UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2023.

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   001-13643

ONEOK, Inc.

(Exact name of registrant as specified in its charter)

Oklahoma	73-1520922
(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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value of $0.01	OKE	New York Stock Exchange

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 ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒  Accelerated filer ☐  Non-accelerated filer ☐  Smaller reporting company ☐   Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

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

On July 31, 2023, the Company had 447,674,825 shares of common stock outstanding.

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ONEOK, Inc.

TABLE OF CONTENTS

Part I.	Financial Information	Page No.
Item 1.	Financial Statements (Unaudited)	6
	Consolidated Statements of Income - Three and Six Months Ended June 30, 2023 and 2022	6
	Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2023 and 2022	7
	Consolidated Balance Sheets - June 30, 2023 and December 31, 2022	8
	Consolidated Statements of Cash Flows - Six Months Ended June 30, 2023 and 2022	11
	Consolidated Statements of Changes in Equity - Three and Six Months Ended June 30, 2023 and 2022	12
	Notes to Consolidated Financial Statements	14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	44
Part II.	Other Information	45
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
Signature		48

As used in this Quarterly Report, references to “we,” “our” or “us” refer to ONEOK, Inc., an Oklahoma corporation, and its predecessors and 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,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “might,” “outlook,” “plan,” “potential,” “project,” “scheduled,” “should,” “target,” “will,” “would” 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,” and Part II, Item 1A, “Risk Factors,” 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.oneok.com) copies of our Annual Reports, Quarterly Reports, 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, Corporate Governance Guidelines, Director Independence Guidelines, Corporate Sustainability Report and the written charters of our Board Committees also are available on our website, and we will provide copies of these documents upon request.

In addition to our filings with the SEC and materials posted on our website, we also use social media platforms as additional channels of distribution to reach public investors. Information contained on our website, posted on our social media accounts, and any corresponding applications, are not incorporated by reference into this report.

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GLOSSARY

The abbreviations, acronyms and industry terminology used in this Quarterly Report are defined as follows:

$2.5 Billion Credit Agreement	ONEOK’s $2.5 billion amended and restated revolving credit agreement, as amended
AFUDC	Allowance for funds used during construction
Annual Report	Annual Report on Form 10-K for the year ended December 31, 2022
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	United States Commodity Futures Trading Commission
DJ	Denver-Julesburg
EBITDA	Earnings before interest expense, income taxes, depreciation and amortization
EPA	United States Environmental Protection Agency
EPS	Earnings per share of common stock
Exchange Act	Securities Exchange Act of 1934, as amended
FERC	Federal Energy Regulatory Commission
Fitch	Fitch Ratings, Inc.
GAAP	Accounting principles generally accepted in the United States of America
Guardian	Guardian Pipeline, L.L.C., a wholly owned subsidiary of ONEOK, Inc.
Guardian Term Loan Agreement	Guardian’s senior unsecured three-year $120 million term loan agreement dated June 2022
GHG	Greenhouse gas
Homeland Security	United States Department of Homeland Security
Intermediate Partnership	ONEOK Partners Intermediate Limited Partnership, a wholly owned subsidiary of ONEOK Partners, L.P.
Magellan	Magellan Midstream Partners, L.P.
MBbl/d	Thousand barrels per day
MDth/d	Thousand dekatherms per day
Merger Agreement	Agreement and Plan of Merger of ONEOK, Otter Merger Sub, LLC and Magellan, dated May 14, 2023
Merger Transaction	The transaction contemplated by the Merger Agreement pursuant to which ONEOK will acquire all of Magellan’s outstanding common units in a cash-and-stock transaction
MMBbl	Million barrels
MMBtu	Million British thermal units
MMcf/d	Million cubic feet per day
Moody’s	Moody’s Investors Service, Inc.
Natural Gas Act	Natural Gas Act of 1938, as amended
NGL(s)	Natural gas liquid(s)
Northern Border	Northern Border Pipeline Company, a 50% owned joint venture
NYMEX	New York Mercantile Exchange
ONEOK	ONEOK, Inc.
ONEOK Partners	ONEOK Partners, L.P., a wholly owned subsidiary of ONEOK, Inc.
OPIS	Oil Price Information Service
Overland Pass	Overland Pass Pipeline Company, LLC, a 50% owned joint venture
PHMSA	United States Department of Transportation Pipeline and Hazardous Materials Safety Administration
POP	Percent of Proceeds
Purity NGLs	Marketable natural gas liquid purity products, such as ethane, ethane/propane mix, propane, iso-butane, normal butane and natural gasoline
Quarterly Report(s)	Quarterly Report(s) on Form 10-Q
Roadrunner	Roadrunner Gas Transmission, LLC, a 50% owned joint venture
S&P	S&P Global Ratings
SEC	Securities and Exchange Commission

