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EX-32.1 - OKS CERTIFICATION OF SPENCER SECTION 906 - ONEOK Partners LPoksq32016exhibit321.htm
EX-32.2 - OKS CERTIFICATION OF REINERS SECTION 906 - ONEOK Partners LPoksq32016exhibit322.htm
EX-31.2 - OKS CERTIFICATION OF REINERS SECTION 302 - ONEOK Partners LPoksq32016exhibit312.htm
EX-31.1 - OKS CERTIFICATION OF SPENCER SECTION 302 - ONEOK Partners LPoksq32016exhibit311.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2016.
OR
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________.


Commission file number   1-12202


ONEOK PARTNERS, L.P.
(Exact name of registrant as specified in its charter)


Delaware
93-1120873
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
 
100 West Fifth Street, Tulsa, OK
74103
(Address of principal executive offices)
(Zip Code)

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

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 whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X  No __
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer X             Accelerated filer __             Non-accelerated filer __             Smaller reporting company__

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes __ No X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding at October 24, 2016
Common units
 
212,837,980 units
Class B units
 
72,988,252 units






























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2


ONEOK PARTNERS, L.P.
TABLE OF CONTENTS


Page No.
 
 
 
 
 
 
 

As used in this Quarterly Report, references to “we,” “our,” “us” or the “Partnership” refer to ONEOK Partners, L.P., its subsidiary, ONEOK Partners Intermediate Limited Partnership, and its subsidiaries, unless the context indicates otherwise.

The statements in this Quarterly Report that are not historical information, including statements concerning plans and objectives of management for future operations, economic performance or related assumptions, are forward-looking statements. Forward-looking statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “should,” “goal,” “forecast,” “guidance,” “could,” “may,” “continue,” “might,” “potential,” “scheduled” and other words and terms of similar meaning. Although we believe that our expectations regarding future events are based on reasonable assumptions, we can give no assurance that such expectations or assumptions will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements are described under Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations “Forward-Looking Statements,” in this Quarterly Report and under Part I, Item 1A, “Risk Factors,” in our Annual Report.

INFORMATION AVAILABLE ON OUR WEBSITE

We make available, free of charge, on our website (www.oneokpartners.com) copies of our Annual Reports 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 Exchange Act and reports of holdings of our securities filed by our officers and directors under Section 16 of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Copies of our Code of Business Conduct and Ethics, Governance Guidelines, Partnership Agreement and the written charter of our Audit Committee are also available on our website, and we will provide copies of these documents upon request. Our website and any contents thereof are not incorporated by reference into this report.

We also make available on our website the Interactive Data Files required to be submitted and posted pursuant to Rule 405 of Regulation S-T.

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4


GLOSSARY

The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:
AFUDC
Allowance for funds used during construction
Annual Report
Annual Report on Form 10-K for the year ended December 31, 2015
ASU
Accounting Standards Update
Bbl
Barrels, 1 barrel is equivalent to 42 United States gallons
BBtu/d
Billion British thermal units per day
Bcf
Billion cubic feet
CFTC
U.S. Commodity Futures Trading Commission
Clean Air Act
Federal Clean Air Act, as amended
EBITDA
Earnings before interest expense, income taxes, depreciation and amortization
EPA
United States Environmental Protection Agency
Exchange Act
Securities Exchange Act of 1934, as amended
FERC
Federal Energy Regulatory Commission
GAAP
Accounting principles generally accepted in the United States of America
Intermediate Partnership
ONEOK Partners Intermediate Limited Partnership, a wholly owned subsidiary
of ONEOK Partners, L.P.
LIBOR
London Interbank Offered Rate
MBbl/d
Thousand barrels per day
MDth/d
Thousand dekatherms per day
MMBbl
Million barrels
MMBtu
Million British thermal units
MMcf/d
Million cubic feet per day
Moody’s
Moody’s Investors Service, Inc.
NGL(s)
Natural gas liquid(s)
NGL products
Marketable natural gas liquid purity products, such as ethane, ethane/propane
mix, propane, iso-butane, normal butane and natural gasoline
NYMEX
New York Mercantile Exchange
NYSE
New York Stock Exchange
ONEOK
ONEOK, Inc.
ONEOK Partners
ONEOK Partners, L.P.
ONEOK Partners GP
ONEOK Partners GP, L.L.C., a wholly owned subsidiary of ONEOK and the
sole general partner of ONEOK Partners
OPIS
Oil Price Information Service
Partnership Agreement
Third Amended and Restated Agreement of Limited Partnership of ONEOK
Partners, L.P., as amended
Partnership Credit Agreement
The Partnership’s $2.4 billion amended and restated revolving credit
agreement effective as of January 31, 2014, as amended
PHMSA
United States Department of Transportation Pipeline and Hazardous Materials
Safety Administration
POP
Percent of Proceeds
Quarterly Report(s)
Quarterly Report(s) on Form 10-Q
Roadrunner
Roadrunner Gas Transmission, LLC
S&P
S&P Global Ratings
SCOOP
South Central Oklahoma Oil Province, an area in the Anadarko Basin in
Oklahoma
SEC
Securities and Exchange Commission
STACK
Sooner Trend Anadarko Canadian Kingfisher, an area in the Anadarko Basin in
Oklahoma
Term Loan Agreement
The Partnership’s senior unsecured delayed-draw three-year $1.0 billion term
loan agreement dated January 8, 2016
West Texas LPG
West Texas LPG Pipeline Limited Partnership and Mesquite Pipeline
WTI
West Texas Intermediate
XBRL
eXtensible Business Reporting Language

5


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ONEOK Partners, L.P. and Subsidiaries
 

 

 

 
CONSOLIDATED STATEMENTS OF INCOME
 

 

 

 
 
Three Months Ended

Nine Months Ended
 
September 30,

September 30,
(Unaudited)
2016

2015

2016

2015
 
(Thousands of dollars, except per unit amounts)
Revenues
 
 
 
 
 
 
 
Commodity sales
$
1,840,523


$
1,484,350


$
4,757,306


$
4,642,320

Services
516,868


414,068


1,507,624


1,188,364

Total revenues
2,357,391


1,898,418


6,264,930


5,830,684

Cost of sales and fuel (exclusive of items shown separately below)
1,751,593


1,360,809


4,474,654


4,307,766

Operations and maintenance
159,085


145,933


465,628


444,185

Depreciation and amortization
97,802


87,517


290,045


259,563

General taxes
18,314


16,158


63,889


62,677

(Gain) loss on sale of assets
(5,745
)

443


(9,476
)

327

Operating income
336,342


287,558


980,190


756,166

Equity in net earnings from investments (Note I)
35,155


32,244


100,441


93,205

Allowance for equity funds used during construction


177


208


1,718

Other income
825


41


1,522


106

Other expense
(709
)

(3,845
)

(2,282
)

(3,941
)
Interest expense (net of capitalized interest of $3,806, $8,851, $9,265 and $26,008, respectively)
(92,521
)

(86,666
)

(278,339
)

(253,867
)
Income before income taxes
279,092


229,509


801,740


593,387

Income tax (expense) benefit
(3,681
)

156


(8,079
)

(5,080
)
Net income
275,411


229,665


793,661


588,307

Less: Net income attributable to noncontrolling interests
1,103


2,704


4,368


5,982

Net income attributable to ONEOK Partners, L.P.
$
274,308


$
226,961


$
789,293


$
582,325

Limited partners’ interest in net income:
 


 


 


 

Net income attributable to ONEOK Partners, L.P.
$
274,308


$
226,961


$
789,293


$
582,325

General partner’s interest in net income
(106,024
)

(105,078
)

(317,400
)

(293,868
)
Limited partners’ interest in net income
$
168,284


$
121,883


$
471,893


$
288,457

Limited partners’ net income per unit, basic and diluted (Note H)
$
0.59


$
0.45


$
1.65


$
1.10

Number of units used in computation (thousands)
285,826


272,046


285,826


261,100

See accompanying Notes to Consolidated Financial Statements.


