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 March 31, 2024.

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 April 22, 2024, the Company had 583,646,909 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 Months Ended March 31, 2024 and 2023	6
	Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2024 and 2023	6
	Consolidated Balance Sheets - March 31, 2024, and December 31, 2023	7
	Consolidated Statements of Cash Flows - Three Months Ended March 31, 2024 and 2023	9
	Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2024 and 2023	10
	Notes to Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
Part II.	Other Information	33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Signature		36

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 “anticipates,” “believes,” “continues,” “could,” “estimates,” “expect,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “outlook,” “plans,” “potential,” “projects,” “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, 2023
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
BridgeTex	BridgeTex Pipeline Company, LLC, a 30% owned joint venture
EBITDA	Earnings before interest expense, income taxes, depreciation and amortization
EPS	Earnings per share of common stock
ESG	Environmental, social and governance
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Fitch	Fitch Ratings, Inc.
GAAP	Accounting principles generally accepted in the United States of America
GHG	Greenhouse gas
GWh	Gigawatt hour
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
Intermediate Partnership	ONEOK Partners Intermediate Limited Partnership, a wholly owned subsidiary of ONEOK Partners, L.P.
Magellan	Magellan Midstream Partners, L.P., a wholly owned subsidiary of ONEOK, Inc.
Magellan Acquisition	The transaction completed on September 25, 2023, pursuant to which ONEOK acquired all of Magellan’s outstanding common units in a cash-and-stock transaction, pursuant to the Agreement and Plan of Merger of ONEOK, Otter Merger Sub, LLC and Magellan, dated May 14, 2023
MBbl/d	Thousand barrels per day
MDth/d	Thousand dekatherms per day
MMBbl	Million barrels
MMBtu	Million British thermal units
Moody’s	Moody’s Investors Service, Inc.
MVP	MVP Terminalling, LLC, a 25% owned joint venture
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
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
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

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Refined Products	The output from crude oil refineries, including products such as gasoline, diesel fuel, aviation fuel, kerosene and heating oil
Roadrunner	Roadrunner Gas Transmission, LLC, a 50% owned joint venture
S&P	S&P Global Ratings
Saddlehorn	Saddlehorn Pipeline Company, LLC, a 40% owned joint venture
SEC	Securities and Exchange Commission
Series E Preferred Stock	Series E Non-Voting, Perpetual Preferred Stock, par value $0.01 per share
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
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
	March 31,
(Unaudited)	2024		2023
	(Millions of dollars, except per share amounts)
Revenues
Commodity sales	$	3,928	$	4,156
Services	853		365
Total revenues (Note K)	4,781		4,521
Cost of sales and fuel (exclusive of items shown separately below)	2,897		3,347
Operations and maintenance	486		239
Depreciation and amortization	254		162
General taxes	86		57
Other operating income, net (Note C)	(6)		(781)
Operating income	1,064		1,497
Equity in net earnings from investments (Note I)	76		40
Other income, net	7		8
Interest expense (net of capitalized interest of $12 and $18, respectively)	(300)		(166)
Income before income taxes	847		1,379
Income taxes	(208)		(330)
Net income	639		1,049
Less: Preferred stock dividends	—		—
Net income available to common shareholders	$	639	$	1,049
Basic EPS (Note H)	$	1.09	$	2.34
Diluted EPS (Note H)	$	1.09	$	2.34
Average shares (millions)
Basic	584.2		448.1
Diluted	585.7		449.0

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Three Months Ended
	March 31,
(Unaudited)	2024		2023
Net income	$	639	$	1,049
Other comprehensive income (loss), net of tax
Change in fair value of derivatives, net of tax of $22 and $(7), respectively	(75)		23
Derivative amounts reclassified to net income, net of tax of $6 and $3, respectively	(21)		(12)
Changes in benefit plan obligations and other, net of tax of $— and $1, respectively	1		(2)
Total other comprehensive income (loss), net of tax	(95)		9
Comprehensive income	$	544	$	1,058

See accompanying Notes to Consolidated Financial Statements.

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ONEOK, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
		March 31,		December 31,
(Unaudited)		2024		2023
Assets	(Millions of dollars)
Current assets
Cash and cash equivalents		$	65	$	338
Accounts receivable, net		1,699		1,705
Materials and supplies		153		148
Inventories		798		639
Commodity imbalances		23		26
Other current assets		212		252
Total current assets		2,950		3,108
Property, plant and equipment
Property, plant and equipment		38,796		38,454
Accumulated depreciation and amortization		5,989		5,757
Net property, plant and equipment		32,807		32,697
Other assets
Investments in unconsolidated affiliates		1,939		1,874
Goodwill		5,056		4,952
Intangible assets, net		1,311		1,316
Other assets		327		319
Total other assets		8,633		8,461
Total assets		$	44,390	$	44,266
Liabilities and equity
Current liabilities
Current maturities of long-term debt (Note F)		$	1,234	$	484
Short-term borrowings (Note F)		320		—
Accounts payable		1,480		1,564
Commodity imbalances		221		244
Accrued taxes		169		215
Accrued interest		268		381
Other current liabilities		502		564
Total current liabilities		4,194		3,452
Long-term debt, excluding current maturities		20,447		21,183
Deferred credits and other liabilities
Deferred income taxes		2,745		2,594
Other deferred credits		559		553
Total deferred credits and other liabilities		3,304		3,147
Commitments and contingencies (Note J)
Equity (Note G)
Preferred stock, $0.01 par value: authorized and issued 20,000 shares at March 31, 2024, and December 31, 2023		—		—
Common stock, $0.01 par value:  authorized 1,200,000,000 shares; issued 609,713,834 shares and outstanding 583,644,277 shares at  March 31, 2024; issued 609,713,834 shares and outstanding 583,093,100 shares at December 31,  2023		6		6
Paid-in capital		16,303		16,320
Accumulated other comprehensive loss		(128)		(33)
Retained earnings		927		868
Treasury stock, at cost: 26,069,557 shares at March 31, 2024, and 26,620,734 shares at  December 31, 2023		(663)		(677)
Total equity		16,445		16,484
Total liabilities and equity		$	44,390	$	44,266

