●  ONEOK INC /NEW/ · FY 2021 

Market Risk

Analysis of ONEOK INC's market disclosures reveals evolving strategies for managing financial volatility across key sectors. While the company maintains robust hedging programs with high coverage rates in recent periods, filings indicate a substantial reduction in that protective coverage as forecasts extend into future years. Furthermore, the risk assessments rely primarily on sensitivity analysis rather than formal Value-at-Risk metrics to gauge potential losses from defined market movements.

OKE L1 Synthesis
●  SYMBOLOGY.ONLINE l1 SYNTHESIS 

Oneok Inc /new Market Risk Synthesis

Quantitative Market Risk Exposure Assessment - ONEOK INC

This report synthesizes an analysis of ONEOK INC's market risk disclosures from its 10-K filing, focusing on quantitative exposure and mitigation strategies across key financial risks.

Interest Rate Sensitivity

Exposure Magnitude: The company faces interest rate risk due to borrowings under a $2.5 Billion Credit Agreement, commercial paper program, and long-term debt issuances. Exposure is managed through the use of fixed-rate debt, floating-rate debt, and interest-rate swaps.
Mitigation Strategy: ONEOK utilizes forward-starting interest-rate swaps, which are designated as cash flow hedges. As of December 31, 2021, they held derivative liabilities related to these swaps totaling $145.5 million (down from $203.4 million in 2020). The notional amount for these swaps remained constant at $1.1 billion across both years.
Quantitative Assessment: A hypothetical 10% change in interest rates resulted in an estimated increase in the fair value of forward-starting interest-rate swaps of $19.6 million on December 31, 2021 (up from $12.9 million in 2020).
Assessment:

  • Strength: The company actively uses designated cash flow hedges to manage the variability of future debt payments.
  • Weakness: The derivative liabilities related to these swaps decreased significantly year-over-year ($203.4M to $145.5M), suggesting a change in the structure or effectiveness of their hedging program, though this is not explicitly detailed.

Commodity Price Risk

Exposure Magnitude: Exposure arises primarily from retaining a portion of commodity sales proceeds under fee-with-POP contracts within the Natural Gas Gathering and Processing segment, as well as basis risk between production and market locations. Key commodities include natural gas, NGLs (Natural Gas Liquids), condensate, and crude oil.
Mitigation Strategy: ONEOK employs commodity derivative financial instruments and physical-forward contracts to reduce near-term price fluctuations. The company provides detailed hedging information for forecasted equity volumes, showing high hedge coverage in 2022 (e.g., NGLs at 69%, Natural gas at 75%).
Quantitative Assessment:

  • The total change in the estimated fair value of commodity contracts increased significantly from $30.6 million in 2020 to $52.1 million in 2021.
  • Sensitivity analysis shows that a $0.10 per MMBtu change in residue natural gas price could impact adjusted EBITDA by $5.5 million for the year ending December 31, 2023.
    Assessment:
  • Strength: The company maintains robust hedging programs, with high percentage coverage of forecasted equity volumes in 2022, demonstrating a proactive approach to managing commodity volatility.
  • Weakness: Hedge coverage for future years (2023) is substantially lower than the prior year (e.g., NGLs dropped from 69% to 5%; Natural gas dropped from 75% to 11%), indicating a potential reduction in risk mitigation as forecasts move further out.

Foreign Currency Exposure

Exposure Magnitude: Not disclosed.
Mitigation Strategy: No strategies were mentioned.
Assessment: The provided disclosure does not contain any information regarding exposure or hedging related to foreign currencies.

Equity Price Risk

Exposure Magnitude: Not disclosed.
Mitigation Strategy: Not applicable, as no equity portfolio was identified.
Assessment: The filing focuses on commodity and interest rate risk management; there is no mention of holding an investment portfolio subject to market-driven equity price fluctuations or associated mark-to-market impacts.

Quantitative Measures

Disclosures Provided: Sensitivity analysis models are utilized for both commodity and interest rate risks, measuring the potential change in fair value based on hypothetical movements (e.g., 10% movement). Specific tables detail these estimated gains/losses.
Value-at-Risk (VaR) / Stress Tests: The document does not disclose formal Value-at-Risk metrics or specific results from comprehensive stress testing scenarios, relying instead on sensitivity analysis based on hypothetical price changes.
Assessment:

  • Strength: ONEOK provides clear quantitative estimates of potential losses/gains resulting from defined market movements (e.g., the impact of a $0.10 MMBtu change in natural gas prices).
  • Weakness: The reliance solely on sensitivity analysis, without disclosing VaR or detailed stress test results, limits the depth of external assessment regarding extreme tail risks.