6


ONEOK Partners, L.P. and Subsidiaries
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(Unaudited)
2016
 
2015
 
2016
 
2015
 
(Thousands of dollars)
Net income
$
275,411

 
$
229,665

 
$
793,661

 
$
588,307

Other comprehensive income (loss)
 

 
 
 
 

 
 

Unrealized gains (losses) on derivatives
8,538

 
15,949

 
(98,613
)
 
21,373

Realized (gains) losses on derivatives recognized in net income
3,017

 
(19,094
)
 
(17,787
)
 
(43,785
)
Other comprehensive income (loss) on investments in unconsolidated affiliates
(708
)
 

 
(12,071
)
 

Total other comprehensive income (loss)
10,847

 
(3,145
)
 
(128,471
)
 
(22,412
)
Comprehensive income
286,258

 
226,520

 
665,190

 
565,895

Less: Comprehensive income attributable to noncontrolling interests
1,103

 
2,704

 
4,368

 
5,982

Comprehensive income attributable to ONEOK Partners, L.P.
$
285,155

 
$
223,816

 
$
660,822

 
$
559,913

See accompanying Notes to Consolidated Financial Statements.

7


ONEOK Partners, L.P. and Subsidiaries
 
 

 
CONSOLIDATED BALANCE SHEETS
 
 

 

 
September 30,

December 31,
(Unaudited)
 
2016

2015
Assets
 
(Thousands of dollars)
Current assets
 
 

 
Cash and cash equivalents
 
$
5,525


$
5,079

Accounts receivable, net
 
737,058


593,448

Affiliate receivables
 
299


7,969

Natural gas and natural gas liquids in storage
 
217,769


128,084

Commodity imbalances
 
43,770


38,681

Materials and supplies
 
81,701


76,696

Other current assets
 
42,672


33,207

Total current assets
 
1,128,794


883,164

Property, plant and equipment
 
 


 

Property, plant and equipment
 
14,718,554


14,307,546

Accumulated depreciation and amortization
 
2,302,779


2,050,755

Net property, plant and equipment
 
12,415,775


12,256,791

Investments and other assets
 
 


 

Investments in unconsolidated affiliates
 
943,390


948,221

Goodwill and intangible assets
 
815,952


824,877

Other assets
 
15,647


14,533

Total investments and other assets
 
1,774,989


1,787,631

Total assets
 
$
15,319,558


$
14,927,586

Liabilities and equity
 
 


 

Current liabilities
 
 


 

Current maturities of long-term debt (Note E)
 
$
457,650


$
107,650

Short-term borrowings (Note D)
 
693,500


546,340

Accounts payable
 
701,518


605,431

Affiliate payables
 
19,139


27,137

Commodity imbalances
 
134,658


74,460

Accrued interest
 
86,225


102,615

Other current liabilities
 
193,561


116,667

Total current liabilities
 
2,286,251


1,580,300

Long-term debt, excluding current maturities (Note E)
 
6,691,663


6,695,312

Deferred credits and other liabilities
 
188,254


154,631

Commitments and contingencies (Note K)
 





Equity (Note F)
 
 


 

ONEOK Partners, L.P. partners’ equity:
 
 


 

General partner
 
227,150


231,344

Common units: 212,837,980 units issued and outstanding at
September 30, 2016, and December 31, 2015
 
4,861,917


5,014,952

Class B units: 72,988,252 units issued and outstanding at
September 30, 2016, and December 31, 2015
 
1,147,724


1,200,204

Accumulated other comprehensive loss (Note G)
 
(241,753
)

(113,282
)
Total ONEOK Partners, L.P. partners’ equity
 
5,995,038


6,333,218

Noncontrolling interests in consolidated subsidiaries
 
158,352


164,125

Total equity
 
6,153,390


6,497,343

Total liabilities and equity
 
$
15,319,558


$
14,927,586

See accompanying Notes to Consolidated Financial Statements.

8


ONEOK Partners, L.P. and Subsidiaries
 
 

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 

 
 
 
Nine Months Ended
 
 
September 30,
(Unaudited)
 
2016

2015
 
 
(Thousands of dollars)
Operating activities
 
 

 
Net income
 
$
793,661


$
588,307

Adjustments to reconcile net income to net cash provided by operating activities:
 





Depreciation and amortization
 
290,045


259,563

Equity in net earnings from investments
 
(100,441
)

(93,205
)
Distributions received from unconsolidated affiliates
 
106,381


92,042

Deferred income taxes
 
7,573


4,309

Allowance for equity funds used during construction
 
(208
)

(1,718
)
(Gain) loss on sale of assets
 
(9,476
)

327

Changes in assets and liabilities:
 
 


 

Accounts receivable
 
(145,570
)

149,776

Affiliate receivables
 
7,670


3,789

Natural gas and natural gas liquids in storage
 
(89,685
)

(8,174
)
Accounts payable
 
138,450


(182,985
)
Affiliate payables
 
(7,998
)

(14,788
)
Commodity imbalances, net
 
55,109


25,728

Accrued interest
 
(16,390
)

(2,492
)
Risk-management assets and liabilities
 
(51,329
)

(46,267
)
Other assets and liabilities, net
 
21,583


(27,186
)
Cash provided by operating activities
 
999,375


747,026

Investing activities
 
 


 

Capital expenditures (less allowance for equity funds used during construction)
 
(489,358
)

(928,870
)
Contributions to unconsolidated affiliates
 
(55,177
)

(27,540
)
Distributions received from unconsolidated affiliates in excess of cumulative earnings
 
43,018


25,111

Proceeds from sale of assets
 
19,038


3,171

Other
 


(12,607
)
Cash used in investing activities
 
(482,479
)

(940,735
)
Financing activities
 
 


 

Cash distributions:
 
 


 

General and limited partners
 
(999,002
)

(897,474
)
Noncontrolling interests
 
(6,100
)

(8,192
)
Borrowing (repayment) of short-term borrowings, net
 
147,160


(768,024
)
Issuance of long-term debt, net of discounts
 
1,000,000


798,896

Debt financing costs
 
(2,770
)

(7,676
)
Repayment of long-term debt
 
(655,738
)

(5,738
)
Issuance of common units, net of issuance costs
 


1,025,660

Contribution from general partner
 


20,990

Cash provided by (used in) financing activities
 
(516,450
)

158,442

Change in cash and cash equivalents
 
446


(35,267
)
Cash and cash equivalents at beginning of period
 
5,079


42,530

Cash and cash equivalents at end of period
 
$
5,525


$
7,263

See accompanying Notes to Consolidated Financial Statements.