See accompanying Notes to Consolidated Financial Statements.

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ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Three Months Ended
	March 31,
(Unaudited)	2024		2023
	(Millions of dollars)
Operating activities
Net income	$	639	$	1,049
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	254		162
Equity in net earnings from investments	(76)		(40)
Distributions received from unconsolidated affiliates	78		43
Deferred income taxes	180		285
Medford settlement gain	—		(779)
Medford settlement proceeds	—		502
Other, net	23		18
Changes in assets and liabilities:
Accounts receivable	6		329
Inventories, net of commodity imbalances	(179)		20
Accounts payable	(29)		(237)
Risk-management assets and liabilities	(144)		26
Other assets and liabilities, net	(156)		(157)
Cash provided by operating activities	596		1,221
Investing activities
Capital expenditures (less allowance for equity funds used during construction)	(512)		(289)
Purchases of and contributions to unconsolidated affiliates	(92)		(2)
Distributions received from unconsolidated affiliates in excess of cumulative earnings	25		8
Medford settlement proceeds	—		328
Other, net	1		2
Cash provided by (used in) investing activities	(578)		47
Financing activities
Dividends paid	(578)		(427)
Short-term borrowings, net	320		—
Issuance of long-term debt, net of discounts	—		50
Repayment of long-term debt	—		(425)
Other, net	(33)		(6)
Cash used in financing activities	(291)		(808)
Change in cash and cash equivalents	(273)		460
Cash and cash equivalents at beginning of period	338		220
Cash and cash equivalents at end of period	$	65	$	680

See accompanying Notes to Consolidated Financial Statements.

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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, 2024	20,000	609,713,834	$	—	$	6	$	16,320
Net income	—	—	—		—		—
Other comprehensive loss	—	—	—		—		—
Preferred stock dividends - $13.75 per share (Note G)	—	—	—		—		—
Common stock issued	—	—	—		—		(8)
Common stock dividends - $0.99 per share (Note G)	—	—	—		—		—
Other, net	—	—	—		—		(9)
March 31, 2024	20,000	609,713,834	$	—	$	6	$	16,303

(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	—	—	—		—		—
Preferred stock dividends - $13.75 per share	—	—	—		—		—
Common stock issued	—	—	—		—		(3)
Common stock dividends - $0.955 per share	—	—	—		—		—
Other, net	—	—	—		—		3
March 31, 2023	20,000	474,916,234	$	—	$	5	$	7,253

10

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, 2024	$	(33)	$	868	$	(677)	$	16,484
Net income	—		639		—		639
Other comprehensive loss	(95)		—		—		(95)
Preferred stock dividends - $13.75 per share (Note G)	—		—		—		—
Common stock issued	—		—		14		6
Common stock dividends - $0.99 per share (Note G)	—		(579)		—		(579)
Other, net	—		(1)		—		(10)
March 31, 2024	$	(128)	$	927	$	(663)	$	16,445

(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	9		—		—		9
Preferred stock dividends - $13.75 per share	—		—		—		—
Common stock issued	—		—		7		4
Common stock dividends - $0.955 per share	—		(427)		—		(427)
Other, net	—		—		—		3
March 31, 2023	$	(99)	$	672	$	(699)	$	7,132

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 2023 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 FASB in the form of ASUs to the FASB Accounting Standards Codification. We consider the applicability and impact of all ASUs. There have been no new accounting pronouncements that have become effective or have been issued that are of significance or potential significance to us during the quarter, and no material updates to recently issued standards disclosed in our Annual Report.

B.    MAGELLAN ACQUISITION

On September 25, 2023, we completed the Magellan Acquisition. The acquisition strategically diversifies our complementary asset base and allows for significant expected synergies as a combined entity. Each common unit of Magellan was exchanged for a fixed ratio of 0.667 shares of ONEOK common stock and $25.00 of cash, for a total consideration of $14.1 billion. A total of approximately 135 million shares of common stock were issued, with a fair value of approximately $9.0 billion as of the closing date of the Magellan Acquisition. We funded the cash portion of the acquisition with an underwritten public offering of $5.25 billion senior unsecured notes. For additional information on our long-term debt, please see Note H in our Annual Report.

