Contractual Obligations and Commercial Commitments on page 51.

Other

On January 1, 2003, we adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (Statement 148) and began expensing the fair value of all stock options beginning with options granted on or after January 1, 2003 under the prospective method allowed by Statement 148. See Note A of the Notes to Consolidated Financial Statements in this Form 10-K for disclosure of our pro forma net income and EPS information had we applied the fair value provisions for options granted for the year ended December 31, 2002.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (Statement 123R). Statement 123R requires companies to expense the fair value of share-based payments. In addition, there are also changes related to the share-based payment expense calculation. Statement 123R is effective for the interim period beginning after June 15, 2005. We are currently assessing the impact of adopting Statement 123R, but we do not believe it will have a material impact on our financial condition and results of operations as we have been expensing share-based payments since the adoption of Statement 148 on January 1, 2003.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America and included in this report on Form 10-K. Certain amounts included in or affecting our financial statements and related disclosure must be estimated, requiring us to make certain assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. Therefore, the reported amounts of our assets and liabilities, revenues and expenses and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates.

The following is a summary of our most critical accounting policies, which are defined as those policies most important to the portrayal of our financial condition and results of operations and requiring management’s most difficult, subjective, or complex judgment, particularly because of the need to make estimates concerning the impact of inherently uncertain matters. We have discussed the development of and selection of our critical accounting policies and estimates with the audit committee of our Board of Directors.

Derivatives and Risk Management Activities - We engage in wholesale energy marketing, retail marketing, trading, and risk management activities. We account for derivative instruments utilized in connection with these activities and services under the fair value basis of accounting in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (Statement 133), as amended.

Under Statement 133, entities are required to record derivative instruments at fair value. The fair value of derivative instruments is determined by commodity exchange prices, over-the-counter quotes, volatility, time value, counterparty credit

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and the potential impact on market prices of liquidating positions in an orderly manner over a reasonable period of time under current market conditions. Refer to the table on page 52 for amounts in our portfolio at December 31, 2004 that were determined by prices actively quoted, prices provided by other external sources, and prices derived from other sources. The majority of our portfolio’s fair values are based on actual market prices. Transactions are also executed in markets for which market prices may exist but the market may be relatively inactive, thereby resulting in limited price transparency that requires management’s subjectivity in estimating fair values.

Market value changes result in a change in the fair value of our derivative instruments. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. If the derivative instrument does not qualify or is not designated as part of a hedging relationship, we account for changes in fair value of the derivative in earnings are they occur. Commodity price volatility may have a significant impact on the gain or loss in any given period. For more information on fair value sensitivity and a discussion of the market risk of pricing changes, see Item 7A, Quantitative and Qualitative Disclosures about Market Risk.

To minimize the risk of fluctuations in natural gas, NGLs and crude oil prices, we periodically enter into futures transactions and swaps in order to hedge anticipated sales and purchases of natural gas and crude oil production, fuel requirements and NGL inventories. Interest rate swaps are also used to manage interest rate risk. Under certain conditions, we designate these derivative instruments as a hedge of exposure to changes in fair values or cash flows. For hedges of exposure to changes in fair value, the gain or loss on the derivative instrument is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. For hedges of exposure to changes in cash flow, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income and is subsequently reclassified into earnings when the forecasted transaction affects earnings. Any ineffectiveness of designated hedges is reported in earnings.

Many of our purchase and sale agreements that otherwise would be required to follow derivative accounting qualify as normal purchases and normal sales under Statement 133 and are therefore exempt from fair value accounting treatment.

Energy-related contracts that are not derivatives pursuant to Statement 133 are no longer carried at fair value, but are accounted for on an accrual basis as executory contracts. Changes to the accounting for existing contracts as a result of the rescission of EITF Issue No. 98-10, “Accounting for Contracts Involved in Energy Trading and Risk Management Activities” (EITF 98-10) were reported as a cumulative effect of a change in accounting principle on January 1, 2003. This resulted in a cumulative effect loss, net of tax, of $141.8 million.

Impairment of Goodwill and Long-Lived Assets - We assess our goodwill for impairment at least annually based on Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (Statement 142). An initial assessment is made by comparing the fair value of the operations with goodwill, as determined in accordance with Statement 142, to the book value of each reporting unit. If the fair value is less than the book value, an impairment is indicated and we must perform a second test to measure the amount of the impairment. In the second test, we calculate the implied fair value of the goodwill by deducting the fair value of all tangible and intangible net assets of the operations with goodwill from the fair value determined in step one of the assessment. If the carrying value of the goodwill exceeds this calculated implied fair value of the goodwill, we will record an impairment charge. At December 31, 2004, we had $225.2 million of goodwill recorded on our balance sheet.

We assess our long-lived assets for impairment based on Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (Statement 144). A long-lived asset is tested for impairment whenever events or changes in circumstances indicate that its carrying amount may exceed its fair value. Fair values are based on the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the assets.

Examples of long-lived asset impairment indicators include:

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We do not currently anticipate any goodwill or asset impairments to occur within the next year. Factors that would most likely impact the recoverability of our long-term assets would include a significant and long-term decline in commodity prices, partial or complete deregulation of our regulated business, a significant decrease in the rate of return for a regulated business, a major accident affecting the use of an asset or a decrease in the supply of natural gas. We do not foresee any of these events occurring in the near term, but if such events were to occur over the long-term, the impact could be significant to our financial condition and results of operations.