9


ONEOK Partners, L.P. and Subsidiaries
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
 
 
 
 
 
 
 
 
ONEOK Partners, L.P. Partners’ Equity
(Unaudited)
 

Common
Units
 
Class B
Units
 
General
Partner
 
Common
Units
 
 
(Units)
 
(Thousands of dollars)
January 1, 2016
 
212,837,980

 
72,988,252

 
$
231,344

 
$
5,014,952

Net income
 

 

 
317,400

 
351,391

Other comprehensive income (loss) (Note G)
 

 

 

 

Distributions paid (Note F)
 

 

 
(321,594
)
 
(504,426
)
Other
 

 

 

 

September 30, 2016
 
212,837,980

 
72,988,252

 
$
227,150

 
$
4,861,917


 
 
ONEOK Partners, L.P. Partners’ Equity
(Unaudited)
 

Common
Units
 
Class B
Units
 
General
Partner
 
Common
Units
 
 
(Units)
 
(Thousands of dollars)
January 1, 2015
 
180,826,973

 
72,988,252

 
$
211,914

 
$
4,456,372

Net income
 

 

 
293,868

 
208,119

Other comprehensive income (loss) (Note G)
 

 

 

 

Issuance of common units (Note F)
 
32,011,007

 

 

 
1,023,915

Contribution from general partner (Note F)
 

 

 
20,990

 

Distributions paid (Note F)
 

 

 
(288,912
)
 
(435,580
)
Other
 

 

 

 
14

September 30, 2015
 
212,837,980

 
72,988,252

 
$
237,860

 
$
5,252,840



10


ONEOK Partners, L.P. and Subsidiaries
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
 
 
 
(Continued)
 
 
 
 
 
 
 
 
 
ONEOK Partners, L.P. Partners’ Equity
 
 
 
(Unaudited)
 
Class B
Units
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests in
Consolidated
Subsidiaries
 
Total
Equity
 
 
(Thousands of dollars)
January 1, 2016
 
$
1,200,204

 
$
(113,282
)
 
$
164,125

 
$
6,497,343

Net income
 
120,502

 

 
4,368

 
793,661

Other comprehensive income (loss) (Note G)
 

 
(128,471
)
 

 
(128,471
)
Distributions paid (Note F)
 
(172,982
)
 

 
(6,100
)
 
(1,005,102
)
Other
 

 

 
(4,041
)
 
(4,041
)
September 30, 2016
 
$
1,147,724

 
$
(241,753
)
 
$
158,352

 
$
6,153,390


 
ONEOK Partners, L.P. Partners’ Equity
 
 
 
(Unaudited)
 
Class B
Units
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests in
Consolidated
Subsidiaries
 
Total
Equity
 
 
(Thousands of dollars)
January 1, 2015
 
$
1,374,375

 
$
(91,823
)
 
$
167,937

 
$
6,118,775

Net income
 
80,338

 

 
5,982

 
588,307

Other comprehensive income (loss) (Note G)
 

 
(22,412
)
 

 
(22,412
)
Issuance of common units (Note F)
 

 

 

 
1,023,915

Contribution from general partner (Note F)
 

 

 

 
20,990

Distributions paid (Note F)
 
(172,982
)
 

 
(8,192
)
 
(905,666
)
Other
 

 

 
(451
)
 
(437
)
September 30, 2015
 
$
1,281,731

 
$
(114,235
)
 
$
165,276

 
$
6,823,472



See accompanying Notes to Consolidated Financial Statements.


11


ONEOK PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. These statements have been prepared in accordance with GAAP and reflect all adjustments that, in our opinion, are necessary for a fair statement of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The 2015 year-end consolidated balance sheet data was derived from our audited financial statements but does not include all disclosures required by GAAP. Certain reclassifications have been made in the prior-year financial statements to conform to the current-year presentation. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements in our Annual Report.

Our significant accounting policies are consistent with those disclosed in Note A of the Notes to Consolidated Financial Statements in our Annual Report.

Goodwill Impairment Test - We assess our goodwill for impairment at least annually on July 1, unless events or changes in circumstances indicate an impairment may have occurred before that time. As the commodity price environment has remained relatively unchanged since 2015, we elected to perform a quantitative assessment, or Step 1 analysis, to test our goodwill for impairment. The assessment included our current commodity price assumptions, expected contractual terms, anticipated operating costs and volume estimates. Our goodwill impairment analysis performed as of July 1, 2016, did not result in an impairment charge nor did our analysis reflect any reporting units at risk. In each reporting unit, the fair value substantially exceeded the carrying value. Subsequent to that date, no event has occurred indicating that the implied fair value of each of our reporting units is less than the carrying value of its net assets.

Recently Issued Accounting Standards Update - The following tables provide a brief description of recent accounting pronouncements and our analysis of the effects on our financial statements:
Standard
 
Description
 
Date of Adoption
 
Effect on the Financial Statements or Other Significant Matters
Standards that were adopted
 
 
 
 
 
 
ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”
 
The standard requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.
 
First quarter 2016
 
There was no impact, but it could impact us in the future if we complete any acquisitions with subsequent measurement period adjustments.
ASU 2015-05, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”
 
The standard clarifies whether a cloud computing arrangement includes a software license. If it does, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses; if not, the customer should account for the arrangement as a service contract.
 
First quarter 2016
 
The impact of adopting this standard was not material.
ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”
 
The standard eliminates the presumption that a general partner should consolidate a limited partnership. It also modifies the evaluation of whether limited partnerships are variable interest entities or voting interest entities and adds requirements that limited partnerships must meet to qualify as voting interest entities.
 
First quarter 2016
 
The impact of adopting this standard was not material.
 
 
 
 
 
 
 

12


Standard
 
Description
 
Date of Adoption
 
Effect on the Financial Statements or Other Significant Matters
Standards that are not yet adopted
 
 
 
 
ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”
 
The standard requires that inventory, excluding inventory measured using last-in, first-out (LIFO) or the retail inventory method, be measured at the lower of cost or net realizable value.
 
First quarter 2017
 
We do not expect the adoption of this standard to materially impact us.
ASU 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”
 
The standard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met.
 
First quarter 2017
 
We do not expect the adoption of this standard to materially impact us.
ASU 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments”
 
The standard clarifies the requirements for assessing whether a contingent call (put) option that can accelerate the payment of principal on a debt instrument is clearly and closely related to its debt host.
 
First quarter 2017
 
We do not expect the adoption of this standard to materially impact us.
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”
 
The standard outlines the principles an entity must apply to measure and recognize revenue for entities that enter into contracts to provide goods or services to their customers. The core principle is that an entity should recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. The amendment also requires more extensive disaggregated revenue disclosures in interim and annual financial statements.
 