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Series E Preferred Stock	Series E Non-Voting, Perpetual Preferred Stock, par value $0.01 per share
SOFR	Secured Overnight Financing Rate
Term SOFR	The forward-looking term rate based on SOFR
Viking	Viking Gas Transmission Company, a wholly owned subsidiary of ONEOK, Inc.
Viking Term Loan Agreement	Viking’s senior unsecured three-year $60 million term loan agreement dated March 2023
WTI	West Texas Intermediate
XBRL	eXtensible Business Reporting Language

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Unaudited)	2023		2022		2023		2022
	(Millions of dollars, except per share amounts)
Revenues
Commodity sales	$	3,371	$	5,651	$	7,527	$	10,756
Services	361		345		726		685
Total revenues (Note L)	3,732		5,996		8,253		11,441
Cost of sales and fuel (exclusive of items shown separately below)	2,482		4,878		5,829		9,244
Operations and maintenance	296		231		535		445
Depreciation and amortization	170		158		332		312
General taxes	47		46		104		96
Other operating (income) expense, net (Note C)	—		(6)		(781)		(7)
Operating income	737		689		2,234		1,351
Equity in net earnings from investments (Note J)	43		36		83		72
Other income (expense), net	13		(9)		21		(22)
Interest expense (net of capitalized interest of $6, $13, $24, and $25, respectively)	(180)		(171)		(346)		(343)
Income before income taxes	613		545		1,992		1,058
Income taxes	(145)		(131)		(475)		(253)
Net income	468		414		1,517		805
Less: Preferred stock dividends	—		—		—		—
Net income available to common shareholders	$	468	$	414	$	1,517	$	805
Basic EPS (Note I)	$	1.04	$	0.93	$	3.38	$	1.80
Diluted EPS (Note I)	$	1.04	$	0.92	$	3.38	$	1.80
Average shares (millions)
Basic	448.3		447.5		448.2		447.3
Diluted	449.0		448.2		449.0		448.3

See accompanying Notes to Consolidated Financial Statements.

6

ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Unaudited)	2023		2022		2023		2022
	(Millions of dollars)
Net income	$	468	$	414	$	1,517	$	805
Other comprehensive income (loss), net of tax
Change in fair value of derivatives, net of tax of $(15), $(7), $(22) and $14, respectively	51		22		74		(50)
Derivative amounts reclassified to net income, net of tax of $7, $(21), $10 and $(41), respectively	(25)		70		(37)		136
Change in retirement and other postretirement benefit plan obligations, net of tax of $—, $(1), $— and $(2), respectively	1		3		1		6
Other comprehensive income (loss) of unconsolidated affiliates, net of tax of $—, $(2), $1 and $(4), respectively	(3)		6		(5)		13
Total other comprehensive income, net of tax	24		101		33		105
Comprehensive income	$	492	$	515	$	1,550	$	910

See accompanying Notes to Consolidated Financial Statements.