The Magellan Acquisition was accounted for using the acquisition method of accounting for business combinations pursuant to Accounting Standards Codification 805, “Business Combinations,” which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair values on the acquisition date. Determining the fair value of acquired assets and liabilities assumed requires management’s judgment and the use of independent valuation specialists. During the three months ended March 31, 2024, there have been no material changes to the preliminary purchase price allocation disclosed in our Annual Report.

C.    MEDFORD INCIDENT

In 2022, a fire occurred at our 210 MBbl/d Medford, Oklahoma, natural gas liquids fractionation facility. In the first quarter of 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 of 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. 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, 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.

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

	March 31, 2024
	Level 1		Level 2		Level 3		Total - Gross		Netting (a)		Total - Net
	(Millions of dollars)
Derivative assets
Commodity contracts	$	58	$	57	$	—	$	115	$	(114)	$	1
Total derivative assets	$	58	$	57	$	—	$	115	$	(114)	$	1
Derivative liabilities
Commodity contracts	$	(94)	$	(83)	$	—	$	(177)	$	177	$	—
Total derivative liabilities	$	(94)	$	(83)	$	—	$	(177)	$	177	$	—

(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 March 31, 2024, we held no cash and posted cash of $129 million with various counterparties, including $63 million of cash collateral that is offsetting derivative net liability positions under master-netting arrangements in the table above. The remaining $66 million of cash collateral in excess of derivative net liability positions is included in other current assets in our Consolidated Balance Sheet.

	December 31, 2023
	Level 1		Level 2		Level 3		Total - Gross		Netting (a)		Total - Net
	(Millions of dollars)
Derivative assets
Commodity contracts	$	109	$	68	$	—	$	177	$	(125)	$	52
Total derivative assets	$	109	$	68	$	—	$	177	$	(125)	$	52
Derivative liabilities
Commodity contracts	$	(40)	$	(44)	$	—	$	(84)	$	84	$	—
Total derivative liabilities	$	(40)	$	(44)	$	—	$	(84)	$	84	$	—

(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, 2023, we posted no cash and held cash of $41 million with various counterparties, which offsets our derivative net asset position under master netting arrangements as shown in the table above.

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 mutual funds, municipal bonds and other fixed income securities classified as Level 1 and Level 2.

The estimated fair value of our consolidated long-term debt, including current maturities, was $21.0 billion and $21.4 billion at March 31, 2024, and December 31, 2023, respectively. The book value of our consolidated long-term debt, including current maturities, was $21.7 billion at March 31, 2024, and December 31, 2023. 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, NGLs, Refined Products and crude oil 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, NGLs, Refined Products, condensate and crude oil purchases and sales; to reduce our exposure to commodity price and interest-rate fluctuations; and to achieve more predictable cash flows. Additionally, we may use physical-forward purchases and financial derivatives to reduce commodity price risk associated with power and natural gas used to operate our facilities. 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.

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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, Refined Products and crude oil. 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. At both March 31, 2024, and December 31, 2023, we had no outstanding Treasury lock agreements or interest rate swaps.

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:

		March 31, 2024				December 31, 2023
	Location in our Consolidated Balance Sheets	Assets		(Liabilities)		Assets		(Liabilities)
Derivatives designated as hedging instruments		(Millions of dollars)
Commodity contracts (a)(b)	Other current assets	$	103	$	(164)	$	163	$	(78)
Total derivatives designated as hedging instruments		103		(164)		163		(78)
Derivatives not designated as hedging instruments
Commodity contracts (a)(b)	Other current assets	12		(13)		14		(6)
Total derivatives not designated as hedging instruments		12		(13)		14		(6)
Total derivatives		$	115	$	(177)	$	177	$	(84)

(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.

(b) - At March 31, 2024, our derivative net liability positions under master-netting arrangements for financial commodity contracts were offset by cash collateral of $63 million.

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

		March 31, 2024	December 31, 2023
	Contract Type	Net Purchased/Payor (Sold/Receiver)
Derivatives designated as hedging instruments:
Cash flow hedges
Fixed price
- Natural gas (Bcf)	Futures and swaps	(17.4)	(16.0)
- NGLs, Refined Products and crude oil (MMBbl)	Futures and swaps	(16.0)	(14.5)
- Power (GWh)	Futures and swaps	22.1	22.1
Basis
- Natural gas (Bcf)	Futures and swaps	(17.2)	(16.0)
Derivatives not designated as hedging instruments:
Fixed price
- Natural gas (Bcf)	Futures and swaps	—	(0.7)
- NGLs, Refined Products and crude oil (MMBbl)	Futures and swaps	(0.6)	0.1
Basis
- Natural gas (Bcf)	Futures and swaps	—	(0.7)
- NGLs, Refined Products, and crude oil (MMBbl)	Futures and swaps	(1.4)	(0.1)

Cash Flow Hedges - During the three months ended March 31, 2024, we have not had material cash flow hedge activity on our commodity derivative instruments.

