At this time next year, ONEOK (NYSE:OKE) will look somewhat different. It announced Monday that it is discontinuing its energy services division, winding it down over the next 10 months or so, in an effort aimed partly at reducing earnings risk.
If the process goes as planned, it should be "substantially completed" by next April 1. ONEOK said it expects to take a non-cash, after-tax writedown of roughly $75 million in its Q2, and a further $25 million or so between this coming July and April 2014, in order to effect the divestment. This will be due to the release of the division's "non-affiliated, third-party natural gas transportation and storage contracts to interested parties."
Said ONEOK chairman and CEO John W. Gibson in a statement:
Our decision to discontinue operating our energy services segment will reduce ONEOK's earnings risk profile over the long term, while removing any earnings uncertainty associated with this segment in the near term. The energy services segment continues to face challenging industry conditions that show no signs of improving. Increased natural gas supply and infrastructure, coupled with lower natural gas price volatility, have narrowed seasonal and location natural gas price differentials, resulting in limited opportunities to generate revenues to cover our fixed costs on this contracted storage and transportation capacity. We also believe that the energy services segment no longer fits into our long-term strategy and vision. We will continue to focus our resources on gathering, processing, transporting, storing, fractionating and distributing natural gas, natural gas liquids and other energy commodities through our ONEOK Partners and natural gas distribution segments.
The energy services segment began in 1995 by purchasing and storing natural gas, and then reselling it to customers during the winter. It leases natural gas pipeline and storage capacity and provides peak-load, no-notice premium services to various natural gas utilities, including ONEOK's. The segment has 49 employees, mainly in Tulsa, Okla., and the company said it plans to offer them jobs elsewhere in the company.
Fool contributor Eric Volkman has no position in ONEOK. The Motley Fool recommends ONEOK. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.