7

ONEOK, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
		June 30,		December 31,
(Unaudited)		2023		2022
Assets	(Millions of dollars)
Current assets
Cash and cash equivalents		$	106	$	220
Accounts receivable, net		1,023		1,532
Materials and supplies		146		149
NGLs and natural gas in storage		314		432
Commodity imbalances		30		43
Other current assets		244		172
Total current assets		1,863		2,548
Property, plant and equipment
Property, plant and equipment		25,601		25,015
Accumulated depreciation and amortization		5,372		5,063
Net property, plant and equipment		20,229		19,952
Investments and other assets
Investments in unconsolidated affiliates		885		802
Goodwill and net intangible assets		748		753
Other assets		313		324
Total investments and other assets		1,946		1,879
Total assets		$	24,038	$	24,379

8

ONEOK, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Continued)
		June 30,		December 31,
(Unaudited)		2023		2022
Liabilities and equity	(Millions of dollars)
Current liabilities
Current maturities of long-term debt (Note F)		$	—	$	925
Accounts payable		880		1,359
Commodity imbalances		163		254
Accrued taxes		130		136
Accrued interest		214		233
Operating lease liability		12		12
Other current liabilities		118		132
Total current liabilities		1,517		3,051
Long-term debt, excluding current maturities (Note F)		12,742		12,696
Deferred credits and other liabilities
Deferred income taxes		2,168		1,739
Operating lease liability		63		68
Other deferred credits		330		331
Total deferred credits and other liabilities		2,561		2,138
Commitments and contingencies (Note K)
Equity (Note G)
ONEOK shareholders’ equity:
Preferred stock, $0.01 par value: authorized and issued 20,000 shares at June 30, 2023, and December 31, 2022		—		—
Common stock, $0.01 par value: authorized 1,200,000,000 shares; issued 474,916,234 shares and outstanding 447,671,698 shares at June 30, 2023; issued 474,916,234 shares and outstanding 447,157,771 shares at December 31, 2022		5		5
Paid-in capital		7,270		7,253
Accumulated other comprehensive loss (Note H)		(75)		(108)
Retained earnings		711		50
Treasury stock, at cost: 27,244,536 shares at June 30, 2023, and 27,758,463 shares at   December 31, 2022		(693)		(706)
Total equity		7,218		6,494
Total liabilities and equity		$	24,038	$	24,379

See accompanying Notes to Consolidated Financial Statements.

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ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Six Months Ended
	June 30,
(Unaudited)	2023		2022
	(Millions of dollars)
Operating activities
Net income	$	1,517	$	805
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	332		312
Equity in net earnings from investments	(83)		(72)
Distributions received from unconsolidated affiliates	86		72
Deferred income taxes	419		228
Medford settlement gain	(779)		—
Medford settlement proceeds	502		—
Other, net	43		45
Changes in assets and liabilities:
Accounts receivable	456		(340)
NGLs and natural gas in storage, net of commodity imbalances	40		(165)
Accounts payable	(443)		569
Risk-management assets and liabilities	47		(131)
Other assets and liabilities, net	(144)		(73)
Cash provided by operating activities	1,993		1,250
Investing activities
Capital expenditures (less allowance for equity funds used during construction)	(594)		(559)
Contributions to unconsolidated affiliates	(108)		(1)
Distributions received from unconsolidated affiliates in excess of cumulative earnings	16		13
Medford settlement proceeds	328		—
Other, net	5		4
Cash used in investing activities	(353)		(543)
Financing activities
Dividends paid	(855)		(835)
Issuance of long-term debt, net of discounts	60		120
Repayment of long-term debt	(940)		—
Other, net	(19)		(2)
Cash used in financing activities	(1,754)		(717)
Change in cash and cash equivalents	(114)		(10)
Cash and cash equivalents at beginning of period	220		146
Cash and cash equivalents at end of period	$	106	$	136

See accompanying Notes to Consolidated Financial Statements.

11

ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)	Preferred Stock Issued	Common Stock Issued	Preferred Stock		Common Stock		Paid-in Capital
	(Shares)		(Millions of dollars)
January 1, 2023	20,000	474,916,234	$	—	$	5	$	7,253
Net income	—	—	—		—		—
Other comprehensive income (Note H)	—	—	—		—		—
Preferred stock dividends - $13.75 per share (Note G)	—	—	—		—		—
Common stock issued	—	—	—		—		(3)
Common stock dividends - $0.955 per share (Note G)	—	—	—		—		—
Other, net	—	—	—		—		3
March 31, 2023	20,000	474,916,234	—		5		7,253
Net income	—	—	—		—		—
Other comprehensive income (Note H)	—	—	—		—		—
Preferred stock dividends - $13.75 per share (Note G)	—	—	—		—		—
Common stock issued	—	—	—		—		7
Common stock dividends - $0.955 per share (Note G)	—	—	—		—		—
Other, net	—	—	—		—		10
June 30, 2023	20,000	474,916,234	$	—	$	5	$	7,270