First quarter 2018
 
We are evaluating the impact of this standard on us. Our evaluation process includes a review of our contracts and transaction types across all our business segments. In addition, we are currently evaluating methods of adoption and analyzing the impact of the standard on our internal controls, accounting policies and financial statements and disclosures.
ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”
 
The standard requires all equity investments, other than those accounted for using the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income, eliminates the available-for-sale classification for equity securities with readily determinable fair values and eliminates the cost method for equity investments without readily determinable fair values.
 
First quarter 2018
 
We are evaluating the impact of this standard on us.
ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”
 
The standard clarifies the classification of certain cash receipts and cash payments on the statement of cash flows where diversity in practice has been identified.
 
First quarter 2018
 
We are evaluating the impact of this standard on us.
ASU 2016-02, “Leases (Topic 842)”
 
The standard requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. It also requires qualitative disclosures along with specific quantitative disclosures by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.
 
First quarter 2019
 
We are evaluating the impact of this standard on us.
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
 
The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented net of the allowance for credit losses to reflect the net carrying value at the amount expected to be collected on the financial asset; and the initial allowance for credit losses for purchased financial assets, including available-for-sale debt securities, to be added to the purchase price rather than being reported as a credit loss expense.
 
First quarter 2020
 
We are evaluating the impact of this standard on us.

B.
FAIR VALUE MEASUREMENTS

Determining Fair Value - We define fair value as the price that would be received from the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date. We use market and income approaches to determine the fair value of our assets and liabilities and consider the markets in which the transactions are executed. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date.


13


While many of the contracts in our portfolio are executed in liquid markets where price transparency exists, some contracts are executed in markets for which market prices may exist, but the market may be relatively inactive. This results in limited price transparency that requires management’s judgment and assumptions to estimate fair values. For certain transactions, we utilize modeling techniques using NYMEX-settled pricing data and implied forward LIBOR curves. Inputs into our fair value estimates include commodity-exchange prices, over-the-counter quotes, historical correlations of pricing data, data obtained from third-party pricing services and LIBOR and other liquid money-market instrument rates. We validate our valuation inputs with third-party information and settlement prices from other sources, where available.

In addition, as prescribed by the income approach, we compute the fair value of our derivative portfolio by discounting the projected future cash flows from our derivative assets and liabilities to present value using interest-rate yields to calculate present-value discount factors derived from LIBOR, Eurodollar futures and the LIBOR interest-rate swaps market. We also take into consideration the potential impact on market prices of liquidating positions in an orderly manner over a reasonable period of time under current market conditions. We consider current market data in evaluating counterparties’, as well as our own, nonperformance risk, net of collateral, by using specific and sector bond yields and monitoring the credit default swap markets. Although we use our best estimates to determine the fair value of the derivative contracts we have executed, the ultimate market prices realized could differ from our estimates, and the differences could be material.

The fair value of our forward-starting interest-rate swaps are determined using financial models that incorporate the implied forward LIBOR yield curve for the same period as the future interest-rate swap settlements.

Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our financial statements based on the observability of inputs used to estimate such fair value. The levels of the hierarchy are described below:
Level 1 - fair value measurements are based on unadjusted quoted prices for identical securities in active markets, including NYMEX-settled prices. These balances are comprised predominantly of exchange-traded derivative contracts for natural gas and crude oil.
Level 2 - fair value measurements are based on significant observable pricing inputs, such as NYMEX-settled prices for natural gas and crude oil, and financial models that utilize implied forward LIBOR yield curves for interest-rate swaps.
Level 3 - fair value measurements are based on inputs that may include one or more unobservable inputs, including internally developed natural gas basis and NGL price curves that incorporate observable and unobservable market data from broker quotes, third-party pricing services, market volatilities derived from the most recent NYMEX close spot prices and forward LIBOR curves, and adjustments for the credit risk of our counterparties. We corroborate the data on which our fair value estimates are based using our market knowledge of recent transactions, analysis of historical correlations and validation with independent broker quotes. These balances categorized as Level 3 are comprised of derivatives for natural gas and NGLs. We do not believe that our Level 3 fair value estimates have a material impact on our results of operations, as the majority of our derivatives are accounted for as hedges for which ineffectiveness has not been material.

Determining the appropriate classification of our fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data. We categorize derivatives for which fair value is determined using multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety.


14


Recurring Fair Value Measurements - The following tables set forth our recurring fair value measurements for the periods indicated:
 
September 30, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total - Gross
 
Netting (a)
 
Total - Net (b)
 
(Thousands of dollars)
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
Financial contracts
$
9,051

 
$

 
$
2,858

 
$
11,909

 
$
(7,389
)
 
$
4,520

Physical contracts

 

 
98

 
98

 

 
98

Total derivative assets
$
9,051

 
$

 
$
2,956

 
$
12,007

 
$
(7,389
)
 
$
4,618

Derivative liabilities
 

 
 

 
 

 
 

 
 

 
 

Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
Financial contracts
$
(12,175
)
 
$

 
$
(9,846
)
 
$
(22,021
)
 
$
22,021

 
$

Physical contracts

 

 
(3,173
)
 
(3,173
)
 

 
(3,173
)
Interest-rate contracts

 
(69,103
)
 

 
(69,103
)
 

 
(69,103
)
Total derivative liabilities
$
(12,175
)
 
$
(69,103
)
 
$
(13,019
)
 
$
(94,297
)
 
$
22,021

 
$
(72,276
)
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At September 30, 2016, we held no cash and posted $27.4 million of cash with various counterparties, including $14.6 million of cash collateral that is offsetting derivative net liability positions under master-netting arrangements in the table above. The remaining $12.8 million of cash collateral in excess of derivative net liability positions is included in other current assets in our Consolidated Balance Sheets.
(b) - Included in other current assets, other assets, other current liabilities or deferred credits and other liabilities in our Consolidated Balance Sheets.

 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total - Gross
 
Netting (a)
 
Total - Net (b)
 
(Thousands of dollars)
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
Financial contracts
$
38,921

 
$

 
$
7,253

 
$
46,174

 
$
(42,414
)
 
$
3,760

Physical contracts

 

 
3,591

 
3,591

 

 
3,591

Total derivative assets
$
38,921

 
$

 
$
10,844

 
$
49,765

 
$
(42,414
)
 
$
7,351

Derivative liabilities
 

 
 

 
 

 
 

 
 

 
 

Commodity contracts
 
 
 
 
 
 
 
 
 
 
 
Financial contracts
$
(4,513
)
 
$

 
$
(3,513
)
 
$
(8,026
)
 
$
8,026

 
$

Interest-rate contracts

 
(9,936
)
 

 
(9,936
)
 

 
(9,936
)
Total derivative liabilities
$
(4,513
)
 
$
(9,936
)
 
$
(3,513
)
 
$
(17,962
)
 
$
8,026

 
$
(9,936
)
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At December 31, 2015, we held $34.4 million of cash from various counterparties that is offsetting derivative net asset positions in the table above under master-netting arrangements and had no cash collateral posted.
(b) - Included in other current assets or other current liabilities in our Consolidated Balance Sheets.