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

Current Maturities - At March 31, 2024, our current maturities of long-term debt of $1.2 billion consist of $484 million, 2.75% senior notes due September 2024; $250 million, 3.2% senior notes due March 2025; and $500 million, 4.9% senior notes due March 2025.

Commercial Paper Program - At March 31, 2024, we had $320 million of commercial paper outstanding, bearing a weighted-average interest rate of 5.50%. At December 31, 2023, we had no commercial paper outstanding.

$2.5 Billion Credit Agreement - Our $2.5 Billion Credit Agreement, which expires in 2027, is a revolving credit facility and contains certain customary conditions for borrowing, as well as customary financial, affirmative and negative covenants. Among other things, these covenants include maintaining a ratio of consolidated net indebtedness to adjusted EBITDA (EBITDA, as defined in our $2.5 Billion Credit Agreement, adjusted for all noncash charges and increased for projected EBITDA from certain lender-approved capital expansion projects). In addition, adjusted EBITDA as defined in our $2.5 Billion Credit Agreement allows inclusion of the trailing 12 months of consolidated adjusted EBITDA of the acquired business. In March 2024, we acquired additional ownership interest in one of our unconsolidated affiliates, which allowed us to elect an acquisition adjustment period under our $2.5 Billion Credit Agreement and, as a result, increased our leverage ratio covenant to 5.5 to 1 until the quarter ended December 31, 2024, when it will decrease to 5.0 to 1. As of March 31, 2024, we had no outstanding borrowings, our ratio of consolidated indebtedness to adjusted EBITDA was 4.1 to 1, and we were in compliance with all covenants under our $2.5 Billion Credit Agreement.

Debt Guarantees - ONEOK, ONEOK Partners, the Intermediate Partnership and Magellan have cross guarantees in place for ONEOK’s and ONEOK Partners’ indebtedness. The Guardian Term Loan Agreement and Viking Term Loan Agreement are not guaranteed by ONEOK, ONEOK Partners, the Intermediate Partnership or Magellan. For further details on our indebtedness, see Note H of the Notes to Consolidated Financial Statements in our Annual Report.

G.    EQUITY

Dividends - Holders of our common stock share equally in any dividend declared by our Board of Directors, subject to the rights of the holders of outstanding Series E Preferred Stock. Dividends paid on our common stock in February 2024 were 99 cents per share. A common stock dividend of 99 cents per share was declared for shareholders of record at the close of business on May 1, 2024, payable May 15, 2024.

Our Series E Preferred Stock pays quarterly dividends on each share of Series E Preferred Stock when, and if, declared by our Board of Directors, at a rate of 5.5% per year. We paid dividends for the Series E Preferred Stock of $0.3 million in February 2024. Dividends totaling $0.3 million were declared for the Series E Preferred Stock and are payable May 15, 2024.

H.    EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted EPS for the periods indicated:

	Three Months Ended March 31, 2024
	Income		Shares	Per Share Amount
	(Millions, except per share amounts)
Basic EPS
Net income available for common stock	$	639	584.2	$	1.09
Diluted EPS
Effect of dilutive securities	—		1.5
Net income available for common stock and common stock equivalents	$	639	585.7	$	1.09

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	Three Months Ended March 31, 2023
	Income		Shares	Per Share Amount
	(Millions, except per share amounts)
Basic EPS
Net income available for common stock	$	1,049	448.1	$	2.34
Diluted EPS
Effect of dilutive securities	—		0.9
Net income available for common stock and common stock equivalents	$	1,049	449.0	$	2.34

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
	March 31,
	2024		2023
	(Millions of dollars)
Northern Border	$	25	$	24
Overland Pass	15		9
Roadrunner	11		7
Saddlehorn	10		—
BridgeTex	7		—
MVP	4		—
Other	4		—
Equity in net earnings from investments	$	76	$	40

In March 2024, we purchased an additional 10% interest in Saddlehorn, resulting in a 40% ownership interest at March 31, 2024.

We incurred expenses in transactions with unconsolidated affiliates of $39 million and $28 million for the three months ended March 31, 2024 and 2023, respectively, related primarily to Overland Pass and Northern Border. Revenue earned and accounts receivable from, and accounts payable to, our unconsolidated affiliates were not material.

We are the operator of Roadrunner, BridgeTex, MVP and Saddlehorn. In each case, we have operating agreements that provide for reimbursement or payment to us for management services and certain operating costs. Reimbursements and payments included in operating income in our Consolidated Statements of Income for all periods presented were not material.

J.    COMMITMENTS AND CONTINGENCIES

Regulatory, Environmental and Safety Matters - The operation of pipelines, terminals, plants and other facilities for the gathering, processing, fractionation, transportation and storage of products is subject to numerous and complex laws and regulations pertaining to health, safety and the environment. As an owner and/or operator of these facilities, we must comply with laws and regulations that relate to air and water quality, hazardous and solid waste management and disposal, cultural resource protection and other environmental and safety matters. The cost of planning, designing, constructing and operating pipelines, terminals, plants and other facilities must incorporate compliance with these laws, regulations and safety standards. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures, including citizen suits, which can include the assessment of monetary penalties, the imposition of remedial requirements and the issuance of injunctions or restrictions on operation or construction. Management does not believe that, based on currently known information, a material risk of noncompliance with these laws and regulations exists that will affect adversely our consolidated results of operations, financial condition or cash flows.