(Unaudited)	Preferred Stock Issued	Common Stock Issued	Preferred Stock		Common Stock		Paid-in Capital
	(Shares)		(Millions of dollars)
January 1, 2022	20,000	474,916,234	$	—	$	5	$	7,214
Net income	—	—	—		—		—
Other comprehensive income	—	—	—		—		—
Preferred stock dividends - $13.75 per share	—	—	—		—		—
Common stock issued	—	—	—		—		(6)
Common stock dividends - $0.935 per share	—	—	—		—		(26)
Other, net	—	—	—		—		(5)
March 31, 2022	20,000	474,916,234	—		5		7,177
Net income	—	—	—		—		—
Other comprehensive income	—	—	—		—		—
Preferred stock dividends - $13.75 per share	—	—	—		—		—
Common stock issued	—	—	—		—		7
Common stock dividends - $0.935 per share	—	—	—		—		(4)
Other, net	—	—	—		—		10
June 30, 2022	20,000	474,916,234	$	—	$	5	$	7,190

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ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Continued)
(Unaudited)	Accumulated Other Comprehensive Loss		Retained Earnings		Treasury Stock		Total Equity
	(Millions of dollars)
January 1, 2023	$	(108)	$	50	$	(706)	$	6,494
Net income	—		1,049		—		1,049
Other comprehensive income (Note H)	9		—		—		9
Preferred stock dividends - $13.75 per share (Note G)	—		—		—		—
Common stock issued	—		—		7		4
Common stock dividends - $0.955 per share (Note G)	—		(427)		—		(427)
Other, net	—		—		—		3
March 31, 2023	(99)		672		(699)		7,132
Net income	—		468		—		468
Other comprehensive income (Note H)	24		—		—		24
Preferred stock dividends - $13.75 per share (Note G)	—		—		—		—
Common stock issued	—		—		6		13
Common stock dividends $0.955 - per share (Note G)	—		(429)		—		(429)
Other, net	—		—		—		10
June 30, 2023	$	(75)	$	711	$	(693)	$	7,218

(Unaudited)	Accumulated Other Comprehensive Loss		Retained Earnings		Treasury Stock		Total Equity
	(Millions of dollars)
January 1, 2022	$	(472)	$	—	$	(732)	$	6,015
Net income	—		391		—		391
Other comprehensive income	4		—		—		4
Preferred stock dividends - $13.75 per share	—		—		—		—
Common stock issued	—		—		12		6
Common stock dividends - $0.935 per share	—		(391)		—		(417)
Other, net	—		—		—		(5)
March 31, 2022	(468)		—		(720)		5,994
Net income	—		414		—		414
Other comprehensive income	101		—		—		101
Preferred stock dividends - $13.75 per share	—		—		—		—
Common stock issued	—		—		7		14
Common stock dividends - $0.935 per share	—		(414)		—		(418)
Other, net	—		—		—		10
June 30, 2022	$	(367)	$	—	$	(713)	$	6,115

See accompanying Notes to Consolidated Financial Statements.

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ONEOK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 2022 year-end Consolidated Balance Sheet data was derived from our audited Consolidated Financial Statements but does not include all disclosures required by GAAP. These unaudited Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements in our Annual Report.

Recently Issued Accounting Standards Update - Changes to GAAP are established by the Financial Accounting Standards Board (FASB) in the form of ASUs to the FASB Accounting Standards Codification. We consider the applicability and impact of all ASUs. ASUs not discussed herein or in our Annual Report were assessed and determined to be either not applicable or clarifications of ASUs previously issued. There have been no new accounting pronouncements that have become effective or have been issued that are of significance or potential significance to us.

