●  ONEOK INC /NEW/ · FY 2023 

Market Risk

A quantitative review of market risk disclosures reveals that while companies employ sophisticated derivatives to manage volatility, the potential magnitude of those risks can grow substantially year over year. For one major utility, the total estimated change in fair value related to commodity contracts increased from $53 million in 2022 to $72 million in 2023, indicating a widening scope for market impacts. This growth occurs alongside the company’s ongoing management of broad interest rate exposure across its multi-billion dollar debt portfolio.

OKE L1 Synthesis
●  SYMBOLOGY.ONLINE l1 SYNTHESIS 

Oneok Inc /new Market Risk Synthesis

Quantitative Market Risk Exposure Assessment: ONEOK INC (2023)

This report synthesizes ONEOK INC's market risk disclosures from its 10-K filing, focusing on exposure magnitude, changes over prior periods, and mitigation strategies.

Commodity Price Risk

Magnitude of Exposure: The company is exposed to volatility in key commodities: natural gas, NGLs, Refined Products, condensate, and crude oil. The sensitivity analysis indicates a potential change in the estimated fair value of derivative instruments based on hypothetical 10% movements in underlying prices.

Changes from Prior Periods (Sensitivity Analysis):

  • The total change in estimated fair value of commodity contracts increased significantly year-over-year: $72 million in December 2023 compared to $53 million in December 2022.
  • Refined Products, crude oil and NGLs showed a substantial increase in sensitivity exposure, rising from $35 million (2022) to $67 million (2023).
  • Natural gas sensitivity decreased from $18 million (2022) to $5 million (2023).

Mitigation Strategies: The company employs commodity derivative financial instruments and physical-forward contracts as part of its hedging strategy. These tools are used specifically "to reduce the impact of near-term price fluctuations" associated with their marketing activities.

Assessment:

  • Strength: The use of specific forward contracts and derivatives demonstrates a proactive approach to managing short-term commodity volatility, aligning risk management with business activity mitigation rather than trading.
  • Weakness: The overall increase in the total estimated fair value change ($53M to $72M) suggests that the magnitude of potential market movements impacting their derivative portfolio has grown, requiring continued monitoring.

Interest Rate Sensitivity

Magnitude of Exposure: ONEOK is exposed through its debt structure, including a $2.5 Billion Credit Agreement, commercial paper program, term loan agreements, and long-term debt issuances. The primary risk identified is that future increases in commercial paper or bond rates could lead to increased interest costs on future borrowings.

Changes from Prior Periods (Hedging Instruments):

  • Treasury Locks: In Q2 2023, the company entered into $1.1 billion of Treasury locks. However, by December 31, 2023, and December 31, 2022, there were no outstanding Treasury lock agreements. All related locks for the Magellan Acquisition ($5.25B notes) were settled in Q3 2023.
  • Interest-Rate Swaps: In Dec 2022, $0.4 billion in forward-starting swaps were held. These were fully settled in Q3 2023 related to the Magellan Acquisition. By December 31, 2023, there were no outstanding forward-starting interest-rate swaps.

Mitigation Strategies: The company utilizes a combination of fixed-rate debt, floating-rate debt, Treasury locks, and interest-rate swaps to manage rate variability on its forecasted debt issuances.

Assessment:

  • Strength: The timely settlement of all outstanding hedging instruments (Treasury locks and swaps) related to the Magellan Acquisition in Q3 2023 indicates a successful execution of their financial strategy for that specific large issuance, resulting in zero outstanding hedges at year-end 2023.
  • Weakness: Despite successfully settling prior hedges, the company remains exposed to interest rate risk across its broad debt portfolio ($2.5 Billion Credit Agreement), necessitating ongoing vigilance regarding future borrowing costs.

Quantitative Measures and Modeling

Disclosure of Metrics: The company utilizes a sensitivity analysis model to assess derivative portfolio risk. This model measures potential changes in fair value based on hypothetical movements (specifically, a 10% movement) in underlying commodity prices or interest rates.

Assessment:

  • Strength: The use of a formal sensitivity analysis model provides a structured, quantitative method for estimating reasonably possible gains and losses associated with their derivative contracts.
  • Weakness: The disclosure explicitly notes that these estimates are not necessarily indicative of actual results, which is standard but highlights the inherent uncertainty in forecasting market movements.

Foreign Currency Exposure

The provided document does not contain any disclosures regarding foreign currency exposure, currencies involved, or related hedging activities.

Equity Price Risk

The provided document focuses on commodity and interest rate risk management through derivatives used to mitigate business risks. There is no specific disclosure detailing the company's investment portfolio exposure or associated mark-to-market impacts from equity price fluctuations.