Legal Proceedings - Corpus Christi Terminal Personal Injury Proceeding - Ismael Garcia, Andrew Ramirez and Jesus Juarez Quintero, et al. brought personal injury cases against Magellan and co-defendants Triton Industrial Services, LLC, Tidal Tank, Inc. and Cleveland Integrity Services, Inc. in Nueces County Court in Texas. The claims were originally brought in three different actions but were consolidated into a single case on March 2, 2021. Claims were asserted by or on behalf of seven

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individuals, and certain beneficiaries, who were employed by a contractor and working at a Magellan facility. These individuals were injured, one fatally, as a result of a fire that occurred on December 5, 2020, while they were cleaning a tank at our Corpus Christi terminal. During the first quarter of 2024, we reached settlement with all remaining claimants. We recorded accruals that represent the settlement, as well as offsetting insurance receivables for the amounts accrued.

We are a party to various other legal proceedings that have arisen in the normal course of our operations. While the results of these proceedings cannot be predicted with certainty, we believe the reasonably possible losses from such proceedings, individually and in the aggregate, are not material. Additionally, we believe the probable final outcome of such proceedings will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.

K.    REVENUES

Contract Assets and Contract Liabilities - Our contract asset balances at the beginning and the end of the period primarily relate to our firm service transportation contracts with tiered rates, which are not material. The following table sets forth the balances in contract liabilities for the periods indicated:

Contract Liabilities	(Millions of dollars)
Balance at December 31, 2023 (a)	$	150
Revenue recognized included in beginning balance	(109)
Net additions	98
Balance at March 31, 2024 (b)	$	139

(a) - Contract liabilities of $104 million and $46 million are included in other current liabilities and other deferred credits, respectively, in our Consolidated Balance Sheet.

(b) - Contract liabilities of $99 million and $40 million are included in the other current liabilities and other deferred credits, respectively in our Consolidated Balance Sheet.

Receivables from Customers and Revenue Disaggregation - Excluding the insurance receivable related to the legal proceeding described in Note J, substantially all of the balances in accounts receivable on our Consolidated Balance Sheets at March 31, 2024, and December 31, 2023, relate to customer receivables. Revenue sources are disaggregated in Note L.

Unsatisfied Performance Obligations - We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) variable consideration on contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The following table presents aggregate value allocated to unsatisfied performance obligations as of March 31, 2024, and the amounts we expect to recognize in revenue in future periods, related primarily to firm transportation and storage contracts with remaining contract terms ranging from one month to 20 years:

Expected Period of Recognition in Revenue	(Millions of dollars)
Remainder of 2024	$	924
2025	986
2026	832
2027	735
2028 and beyond	2,192
Total	$	5,669

The table above excludes variable consideration allocated entirely to wholly unsatisfied performance obligations, wholly unsatisfied promises to transfer distinct goods or services that are part of a single performance obligation and consideration we determine to be fully constrained. The amounts we determined to be fully constrained relate to future sales obligations under long-term sales contracts where the value is not known and minimum volume agreements, which we consider to be fully constrained until invoiced.

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L.    SEGMENTS

Segment Descriptions - Our operations are divided into four reportable business segments as follows:

•    our Natural Gas Gathering and Processing segment gathers, treats, processes and markets natural gas;

•    our Natural Gas Liquids segment gathers, treats, fractionates and transports NGLs and stores, markets and distributes Purity NGLs;

•    our Natural Gas Pipelines segment transports and stores natural gas; and

•    our Refined Products and Crude segment transports, stores, distributes, blends and markets Refined Products and crude oil.

Other and eliminations consist of corporate costs, the operating and leasing activities of our headquarters building and related parking facility, the activity of our wholly owned captive insurance company and eliminations necessary to reconcile our reportable segments to our Consolidated Financial Statements.

Operating Segment Information - The following tables set forth certain selected financial information for our operating segments for the periods indicated:

Three Months Ended March 31, 2024	Natural Gas Gathering and Processing		Natural Gas Liquids		Natural Gas Pipelines		Refined Products and Crude		Total Segments
	(Millions of dollars)
Liquids commodity sales	$	623	$	3,264	$	—	$	351	$	4,238
Residue natural gas sales	344		—		28		—		372
Gathering, processing and exchange services revenue	35		122		—		—		157
Transportation and storage revenue	—		48		157		466		671
Other	8		2		—		27		37
Total revenues (a)	1,010		3,436		185		844		5,475
Cost of sales and fuel (exclusive of depreciation and operating costs)	(594)		(2,698)		(15)		(285)		(3,592)
Operating costs	(117)		(181)		(53)		(217)		(568)
Adjusted EBITDA from unconsolidated affiliates	2		17		47		35		101
Noncash compensation expense and other	5		14		1		4		24
Segment adjusted EBITDA	$	306	$	588	$	165	$	381	$	1,440
Depreciation and amortization	$	(70)	$	(85)	$	(18)	$	(80)	$	(253)
Equity in net earnings from investments	$	2	$	15	$	36	$	23	$	76
Investments in unconsolidated affiliates	$	25	$	414	$	522	$	976	$	1,937
Total assets	$	7,021	$	15,279	$	2,635	$	19,401	$	44,336
Capital expenditures	$	116	$	253	$	79	$	42	$	490

(a) - Intersegment revenues are primarily from commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly. Intersegment revenues for the Natural Gas Gathering and Processing segment totaled $620 million and were not material for the Natural Gas Liquids, Refined Products and Crude and Natural Gas Pipelines segments.