B.    ACQUISITION OF MAGELLAN

On May 14, 2023, we announced an agreement to acquire all of the outstanding common units of Magellan in a cash-and-stock transaction. Magellan primarily transports, stores and distributes refined petroleum products and crude oil. Pursuant to the Merger Agreement, each common unit of Magellan will be exchanged for a fixed ratio of 0.667 shares of ONEOK common stock and $25.00 of cash in a taxable transaction to Magellan common unitholders. Following completion of the Merger Transaction, we expect Magellan to be our wholly owned subsidiary. ONEOK, ONEOK Partners and the Intermediate Partnership expect to issue guarantees of Magellan’s debt, which we expect to remain outstanding.

Our Board of Directors and the Board of Directors of the general partner of Magellan both unanimously approved the Merger Agreement. The Merger Transaction is expected to close during the third quarter of 2023, subject to the approval of ONEOK shareholders and Magellan unitholders and other customary closing conditions. In June 2023, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired, which satisfies one of the conditions to the closing of the Merger Transaction.

If the Merger Agreement is terminated under certain conditions, Magellan may be required to reimburse our expenses up to $125 million or pay us a termination fee equal to $275 million less any expenses previously paid. Further, we may be required to reimburse Magellan’s expenses up to $75 million or pay Magellan a termination fee equal to $450 million, less any expenses previously paid.

We intend to finance the cash portion of the Merger Transaction consideration with debt. In May 2023, we entered into a commitment letter for an unsecured 364-day bridge loan facility in an aggregate principal amount of $5.25 billion, which is subject to a number of customary conditions. Prior to the close of the Merger Transaction, we expect to issue senior unsecured notes and terminate the commitment letter undrawn.

If the Merger Transaction closes, it will be accounted for using the acquisition method of accounting for business combinations in accordance with ASC 805. Accordingly, the assets acquired and liabilities assumed will be recorded at their acquisition date fair values. Any excess of the consideration to be transferred over the estimated fair value of assets acquired and liabilities assumed will be recorded as goodwill.

See Part 2, Item 1A “Risk Factors” for further discussion of risks related to the acquisition.

C.    MEDFORD INCIDENT

On July 9, 2022, a fire occurred at our 210 MBbl/d Medford, Oklahoma, natural gas liquids fractionation facility. Beginning in August 2022, we developed claims related to the Medford incident and recorded accruals for the expected insurance recoveries. We assessed incurred costs and lost earnings related to business interruption and property damage to our facility, as well as timing of recognition under applicable insurance recovery guidance, and recorded accruals of $151 million in 2022 for insurance recoveries that offset our incurred costs and losses.

14

On January 9, 2023, we reached an agreement with our insurers to settle all claims for physical damage and business interruption related to the Medford incident. Under the terms of the settlement agreement, we agreed to resolve the claims for total insurance payments of $930 million, $100 million of which was received in 2022. The remaining $830 million was received in the first quarter 2023. The proceeds serve as settlement for property damage, business interruption claims to the date of the settlement and as payment in lieu of future business interruption insurance claims.

In the first quarter 2023, we applied the $830 million received to our outstanding insurance receivable at December 31, 2022, of $51 million, and recorded an operational gain for the remaining $779 million in other operating (income) expense, net, within the Consolidated Statement of Income. We classified proceeds received within the Consolidated Statement of Cash Flows based on our assessment of the nature of the loss (property and business interruption) included in the settlement.

D.    FAIR VALUE MEASUREMENTS

Determining Fair Value - For our fair value measurements, we utilize market prices, third-party pricing services, present value methods and standard option valuation models to determine the price we would receive from the sale of an asset or the transfer of a liability in an orderly transaction at the measurement date. 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. 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 based on the lowest level input that is significant to the fair value measurement in its entirety. Our valuation techniques and inputs are consistent with those discussed in Note A of the Notes to Consolidated Financial Statements in our Annual Report.