15


The following table sets forth a reconciliation of our Level 3 fair value measurements for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
Derivative Assets (Liabilities)
2016
 
2015
 
2016
 
2015
 
(Thousands of dollars)
Net assets (liabilities) at beginning of period
$
(14,021
)
 
$
10,387

 
$
7,331

 
$
9,285

Total realized/unrealized gains (losses):


 


 
 
 
 
Included in earnings (a)
920

 
(15
)
 
492

 
95

Included in other comprehensive income (loss)
3,038

 
(5,076
)
 
(17,886
)
 
(4,084
)
Net assets (liabilities) at end of period
$
(10,063
)
 
$
5,296

 
$
(10,063
)
 
$
5,296

(a) - Included in commodity sales revenues in our Consolidated Statements of Income.

Realized/unrealized gains (losses) include the realization of our derivative contracts through maturity. During the three and nine months ended September 30, 2016 and 2015, gains or losses included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the end of each reporting period were not material.

We recognize transfers into and out of the levels in the fair value hierarchy as of the end of each reporting period. During the three and nine months ended September 30, 2016 and 2015, there were no transfers between levels.

Other Financial Instruments - The approximate fair value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value, due to the short-term nature of these items. Our cash and cash equivalents are comprised of bank and money market accounts and are classified as Level 1. Our short-term borrowings are classified as Level 2 since the estimated fair value of the short-term borrowings can be determined using information available in the commercial paper market.

The estimated fair value of the aggregate of our long-term debt, including current maturities, was $7.6 billion and $6.2 billion at September 30, 2016, and December 31, 2015, respectively. The book value of the aggregate of our long-term debt, including current maturities, was $7.1 billion and $6.8 billion at September 30, 2016, and December 31, 2015, respectively. The estimated fair value of the aggregate of our senior notes outstanding was determined using quoted market prices for similar issues with similar terms and maturities. The estimated fair value of our long-term debt is classified as Level 2.

C.
RISK-MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES

Risk-Management Activities - We are sensitive to changes in natural gas, crude oil and NGL prices, principally as a result of contractual terms under which these commodities are processed, purchased and sold. We use physical-forward purchases and sales and financial derivatives to secure a certain price for a portion of our natural gas, condensate and NGL products; to reduce our exposure to commodity price and interest-rate fluctuations; and to achieve more predictable cash flows. We follow established policies and procedures to assess risk and approve, monitor and report our risk-management activities. We have not used these instruments for trading purposes. We are also subject to the risk of interest-rate fluctuation in the normal course of business.

Commodity price risk - Commodity price risk refers to the risk of loss in cash flows and future earnings arising from adverse changes in the price of natural gas, NGLs and condensate. We use the following commodity derivative instruments to mitigate the near-term commodity price risk associated with a portion of the forecasted sales of these commodities:
Futures contracts - Standardized contracts to purchase or sell natural gas and crude oil for future delivery or settlement under the provisions of exchange regulations;
Forward contracts - Nonstandardized commitments between two parties to purchase or sell natural gas, crude oil or NGLs for future physical delivery. These contracts are typically nontransferable and can only be canceled with the consent of both parties;
Swaps - Exchange of one or more payments based on the value of one or more commodities. These instruments transfer the financial risk associated with a future change in value between the counterparties of the transaction, without also conveying ownership interest in the asset or liability; and
Options - Contractual agreements that give the holder the right, but not the obligation, to buy or sell a fixed quantity of a commodity at a fixed price within a specified period of time. Options may either be standardized and exchange-traded or customized and nonexchange-traded.


16


We may also use other instruments including collars to mitigate commodity price risk. A collar is a combination of a purchased put option and a sold call option, which places a floor and a ceiling price for commodity sales being hedged.

In our Natural Gas Gathering and Processing segment, we are exposed to commodity price risk as a result of receiving commodities as a portion of our compensation for services associated with our POP with fee contracts. Under certain POP with fee contracts, our fee revenues may increase or decrease if production volumes, delivery pressures or commodity prices change relative to specified thresholds. We also are exposed to basis risk between the various production and market locations where we receive and sell commodities. As part of our hedging strategy, we use the previously described commodity derivative financial instruments and physical-forward contracts to reduce the impact of price fluctuations related to natural gas, NGLs and condensate.

In our Natural Gas Liquids segment, we are exposed to location price differential risk, primarily as a result of the relative value of NGL purchases at one location and sales at another location. We are also exposed to commodity price risk resulting from the relative values of the various NGL products to each other, NGLs in storage and the relative value of NGLs to natural gas. We utilize physical-forward contracts and commodity derivative financial instruments to reduce the impact of price fluctuations related to NGLs.

In our Natural Gas Pipelines segment, we are exposed to commodity price risk because our intrastate and interstate natural gas pipelines retain natural gas from our customers for operations or as part of our fee for services provided. When the amount of natural gas consumed in operations by these pipelines differs from the amount provided by our customers, our pipelines must buy or sell natural gas, or store or use natural gas from inventory, which can expose us to commodity price risk depending on the regulatory treatment for this activity. To the extent that commodity price risk in our Natural Gas Pipelines segment is not mitigated by fuel cost-recovery mechanisms, we use physical-forward sales or purchases to reduce the impact of price fluctuations related to natural gas. At September 30, 2016, and December 31, 2015, there were no financial derivative instruments with respect to our natural gas pipeline operations.

Interest-rate risk - We manage interest-rate risk through the use of fixed-rate debt, floating-rate debt and interest-rate swaps. Interest-rate swaps are agreements to exchange interest payments at some future point based on specified notional amounts. As of September 30, 2016, we had interest-rate swaps with notional amounts totaling $1.0 billion to hedge the variability of our LIBOR-based interest payments. In addition, in June 2016, we entered into forward-starting interest-rate swaps with notional amounts totaling $750 million to hedge the variability of interest payments on a portion of our forecasted debt issuances that may result from changes in the benchmark interest rate before the debt is issued, resulting in total notional amounts of this type of interest-rate swap of $1.2 billion at September 30, 2016, compared with $400 million at December 31, 2015. All of our interest-rate swaps are designated as cash flow hedges.

Accounting Treatment - Our accounting treatment of derivative instruments is consistent with that disclosed in Note A of the Notes to consolidated Financial Statements in our Annual Report.

Fair Values of Derivative Instruments - See Note B for a discussion of the inputs associated with our fair value measurements. The following table sets forth the fair values of derivative instruments for the periods indicated:
 
September 30, 2016
 
December 31, 2015
 
Assets (a)
 
(Liabilities) (a)
 
Assets (b)
 
(Liabilities) (b)
 
(Thousands of dollars)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Financial contracts
$
9,525

 
$
(20,376
)
 
$
39,255

 
$
(1,440
)
Physical contracts
98

 
(3,173
)
 
3,591

 

Interest-rate contracts

 
(69,103
)
 

 
(9,936
)
Total derivatives designated as hedging instruments
9,623

 
(92,652
)
 
42,846

 
(11,376
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
Commodity contracts
 
 
 
 
 
 
 
Financial contracts
2,384

 
(1,645
)
 
6,919

 
(6,586
)
Total derivatives not designated as hedging instruments
2,384

 
(1,645
)
 
6,919

 
(6,586
)
Total derivatives
$
12,007

 
$
(94,297
)
 
$
49,765

 
$
(17,962
)
(a) - Included on a net basis in other current assets, other assets, other current liabilities or deferred credits and other liabilities in our Consolidated Balance Sheets.
(b) - Included on a net basis in other current assets or other current liabilities in our Consolidated Balance Sheets.