Pension and Postretirement Employee Benefits - We have a defined benefit pension plan covering substantially all full-time employees and a postretirement employee benefits plan covering most employees. Nonbargaining unit employees hired after December 31, 2004 are not eligible for our defined benefit pension plan; however, they are covered by a profit sharing plan. Nonbargaining unit employees retiring between the ages of 50 and 55 who elect postretirement medical coverage, all nonbargaining unit employees hired on or after January 1, 1999, employees who are members of the International Brotherhood of Electrical Workers hired after June 30, 2003 and gas union employees hired after July 1, 2004 who elect postretirement medical coverage pay 100 percent of the retiree premium for participation in the plan. Additionally, any employees who came to us through various acquisitions may be further limited in their eligibility to participate or receive any contributions from us for postretirement medical benefits. Our actuarial consultant calculates the expense and liability related to these plans and uses statistical and other factors that attempt to anticipate future events. These factors include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases, age and employment periods. In determining the projected benefit obligations and the costs, assumptions can change from period to period and result in material changes in the costs and liabilities we recognize.

Assumed health care cost trend rates have a significant effect on the amounts reported for our health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects.

During 2004, we recorded net periodic benefit costs of $0.9 million related to our defined benefit pension plans and $25.0 million related to postretirement benefits. We estimate that in 2005 we will record net periodic benefit costs of $12.5 million related to our defined benefit pension plan and $30.1 million related to postretirement benefits. These increases primarily reflect our acquisition of Northern Plains, amendments in benefits payable under our gas union contracts and a change in our assumed discount rate. We will be reimbursed for approximately $2.3 million of this increase by Northern Border Partners for defined benefit pension plan expenses that we incur for them. In determining our estimated expenses for 2005, our actuarial consultant assumed an 8.75 percent expected return on plan assets and a discount rate of 6.00 percent. A decrease in our expected return on plan assets to 8.50 percent would increase our 2005 estimated net periodic benefit costs by approximately $1.5 million for our defined benefit pension plan and would not have a significant impact on our postretirement benefit plan. An increase in our assumed discount rate to 6.50 percent would decrease our 2005 estimated net periodic benefit costs by approximately $4.5 million for our defined benefit pension plan and $1.9 million for our postretirement benefit plan.

See Note K of Notes to Consolidated Financial Statements in this Form 10-K for additional information.

Contingencies - Our accounting for contingencies covers a variety of business activities including contingencies for legal exposures and environmental exposures. We accrue these contingencies when our assessments indicate that it is probable that a liability has been incurred or an asset will not be recovered and an amount can be reasonably estimated in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies.” We base our estimates on currently available facts and our estimates of the ultimate outcome or resolution. Actual results may differ from our estimates resulting in an impact, positive or negative, on earnings.

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Consolidated Operations

The following table sets forth certain selected financial information for the periods indicated.

Operating Results - Changes in commodity prices can have a significant impact on our earnings, particularly in the Production and Gathering and Processing segments. Net margin increased in 2004 compared to 2003 primarily due to:

These increases in net margin were partially offset by the impact of reduced volatility in natural gas prices on our results from the Energy Services segment.

Operating costs and depreciation, depletion and amortization increased in 2004 compared to 2003 primarily due to:

Net margin increased in 2003 compared to 2002 primarily due to:

Operating costs and depreciation, depletion and amortization increased in 2003 compared to 2002 primarily due to:

In November 2004, we acquired Northern Plains, which owns 82.5 percent of the general partnership interest and 500,000 limited partnership units, together representing a 2.73 percent ownership interest, in Northern Border Partners, from CCE

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Holdings, LLC. Northern Border Partners is a master limited partnership formed in 1993 to acquire, own and manage pipeline and other midstream energy assets, focusing on fee-based transportation services with minimal commodity risk. In 2004, our equity income includes $1.3 million from Northern Border Partners.

The following tables show the components of other income and other expense for the periods indicated.

More information regarding our results of operations is provided in the discussion of each segment’s results. The discontinued component is discussed in the Production segment section and the cumulative effect of a change in accounting principle is discussed in the Energy Services segment section.

Key Performance Indicators - Key performance indicators reviewed by management include:

For the year ended December 31, 2004, our basic and diluted earnings per share from continuing operations is $2.38 and $2.30, respectively, representing no increase in basic earnings per share and an eight percent increase in diluted earnings per share from continuing operations compared to 2003. Return on invested capital is 14.3 percent in 2004 compared to 16.7 percent in 2003.

To evaluate shareholder appreciation, we compare ourselves to a group of 20 peer companies. For the year ended December 31, 2004, we ranked in the top 85th percentile in shareholder appreciation compared to our peers.

Production

Overview - Our Production segment owns, develops and produces natural gas and oil reserves in Oklahoma and Texas. We focus on developmental drilling activities rather than exploratory drilling.

As a result of our strategy to grow through acquisitions and developmental drilling, the number of wells we operate increases as we grow our producing reserves. We also seek to serve as operator on wells where we have significant ownership interest. In our role as operator, we control operating decisions that impact production volumes and lifting costs, which are the costs incurred to extract natural gas and oil. We continually focus on reducing finding costs, which is the cost per Mcfe of adding proved reserves through drilling, and minimizing production costs.

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Acquisition and Divestiture - The following acquisition and divestiture are discussed beginning on page 26:

Development Activities - Through our developmental drilling program, we participated in drilling 70 wells in 2004, which included 66 producing gas wells, three producing oil wells and one dry hole. At December 31, 2004, 32 wells were still being drilled or completed. In 2003, we participated in drilling 20 wells, which included 19 producing gas wells and one dry hole.

Selected Financial and Operating Information - The following tables set forth certain selected financial and operating information for the Production segment for the periods indicated.

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