Recurring Fair Value Measurements - The following tables set forth our recurring fair value measurements as of the dates indicated:

	June 30, 2023
	Level 1		Level 2		Level 3		Total - Gross		Netting (a)		Total - Net
	(Millions of dollars)
Derivative assets
Commodity contracts	$	36	$	169	$	—	$	205	$	(165)	$	40
Interest-rate contracts	—		17		—		17		—		17
Total derivative assets	$	36	$	186	$	—	$	222	$	(165)	$	57
Derivative liabilities
Commodity contracts	$	(16)	$	(111)	$	—	$	(127)	$	127	$	—
Interest-rate contracts	—		(4)		—		(4)		—		(4)
Total derivative liabilities	$	(16)	$	(115)	$	—	$	(131)	$	127	$	(4)

(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet 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 June 30, 2023, we posted no cash and held cash of $38 million from various counterparties, which offsets our derivative net asset position under master netting arrangements as shown in the table above.

	December 31, 2022
	Level 1		Level 2		Level 3		Total - Gross		Netting (a)		Total - Net
	(Millions of dollars)
Derivative assets
Commodity contracts	$	15	$	152	$	—	$	167	$	(125)	$	42
Interest-rate contracts	—		11		—		11		—		11
Total derivative assets	$	15	$	163	$	—	$	178	$	(125)	$	53
Derivative liabilities
Commodity contracts	$	(38)	$	(87)	$	—	$	(125)	$	125	$	—
Total derivative liabilities	$	(38)	$	(87)	$	—	$	(125)	$	125	$	—

(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet 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, 2022, we held no cash and posted $9 million of cash with various counterparties, which is included in other current assets in our Consolidated Balance Sheet.

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The following table sets forth a reconciliation of our Level 3 fair value measurements for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Derivative Assets (Liabilities)	2023		2022		2023		2022
	(Millions of dollars)
Net liabilities at beginning of period	$	—	$	(190)	$	—	$	(114)
Total changes in fair value:
Settlements included in net income (a)	—		57		—		60
New Level 3 derivatives included in other comprehensive income (b)	—		9		—		9
Unrealized change included in other comprehensive income (b)	—		14		—		(65)
Net liabilities at end of period	$	—	$	(110)	$	—	$	(110)

(a) - Included in commodity sales revenues/cost of sales and fuel in our Consolidated Statements of Income.

(b) - Included in change in fair value of derivatives in our Consolidated Statements of Comprehensive Income.

During the year ended December 31, 2022, we transferred out of Level 3 commodity derivatives associated with certain locations for NGL basis swaps, principally due to improved transparency of market prices as a result of the volume and frequency of transactions in these markets. We consider the valuation of these commodity derivatives, which are transacted through a clearing broker and valued with an unadjusted published price from an exchange, as a Level 2 valuation.

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 composed 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. We have investments associated with our supplemental executive retirement plan and nonqualified deferred compensation plan that are carried at fair value and primarily are composed of exchange-traded mutual funds classified as Level 1.

The estimated fair value of our consolidated long-term debt, including current maturities, was $11.9 billion and $12.7 billion at June 30, 2023, and December 31, 2022, respectively. The book value of our consolidated long-term debt, including current maturities, was $12.7 billion and $13.6 billion at June 30, 2023, and December 31, 2022, respectively. The estimated fair value of the aggregate senior notes outstanding was determined using quoted market prices for similar issues with similar terms and maturities. The estimated fair value of our consolidated long-term debt is classified as Level 2.

E.    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 are also subject to the risk of interest-rate fluctuation in the normal course of business. We use physical-forward purchases and sales and financial derivatives to secure a certain price for a portion of our natural gas, condensate and purity NGLs; 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.

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 may use commodity derivative instruments to reduce the near-term commodity price risk associated with a portion of our forecasted purchases and sales of commodities. Our exposure to commodity price risk is consistent with that discussed in our Annual Report.

Interest-rate risk - We may manage interest-rate risk through the use of fixed-rate debt, floating-rate debt, Treasury locks and interest-rate swaps. Treasury locks are agreements to pay the difference between the benchmark Treasury rate and the rate that is designated in the terms of the agreement. In the second quarter 2023, we entered into $1.1 billion of Treasury locks to hedge the variability of interest payments on a portion of our forecasted debt issuances, resulting in a total of $1.1 billion of Treasury locks outstanding as of June 30, 2023. All of our Treasury locks are designated as cash flow hedges.