17



Notional Quantities for Derivative Instruments - The following table sets forth the notional quantities for derivative instruments held for the periods indicated:
 
 
September 30, 2016
 
December 31, 2015
 
Contract
Type
Purchased/
Payor
 
Sold/
Receiver
 
Purchased/
Payor
 
Sold/
Receiver
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
Fixed price
 
 
 
 
 
 
 
 
- Natural gas (Bcf)
Futures and swaps

 
(43.3
)
 

 
(27.1
)
- Natural gas (Bcf)
Put options
68.3

 

 

 

- Crude oil and NGLs (MMBbl)
Futures, forwards
and swaps

 
(4.6
)
 

 
(2.3
)
Basis
 
 

 
 

 
 

 
 

- Natural gas (Bcf)
Futures and swaps

 
(43.3
)
 

 
(27.1
)
Interest-rate contracts (Millions of dollars)
Swaps
$
2,150.0

 
$

 
$
400.0

 
$

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Fixed price
 
 
 
 
 
 
 
 
- NGLs (MMBbl)
Futures, forwards
and swaps
1.1

 
(0.9
)
 
0.6

 
(0.6
)

These notional amounts are used to summarize the volume of financial instruments; however, they do not reflect the extent to which the positions offset one another and, consequently, do not reflect our actual exposure to market or credit risk.

Cash Flow Hedges - At September 30, 2016, our Consolidated Balance Sheet reflected a net loss of $241.8 million in accumulated other comprehensive loss. The portion of accumulated other comprehensive loss attributable to our commodity derivative financial instruments is an unrealized loss of $27.3 million, which will be realized within the next 27 months as the forecasted transactions affect earnings. If commodity prices remain at current levels, we will realize approximately $21.4 million in net losses over the next 12 months and approximately $5.9 million in net losses thereafter. The amount deferred in accumulated other comprehensive loss attributable to our settled interest-rate swaps is a loss of $130.0 million, which will be recognized over the life of the long-term, fixed-rate debt, including losses of $16.4 million that will be reclassified into earnings during the next 12 months as the hedged items affect earnings. The remaining amounts in accumulated other comprehensive loss are attributable primarily to forward-starting interest-rate swaps with future settlement dates, which will be amortized to interest expense over the life of long-term, fixed-rate debt upon issuance of the debt.

The following table sets forth the unrealized effect of cash flow hedges recognized in other comprehensive income (loss) for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
Derivatives in Cash Flow
Hedging Relationships
September 30,
 
September 30,
2016
 
2015
 
2016
 
2015
 
(Thousands of dollars)
Commodity contracts
$
7,580

 
$
36,559

 
$
(39,396
)
 
$
47,650

Interest-rate contracts
958

 
(20,610
)
 
(59,217
)
 
(26,277
)
Total unrealized gain (loss) recognized in other comprehensive income (loss) on derivatives (effective portion)
$
8,538

 
$
15,949

 
$
(98,613
)
 
$
21,373



18


The following table sets forth the effect of cash flow hedges in our Consolidated Statements of Income for the periods indicated:
Derivatives in Cash Flow
Hedging Relationships
Location of Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Loss into Net Income (Effective Portion)
Three Months Ended
 
Nine Months Ended
September 30,
 
September 30,
2016
 
2015
 
2016
 
2015
 
 
(Thousands of dollars)
Commodity contracts
Commodity sales revenues
$
908

 
$
22,770

 
$
29,456

 
$
54,020

Interest-rate contracts
Interest expense
(3,925
)
 
(3,676
)
 
(11,669
)
 
(10,235
)
Total gain (loss) reclassified from accumulated other comprehensive loss into net income on derivatives (effective portion)
$
(3,017
)
 
$
19,094

 
$
17,787

 
$
43,785


Ineffectiveness related to our cash flow hedges for the three and nine months ended September 30, 2016 and 2015, was not material. In the event that it becomes probable that a forecasted transaction will not occur, we would discontinue cash flow hedge treatment, which would affect earnings. For the three and nine months ended September 30, 2016 and 2015, there were no gains or losses due to the discontinuance of cash flow hedge treatment.

Credit Risk - We monitor the creditworthiness of our counterparties and compliance with policies and limits established by our Risk Oversight and Strategy Committee. We maintain credit policies with regard to our counterparties that we believe minimize overall credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit ratings, bond yields and credit default swap rates), collateral requirements under certain circumstances and the use of standardized master-netting agreements that allow us to net the positive and negative exposures associated with a single counterparty. We have counterparties whose credit is not rated, and for those customers, we use internally developed credit ratings.

From time to time, we may enter into financial derivative instruments that contain provisions that require us to maintain an investment-grade credit rating from S&P and/or Moody’s. If our credit ratings on our senior unsecured long-term debt were to decline below investment grade, the counterparties to the derivative instruments could request collateralization on derivative instruments in net liability positions. There were no financial derivative instruments with contingent features related to credit risk at September 30, 2016.

The counterparties to our derivative contracts consist primarily of major energy companies, financial institutions and commercial and industrial end users. This concentration of counterparties may affect our overall exposure to credit risk, either positively or negatively, in that the counterparties may be affected similarly by changes in economic, regulatory or other conditions. Based on our policies, exposures, credit and other reserves, we do not anticipate a material adverse effect on our financial position or results of operations as a result of counterparty nonperformance.

At September 30, 2016, the net credit exposure from our derivative assets is primarily with investment-grade companies in the financial services sector.

D.
SHORT-TERM BORROWINGS

Partnership Credit Agreement - In January 2016, we extended the term of our Partnership Credit Agreement by one year to January 2020. Our Partnership Credit Agreement is a $2.4 billion revolving credit facility and includes a $100 million sublimit for the issuance of standby letters of credit and a $150 million swingline sublimit. Our Partnership Credit Agreement is available for general partnership purposes.

We had $14 million of letters of credit issued, no borrowings outstanding and approximately $1.7 billion capacity available at September 30, 2016, under our Partnership Credit Agreement.

Our Partnership Credit Agreement contains provisions for an applicable margin rate and an annual facility fee, both of which adjust with changes in our credit rating. Under the terms of the Partnership Credit Agreement, based on our current credit ratings, borrowings, if any, will accrue at LIBOR plus 117.5 basis points, and the annual facility fee is 20 basis points. Our Partnership Credit Agreement is guaranteed fully and unconditionally by our Intermediate Partnership. Borrowings under our Partnership Credit Agreement are nonrecourse to ONEOK.