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Three Months Ended March 31, 2024	Total Segments		Other and Eliminations		Total
	(Millions of dollars)
Reconciliations of total segments to consolidated
Liquids commodity sales	$	4,238	$	(682)	$	3,556
Residue natural gas sales	372		—		372
Gathering, processing and exchange services revenue	157		—		157
Transportation and storage revenue	671		(7)		664
Other	37		(5)		32
Total revenues (a)	$	5,475	$	(694)	$	4,781
Cost of sales and fuel (exclusive of depreciation and operating costs)	$	(3,592)	$	695	$	(2,897)
Operating costs	$	(568)	$	(4)	$	(572)
Depreciation and amortization	$	(253)	$	(1)	$	(254)
Equity in net earnings from investments	$	76	$	—	$	76
Investments in unconsolidated affiliates	$	1,937	$	2	$	1,939
Total assets	$	44,336	$	54	$	44,390
Capital expenditures	$	490	$	22	$	512

(a) - Substantially all of our revenues relate to contracts with customers.

Three Months Ended March 31, 2023	Natural Gas Gathering and Processing		Natural Gas Liquids		Natural Gas Pipelines		Total Segments
	(Millions of dollars)
NGL and condensate sales	$	644	$	3,551	$	—	$	4,195
Residue natural gas sales	568		—		25		593
Gathering, processing and exchange services revenue	38		131		—		169
Transportation and storage revenue	—		50		145		195
Other	8		3		1		12
Total revenues (a)	1,258		3,735		171		5,164
Cost of sales and fuel (exclusive of depreciation and operating costs)	(875)		(3,095)		(14)		(3,984)
Operating costs	(105)		(152)		(45)		(302)
Adjusted EBITDA from unconsolidated affiliates (b)	1		11		44		56
Noncash compensation expense	4		6		2		12
Other	2		778		—		780
Segment adjusted EBITDA (b)	$	285	$	1,283	$	158	$	1,726
Depreciation and amortization	$	(67)	$	(78)	$	(17)	$	(162)
Equity in net earnings from investments	$	—	$	9	$	31	$	40
Investments in unconsolidated affiliates	$	26	$	413	$	349	$	788
Total assets	$	6,899	$	14,437	$	2,239	$	23,575
Capital expenditures	$	98	$	137	$	46	$	281

(a) - Intersegment revenues are primarily from commodity sales, which are based on the contracted selling price that is generally index-based and settled monthly. Intersegment revenues for the Natural Gas Gathering and Processing segment totaled $631 million and were not material for the Natural Gas Liquids and Natural Gas Pipelines segments.

(b) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $16 million of adjusted EBITDA in the first quarter of 2023.

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Three Months Ended March 31, 2023	Total Segments		Other and Eliminations		Total
	(Millions of dollars)
Reconciliations of total segments to consolidated
NGL and condensate sales	$	4,195	$	(634)	$	3,561
Residue natural gas sales	593		—		593
Gathering, processing and exchange services revenue	169		—		169
Transportation and storage revenue	195		(2)		193
Other	12		(7)		5
Total revenues (a)	$	5,164	$	(643)	$	4,521
Cost of sales and fuel (exclusive of depreciation and operating costs)	$	(3,984)	$	637	$	(3,347)
Operating costs	$	(302)	$	6	$	(296)
Depreciation and amortization	$	(162)	$	—	$	(162)
Equity in net earnings from investments	$	40	$	—	$	40
Investments in unconsolidated affiliates	$	788	$	1	$	789
Total assets	$	23,575	$	889	$	24,464
Capital expenditures	$	281	$	8	$	289

(a) - Substantially all of our revenues relate to contracts with customers.

	Three Months Ended March 31,
	2024		2023
Reconciliation of net income to total segment adjusted EBITDA	(Millions of dollars)
Net income	$	639	$	1,049
Interest expense, net of capitalized interest	300		166
Depreciation and amortization	254		162
Income taxes	208		330
Adjusted EBITDA from unconsolidated affiliates (b)	101		56
Equity in net earnings from investments (b)	(76)		(40)
Noncash compensation expense and other	15		10
Other corporate costs	(1)		(7)
Total segment adjusted EBITDA (a)(b)	$	1,440	$	1,726

(a) - The three months ended March 31, 2023, includes $733 million related to the Medford incident, including a settlement gain of $779 million, offset partially by $46 million of third-party fractionation costs.

(b) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $16 million of adjusted EBITDA in the first quarter of 2023.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements in this Quarterly Report, as well as our Annual Report.