Interest-rate swaps are agreements to exchange interest payments at some future point based on specified notional amounts. At June 30, 2023 and December 31, 2022, we had forward-starting interest-rate swaps with notional amounts totaling $0.4 billion,

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to hedge the variability of interest payments on a portion of our forecasted debt issuances. All of our interest-rate swaps are designated as cash flow hedges.

Fair Values of Derivative Instruments - The following table sets forth the fair values of our derivative instruments presented on a gross basis as of the dates indicated:

		June 30, 2023				December 31, 2022
	Location in our Consolidated Balance Sheets	Assets		(Liabilities)		Assets		(Liabilities)
Derivatives designated as hedging instruments		(Millions of dollars)
Commodity contracts (a)	Other current assets	$	205	$	(127)	$	160	$	(123)
	Other assets	—		—		6		(1)
Interest-rate contracts	Other current assets/liabilities	17		(4)		11		—
Total derivatives designated as hedging instruments		222		(131)		177		(124)
Derivatives not designated as hedging instruments
Commodity contracts (a)	Other current assets	—		—		1		(1)
Total derivatives not designated as hedging instruments		—		—		1		(1)
Total derivatives		$	222	$	(131)	$	178	$	(125)

(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us.

Notional Quantities for Derivative Instruments - The following table sets forth the notional quantities for derivative instruments held as of the dates indicated:

		June 30, 2023		December 31 2022
	Contract Type	Net Purchased/Payor (Sold/Receiver)
Derivatives designated as hedging instruments:
Cash flow hedges
Fixed price
- Natural gas (Bcf)	Futures	(20.2)		(39.3)
- Crude oil and NGLs (MMBbl)	Futures	(12.9)		(8.4)
Basis
- Natural gas (Bcf)	Futures	(18.2)		(39.3)
Interest-rate contracts (Billions of dollars)	Swaps	$	0.4	$	0.4
Interest-rate contracts (Billions of dollars)	Treasury locks	$	1.1	$	—
Derivatives not designated as hedging instruments:
Fixed price
- Natural gas (Bcf)	Futures	—		(0.1)
- Crude oil and NGLs (MMBbl)	Futures	—		0.1
Basis
- Natural gas (Bcf)	Futures	—		(0.1)

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Cash Flow Hedges - The following table sets forth the unrealized change in fair value of cash flow hedges in other comprehensive income (loss) for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Commodity contracts	$	54	$	(34)	$	94	$	(208)
Interest-rate contracts	12		63		2		144
Total unrealized change in fair value of cash flow hedges in other comprehensive income (loss)	$	66	$	29	$	96	$	(64)

The following table sets forth the effect of cash flow hedges on net income for the periods indicated:

Derivatives in Cash Flow Hedging Relationships	Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income	Three Months Ended				Six Months Ended
		June 30,				June 30,
		2023		2022		2023		2022
		(Millions of dollars)
Commodity contracts	Commodity sales revenues	$	95	$	(257)	$	118	$	(468)
	Cost of sales and fuel	(57)		176		(60)		310
Interest-rate contracts	Interest expense	(6)		(10)		(11)		(19)
Total change in fair value of cash flow hedges reclassified from accumulated other comprehensive loss into net income on derivatives		$	32	$	(91)	$	47	$	(177)

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 credit risk. Our policies and related credit risk are consistent with those discussed in our Annual Report.

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F.    DEBT

The following table sets forth our consolidated debt as of the dates indicated:

	June 30, 2023		December 31, 2022
	(Millions of dollars)
Commercial paper outstanding (a)	$	—	$	—
Senior unsecured obligations:
$425 at 5.0% due September 2023	—		425
$500 at 7.5% due September 2023	—		500
$500 at 2.75% due September 2024	500		500
$500 at 4.9% due March 2025	500		500
$400 at 2.2% due September 2025	387		387
$600 at 5.85% due January 2026	600		600
$500 at 4.0% due July 2027	500		500
$800 at 4.55% due July 2028	800		800
$100 at 6.875% due September 2028	100		100
$700 at 4.35% due March 2029	700		700
$750 at 3.4% due September 2029	714		714
$850 at 3.1% due March 2030	780		780
$