Our Partnership Credit Agreement contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining a ratio of indebtedness to adjusted EBITDA (EBITDA, as defined in our Partnership Credit

19


Agreement, adjusted for all noncash charges and increased for projected EBITDA from certain lender-approved capital expansion projects) of no more than 5.0 to 1. If we consummate one or more acquisitions in which the aggregate purchase price is $25 million or more, the allowable ratio of indebtedness to adjusted EBITDA will increase to 5.5 to 1 for the quarter in which the acquisition was completed and the two following quarters. If we were to breach certain covenants in our Partnership Credit Agreement, amounts outstanding under our Partnership Credit Agreement, if any, may become due and payable immediately. At September 30, 2016, our ratio of indebtedness to adjusted EBITDA was 4.1 to 1, and we were in compliance with all covenants under our Partnership Credit Agreement.

Neither we nor ONEOK guarantees the debt or other similar commitments of unaffiliated parties. ONEOK does not guarantee the debt, commercial paper or other similar commitments of ONEOK Partners, and ONEOK Partners does not guarantee the debt or other similar commitments of ONEOK.

Commercial Paper Program - At September 30, 2016, we had $694 million of commercial paper outstanding under our $2.4 billion commercial paper program with a weighted-average interest rate of 1.15 percent. Amounts outstanding under our commercial paper program reduce the borrowing capacity under our Partnership Credit Agreement.

E.
LONG-TERM DEBT

The following table sets forth our long-term debt for the periods indicated:
 
 
September 30,
 
December 31,
 
 
2016
 
2015
 
 
(Thousands of dollars)
ONEOK Partners
 
 
 
 
$650,000 at 3.25% due 2016
 
$

 
$
650,000

$450,000 at 6.15% due 2016
 
450,000

 
450,000

$400,000 at 2.0% due 2017
 
400,000

 
400,000

$425,000 at 3.2% due 2018
 
425,000

 
425,000

$1,000,000 term loan, variable rate, due 2019
 
1,000,000

 

$500,000 at 8.625% due 2019
 
500,000

 
500,000

$300,000 at 3.8% due 2020
 
300,000

 
300,000

$900,000 at 3.375% due 2022
 
900,000

 
900,000

$425,000 at 5.0% due 2023
 
425,000

 
425,000

$500,000 at 4.9% due 2025
 
500,000

 
500,000

$600,000 at 6.65% due 2036
 
600,000

 
600,000

$600,000 at 6.85% due 2037
 
600,000

 
600,000

$650,000 at 6.125% due 2041
 
650,000

 
650,000

$400,000 at 6.2% due 2043
 
400,000

 
400,000

Guardian Pipeline
 
 

 
 

Average 7.85% due 2022
 
46,170

 
51,907

Total long-term debt
 
7,196,170

 
6,851,907

Unamortized debt issuance costs and discounts
 
(46,857
)
 
(48,945
)
Current maturities
 
(457,650
)
 
(107,650
)
Long-term debt, excluding current maturities
 
$
6,691,663

 
$
6,695,312


Debt Issuances and Maturities - In January 2016, we entered into the $1.0 billion senior unsecured delayed-draw Term Loan Agreement with a syndicate of banks. The Term Loan Agreement matures in January 2019 and bears interest at LIBOR plus a margin that is based on the credit ratings assigned to our senior, unsecured, long-term indebtedness. Based on our current applicable credit rating, borrowings on the Term Loan Agreement accrue at LIBOR plus 130 basis points. At September 30, 2016, the interest rate was 1.83 percent. The Term Loan Agreement contains an option, which may be exercised up to two times, to extend the term of the loan, in each case, for an additional one-year term, subject to approval of the banks. The Term Loan Agreement allows prepayment of all or any portion outstanding without penalty or premium and contains substantially the same covenants as our Partnership Credit Agreement. During the first quarter 2016, we drew the full $1.0 billion available under the agreement and used the proceeds to repay our $650 million, 3.25 percent senior notes, to repay amounts outstanding under our commercial paper program and for general partnership purposes.


20


At September 30, 2016, our $450 million, 6.15 percent senior notes due October 1, 2016, are reflected in current maturities of long-term debt in our Consolidated Balance Sheet. In October 2016, we repaid our $450 million, 6.15 percent senior notes, with a combination of cash on hand and short-term borrowings.

In March 2015, we completed an underwritten public offering of $800 million of senior notes, consisting of $300 million, 3.8 percent senior notes due 2020, and $500 million, 4.9 percent senior notes due 2025. The net proceeds, after deducting underwriting discounts, commissions and other expenses, were approximately $792.3 million. We used the proceeds to repay amounts outstanding under our commercial paper program and for general partnership purposes.

F.
EQUITY

ONEOK - ONEOK and its affiliates owned all of the Class B units, 41.3 million common units and the entire 2 percent general partner interest in us, which together constituted a 41.2 percent ownership interest in us at September 30, 2016.

Equity Issuances - In August 2015, we completed a private placement of 21.5 million common units at a price of $30.17 per unit with ONEOK. Additionally, we completed a concurrent sale of approximately 3.3 million common units at a price of $30.17 per unit to funds managed by Kayne Anderson Capital Advisors in a registered direct offering, which were issued through our existing “at-the-market” equity program. The combined offerings generated net proceeds of approximately $749 million. In conjunction with these issuances, ONEOK Partners GP contributed approximately $15.3 million in order to maintain its 2 percent general partner interest in us. We used the proceeds for general partnership purposes, including capital expenditures and repayment of commercial paper borrowings. No other units were sold through the “at-the-market” program during the three months ended September 30, 2015.

We have an “at-the-market” equity program for the offer and sale from time to time of our common units, up to an aggregate amount of $650 million. The program allows us to offer and sell our common units at prices we deem appropriate through a sales agent. Sales of common units are made by means of ordinary brokers’ transactions on the NYSE, in block transactions or as otherwise agreed to between us and the sales agent. We are under no obligation to offer and sell common units under the program. At September 30, 2016, we had approximately $138 million of registered common units available for issuance through our “at-the-market” equity program.

During the three and nine months ended September 30, 2016, no common units were sold through our “at-the-market” equity program.

During the nine months ended September 30, 2015, we sold 10.5 million common units through our “at-the-market” equity program, including the units sold to funds managed by Kayne Anderson Capital Advisors in the offering discussed above. The net proceeds, including ONEOK Partners GP’s contribution to maintain its 2 percent general partner interest in us, were approximately $381.6 million, which were used for general partnership purposes, including repayment of commercial paper borrowings.

Partnership Agreement - Available cash, as defined in our Partnership Agreement, generally will be distributed to our general partner and limited partners according to their partnership percentages of 2 percent and 98 percent, respectively. Our general partner’s percentage interest in quarterly distributions is increased after certain specified target levels are met during the quarter. Under the incentive distribution provisions, as set forth in our Partnership Agreement, our general partner receives:
15 percent of amounts distributed in excess of $0.3025 per unit;
25 percent of amounts distributed in excess of $0.3575 per unit; and
50 percent of amounts distributed in excess of $0.4675 per unit.

Cash Distributions - In October 2016, our general partner declared a cash distribution of $0.79 per unit ($3.16 per unit on an annualized basis) for the third quarter 2016, which will be paid on November 14, 2016, to unitholders of record at the close of business on October 31, 2016.