RECENT DEVELOPMENTS

Please refer to the “Financial Results and Operating Information” and “Liquidity and Capital Resources” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report for additional information.

Market Conditions and Business Update - We experienced stable volumes across our system in the first quarter of 2024, compared with the first quarter of 2023, despite the impact of winter weather in the first quarter of 2024. With the addition of our Refined Products and Crude segment due to the Magellan Acquisition, our extensive and integrated assets are located in, and connected with, some of the most productive shale basins, as well as refineries and demand centers, in the United States. Although the energy industry has experienced many commodity cycles, we have positioned ourselves to reduce exposure to direct commodity price volatility. Each of our four reportable segments are primarily fee-based, and we expect our consolidated earnings to be more than 85% fee-based in 2024.

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Natural Gas - In our Natural Gas Gathering and Processing segment, processed volumes increased in the first quarter of 2024, compared with the first quarter of 2023, due primarily to increased production in the Rocky Mountain region.

In our Natural Gas Pipelines segment, transportation services increased in the first quarter of 2024, compared with the first quarter of 2023, due primarily to higher firm and interruptible rates.

NGLs - In our Natural Gas Liquids segment, volumes decreased in the first quarter of 2024, compared with the first quarter of 2023, due primarily to lower ethane recovery and the impact of winter weather in the first quarter of 2024, offset partially by increased production in the Rocky Mountain region.

In addition to construction of our MB-6 fractionator, activities are underway to complete the looping of the West Texas NGL pipeline, which will more than double our NGL capacity out of the Permian Basin. This project is driven by our contracting success in the Permian Basin, and the full loop is expected to be in service in the first quarter of 2025. We are also expanding the capacity of the Elk Creek pipeline to 435 MBbl/d to provide for growing volumes in the Rocky Mountain region, which will bring our total pipeline capacity out of the Rocky Mountain region to 575 MBbl/d. The Elk Creek pipeline expansion is expected to be in service in the first quarter of 2025.

Refined Products and Crude - Our first quarter 2024 results benefited from continued demand for transportation and storage services on our Refined Products and crude oil systems. Liquids blending has remained strong due to favorable commodity market conditions.

At the end of the first quarter of 2024, we completed the expansion of our Refined Products pipeline to El Paso, Texas. This expansion connects more supply to growing markets in Texas, New Mexico, Arizona and Mexico, and the majority of the capital associated with this expansion is supported by volume commitments.

Ethane Economics - Price differentials between ethane and natural gas can cause natural gas processors to recover ethane or leave it in the natural gas stream, known as ethane rejection. As a result of these ethane economics, ethane volumes on our system can fluctuate. Ethane volumes under long-term contracts delivered to our NGL system decreased 15 MBbl/d to an average of 415 MBbl/d during the first quarter of 2024, compared with an average of 430 MBbl/d in the first quarter of 2023, due to changes in ethane extraction economics and the impact of weather. We estimate that there are approximately 250 MBbl/d of discretionary ethane, consisting of approximately 150 MBbl/d in the Rocky Mountain region and approximately 100 MBbl/d in the Mid-Continent region, that could be recovered and transported on our system.

Capital Projects - Our primary capital projects are outlined in the table below:

Project	Scope	Approximate Cost (a)	Completion
Natural Gas Liquids		(In millions)
MB-6 fractionator	125 MBbl/d NGL fractionator in Mont Belvieu, Texas	$550	First Quarter 2025
West Texas NGL pipeline expansion	Increase capacity to 740 MBbl/d in the Permian Basin	$520	First Quarter 2025
Elk Creek pipeline expansion	Increase capacity to 435 MBbl/d out of the Rocky Mountain region	$355	First Quarter 2025

(a) - Excludes capitalized interest/AFUDC.

For a discussion of our capital expenditure financing, see “Capital Expenditures” in the “Liquidity and Capital Resources” section.

Share Repurchase Program - In January 2024, our Board of Directors authorized a share repurchase program to buy up to $2.0 billion of our outstanding common stock and targets the program to be largely utilized over the next four years. We expect shares to be acquired from time to time in open-market transactions or through privately negotiated transactions at our discretion, subject to market conditions and other factors. We expect any purchases to be funded by cash on hand, cash flow from operations and short-term borrowings. The program will terminate upon completion of the repurchase of $2.0 billion of common stock or on January 1, 2029, whichever occurs first. As of April 22, 2024, no shares have been repurchased under the program.

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Dividends - In February 2024, we paid a quarterly common stock dividend of 99 cents per share ($3.96 per share on an annualized basis), an increase of 3.7% compared with the same quarter in the prior year. Our dividend growth is due primarily to the increase in cash flows resulting from the growth of our operations. We declared a quarterly common stock dividend of 99 cents per share ($3.96 per share on an annualized basis) in April 2024. The quarterly common stock dividend will be paid May 15, 2024, to shareholders of record at the close of business on May 1, 2024.

FINANCIAL RESULTS AND OPERATING INFORMATION

How We Evaluate Our Operations

Management uses a variety of financial and operating metrics to analyze our performance. Our consolidated financial metrics include: (1) operating income; (2) net income; (3) diluted EPS; and (4) adjusted EBITDA. We evaluate segment operating results using adjusted EBITDA and our operating metrics, which include various volume and rate statistics that are relevant for the respective segment. These operating metrics allow investors to analyze the various components of segment financial results in terms of volumes and rate/price. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results. See reconciliation of net income to adjusted EBITDA in the “Non-GAAP Financial Measures” subsection. For additional information on our operating metrics, see the respective segment subsections of this “Financial Results and Operating Information” section.

Non-GAAP Financial Measures - Adjusted EBITDA is a non-GAAP measure of our financial performance. Adjusted EBITDA is defined as net income adjusted for interest expense, depreciation and amortization, noncash impairment charges, income taxes, noncash compensation expense and certain other noncash items. Following the Magellan Acquisition, we performed a review of our calculation methodology of adjusted EBITDA, and beginning in 2023, we updated our calculation to include the adjusted EBITDA related to our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. Adjusted EBITDA from our unconsolidated affiliates is calculated consistently with the definition above and excludes items such as interest, depreciation, income taxes and other noncash items. Although the amounts related to our unconsolidated affiliates are included in the calculation of adjusted EBITDA, such inclusion should not be understood to imply that we have control over the operations and resulting revenues, expenses or cash flows of such unconsolidated affiliates.

We believe this non-GAAP financial measure is useful to investors because it and similar measures are used by many companies in our industry as a measurement of financial performance and is commonly employed by financial analysts and others to evaluate our financial performance and to compare financial performance among companies in our industry. Adjusted EBITDA should not be considered an alternative to net income, EPS or any other measure of financial performance presented in accordance with GAAP. Additionally, this calculation may not be comparable with similarly titled measures of other companies.

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Consolidated Operations

Selected Financial Results - The following table sets forth certain selected financial results for the periods indicated:

	Three Months Ended				Three Months
	March 31,				2024 vs. 2023
Financial Results	2024		2023		$ Increase (Decrease)
	(Millions of dollars, except per share amounts)
Revenues
Commodity sales	$	3,928	$	4,156	(228)
Services	853		365		488
Total revenues	4,781		4,521		260
Cost of sales and fuel (exclusive of items shown separately below)	2,897		3,347		(450)
Operating costs	572		296		276
Depreciation and amortization	254		162		92
Other operating income, net	(6)		(781)		(775)
Operating income	$	1,064	$	1,497	(433)
Equity in net earnings from investments	$	76	$	40	36
Interest expense, net of capitalized interest	$	(300)	$	(166)	134
Net income	$	639	$	1,049	(410)
Diluted EPS	$	1.09	$	2.34	(1.25)
Adjusted EBITDA (a)	$	1,441	$	1,733	(292)
Capital expenditures	$	512	$	289	223

(a) - Beginning in 2023, we updated our calculation methodology of adjusted EBITDA to include adjusted EBITDA from our unconsolidated affiliates using the same recognition and measurement methods used to record equity in net earnings from investments. This change resulted in an additional $16 million of adjusted EBITDA in the first quarter of 2023.

Changes in commodity prices and sales volumes affect both revenues and cost of sales and fuel in our Consolidated Statements of Income and, therefore, the impact is largely offset between these line items.

Operating income decreased $433 million for the three months ended March 31, 2024, compared with the same period in 2023, primarily as a result of the following:

•Natural Gas Gathering and Processing - an increase of $15 million due primarily to higher volumes in the Rocky Mountain region, offset partially by higher operating costs; offset by

•Natural Gas Liquids - a decrease of $710 million due primarily to an insurance settlement gain in 2023 related to the Medford incident and higher operating costs, offset partially by an increase in exchange services due primarily to higher volumes in the Rocky Mountain region; offset by

•Natural Gas Pipelines - an increase of $3 million due primarily to higher transportation services, offset partially by higher operating costs; and

•Refined Products and Crude - contributed $262 million to operating income for the three months ended March 31, 2024, due to the impact of the Magellan Acquisition. We began allocating corporate costs to this segment in the first quarter of 2024, which reduced allocations to the other segments.

Net income and diluted EPS decreased for the three months ended March 31, 2024, compared with the same period in 2023, due primarily to the items discussed above and higher interest expense from higher debt balances resulting from the Magellan Acquisition, offset partially by lower income taxes and higher equity in net earnings from investments.

Capital expenditures increased for the three months ended March 31, 2024, compared with the same period in 2023, due primarily to our capital projects, including our MB-6 fractionator and NGL pipeline expansion projects.

Additional information regarding our financial results and operating information is provided in the following discussion for each of our segments.

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Natural Gas Gathering and Processing

Selected Financial Results and Operating Information - The following tables set forth certain selected financial results and operating information for our Natural Gas Gathering and Processing segment for the periods indicated:

	Three Months Ended				Three Months
	March 31,				2024 vs. 2023
Financial Results	2024		2023		$ Increase (Decrease)
	(Millions of dollars)
NGL and condensate sales	$	623	$	644	(21)
Residue natural gas sales	344		568