21


The following table sets forth our distributions paid during the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands, except per unit amounts)
Distribution per unit
$
0.79

 
$
0.79

 
$
2.37

 
$
2.37

 
 
 
 
 
 
 
 
General partner distributions
$
6,660

 
$
6,081

 
$
19,980

 
$
17,950

Incentive distributions
100,538

 
91,794

 
301,614

 
270,962

Distributions to general partner
107,198

 
97,875

 
321,594

 
288,912

Limited partner distributions to ONEOK
90,323

 
73,302

 
270,969

 
219,907

Limited partner distributions to other unitholders
135,480

 
132,862

 
406,439

 
388,655

Total distributions paid
$
333,001

 
$
304,039

 
$
999,002

 
$
897,474


Distributions are declared and paid within 45 days of the completion of each quarter. The following table sets forth our distributions declared for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands, except per unit amounts)
Distribution per unit
$
0.79

 
$
0.79

 
$
2.37

 
$
2.37

 
 
 
 
 
 
 
 
General partner distributions
$
6,660

 
$
6,660

 
$
19,980

 
$
18,696

Incentive distributions
100,538

 
100,538

 
301,614

 
282,221

Distributions to general partner
107,198

 
107,198

 
321,594

 
300,917

Limited partner distributions to ONEOK
90,323

 
90,323

 
270,969

 
236,927

Limited partner distributions to other unitholders
135,480

 
135,480

 
406,439

 
396,925

Total distributions declared
$
333,001

 
$
333,001

 
$
999,002

 
$
934,769


G.
ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the balance in accumulated other comprehensive loss for the period indicated:
 
 
Unrealized Gains
(Losses) on Risk-
Management
Assets/Liabilities
 
Unrealized Gains
(Losses) on Risk-
Management
Assets/Liabilities of
Unconsolidated
Affiliates
 
Accumulated
Other
Comprehensive
Loss
 
 
(Thousands of dollars)
January 1, 2016
 
$
(111,357
)
 
$
(1,925
)
 
$
(113,282
)
Other comprehensive income (loss) before reclassifications
 
(98,613
)
 
(12,071
)
 
(110,684
)
Amounts reclassified from accumulated other comprehensive loss
 
(17,787
)
 

 
(17,787
)
Net current-period other comprehensive income (loss) attributable to ONEOK Partners
 
(116,400
)
 
(12,071
)
 
(128,471
)
September 30, 2016
 
$
(227,757
)
 
$
(13,996
)
 
$
(241,753
)


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The following table sets forth the effect of reclassifications from accumulated other comprehensive loss in our Consolidated Statements of Income for the periods indicated:
Details about Accumulated Other
Comprehensive Loss
Components
 
Three Months Ended
 
Nine Months Ended
 
Affected Line Item in the
Consolidated
Statements of Income
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
(Thousands of dollars)
 
 
Unrealized gains (losses) on risk-management assets/liabilities
 
 
 
 
 
 
 
 
 
 
Commodity contracts
 
$
908

 
$
22,770

 
$
29,456

 
$
54,020

 
Commodity sales revenues
Interest-rate contracts
 
(3,925
)
 
(3,676
)
 
(11,669
)
 
(10,235
)
 
Interest expense
Total reclassifications for the period attributable to ONEOK Partners
 
$
(3,017
)
 
$
19,094

 
$
17,787

 
$
43,785

 
Net income attributable to ONEOK Partners

H.
LIMITED PARTNERS’ NET INCOME PER UNIT

Limited partners’ net income per unit is computed by dividing net income attributable to ONEOK Partners, L.P., after deducting the general partner’s allocation as discussed below, by the weighted-average number of outstanding limited partner units, which includes our common and Class B limited partner units. Because ONEOK has conditionally waived its right to increased quarterly distributions, until it gives 90 days notice of the withdrawal of the waiver, currently each Class B and common unit share equally in the earnings of the Partnership, and neither has any liquidation or other preferences.

ONEOK Partners GP owns the entire 2 percent general partnership interest in us, which entitles it to incentive distribution rights that provide for an increasing proportion of cash distributions from the Partnership as the distributions made to limited partners increase above specified levels. For purposes of our calculation of limited partners’ net income per unit, net income attributable to ONEOK Partners, L.P. is allocated to the general partner as follows: (i) an amount based upon the 2 percent general partner interest in net income attributable to ONEOK Partners, L.P.; and (ii) the amount of the general partner’s incentive distribution rights based on the total cash distributions declared for the period.

The terms of our Partnership Agreement limit the general partner’s incentive distribution to the amount of available cash calculated for the period. As such, incentive distribution rights are not allocated on undistributed earnings. For additional information regarding our general partner’s incentive distribution rights, see “Partnership Agreement” in Note F.

I.
UNCONSOLIDATED AFFILIATES

Equity in Net Earnings from Investments - The following table sets forth our equity in net earnings from investments for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands of dollars)
Northern Border Pipeline
$
17,854

 
$
16,156

 
$
52,251

 
$
51,131

Overland Pass Pipeline Company
13,886

 
10,538

 
40,798

 
27,048

Other
3,415

 
5,550

 
7,392

 
15,026

Equity in net earnings from investments
$
35,155

 
$
32,244

 
$
100,441

 
$
93,205



23


Unconsolidated Affiliates Financial Information - The following table sets forth summarized combined financial information of our unconsolidated affiliates for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands of dollars)
Income Statement
 
 
 
 
 
 
 
Operating revenues
$
143,967

 
$
135,474

 
$
423,170

 
$
390,793

Operating expenses
$
66,490

 
$
64,786

 
$
191,863

 
$
178,324

Net income
$
72,672

 
$
67,121

 
$
214,129

 
$
196,123

 
 
 
 
 
 
 
 
Distributions paid to us
$
40,822

 
$
36,370

 
$
149,399

 
$
117,153


We incurred expenses in transactions with unconsolidated affiliates of $36.4 million and $28.4 million for the three months ended September 30, 2016 and 2015, respectively, and $105.3 million and $74.2 million for the nine months ended September 30, 2016 and 2015, respectively, primarily related to Overland Pass Pipeline Company and Northern Border Pipeline. Accounts payable to our equity-method investees at September 30, 2016, and December 31, 2015, were $11.5 million and $8.0 million, respectively.

Northern Border Pipeline - The Northern Border Pipeline partnership agreement provides that distributions to Northern Border Pipeline’s partners are to be made on a pro rata basis according to each partner’s percentage interest. The Northern Border Pipeline Management Committee determines the amount and timing of such distributions. Any changes to, or suspension of, the cash distribution policy of Northern Border Pipeline requires the unanimous approval of the Northern Border Pipeline Management Committee. Cash distributions are equal to 100 percent of distributable cash flow as determined from Northern Border Pipeline’s financial statements based upon EBITDA, less interest expense and maintenance capital expenditures. Loans or other advances from Northern Border Pipeline to its partners or affiliates are prohibited under its credit agreement.

Overland Pass Pipeline Company - The Overland Pass Pipeline Company limited liability company agreement provides that distributions to Overland Pass Pipeline Company’s members are to be made on a pro rata bas