Annual Report 2020Resilient and Reliable EnergyFor a Better Tomorrow
Earnings Per Share
Compared with $3.51 in 2019
EARNINGS PER SHARE
EARNINGS PER SHARE
$512 million in capital investments
Number of distribution mains, service lines & transmission lines replaced in 2020
Increased Net Income
Compared with $187 million in 2019
ONE Gas Foundation
Grants and community giving
Resilient and Reliable Energy
For A BETTER Tomorrow
To Our Fellow Shareholders:
In 2020, our mission to deliver natural gas for a better tomorrow guided our business strategy and daily operations during an unprecedented year of challenges in our country and our communities. As the homes of our customers transitioned to places of work, schooling and much more, we continued delivering affordable natural gas through our resilient and reliable systems bringing comfort and stability in the face of uncertainty.
As part of our safety culture, we closely monitored data relative to the coronavirus, took numerous safety precautions and continued delivering natural gas safely and reliably to customers while protecting our employees and supporting our communities.
Adversity continued into 2021 as our employees and our customers endured some of the coldest, most extreme weather ever seen in our service areas. Due to the intensity and duration of this winter storm, we experienced unforeseeable and unprecedented circumstances across our service area, including the coldest day recorded in over a century, rolling electric brownouts and countless water main breaks. For seven long days, our employees worked through these adverse conditions and collectively, with our customers’ help, we kept the gas flowing to meet the most basic need of our customers — keeping them warm.
Our culture and our core values continue to lead us every day – including through these challenging events. We’d like to express our gratitude for our employees’ teamwork, resiliency and responsiveness as we dealt with back-to-back 100-year events between this historic winter storm and a pandemic. Our response is a testament to the culture of this company.
2020 Performance at a Glance
As one of the largest publicly traded natural gas distribution companies, our focused business model offers a clear mission, vision, strategy and values-driven culture that enables us to deliver a reliable and affordable energy choice to more than 2.2 million customers each day.
In 2020, net income increased to $196 million compared with $187 million in 2019. Diluted earnings per share increased approximately five percent to $3.68. We increased our dividends by eight percent over dividends paid in 2019.
Capital Horizon and Clarity
Modernizing our distribution systems remains a pivotal way we decrease emissions while maintaining safe and reliable operations. This requires significant capital investments and collaborative relationships with regulators to enable us to provide the most cost effective, safe and reliable service to our growing customer base. We have replaced an average of 244 miles of vintage pipe per year since 2014. With the remaining vintage materials left to replace, we have a 20-plus-year runway to deploy our capital.
Our portfolio of regulatory mechanisms provides for the timely recovery of investments. These mechanisms support our ability to continue to invest in improving our systems. Ninety percent of our capital investments are included in annual regulatory filings.
In 2020, we invested $512 million, with 70 percent of that capital investment dedicated to system integrity and replacement projects. Replacing pipelines helps us maintain safe and reliable operations while decreasing leaks and emissions from our systems. Our ongoing investment also results in new customers. In 2020, we set approximately 26,400 new meters, an 18 percent increase over 2019 and more meters than any previous year in our history.
Safety doesn’t just happen. It’s driven by our 3,700 employees who have committed to a culture of zero harm. Success is reliant on continuous education and training, real-time reporting and shared responsibility so that our employees know what is expected to keep themselves, their co-workers, our customers and communities safe.
Our safety efforts are overseen by our Environment, Safety, Health & Compliance (ESH&C) Steering Committee which is chaired by our COO and reports to the CEO. Its primary purpose is to provide vision, direction and oversight of our ESH&C programs, processes and management systems in order to protect our employees, customers, the environment, and the communities we serve. It also governs the safe design and operation of our systems and assets.
In 2020, we remained in the first quartile in all safety metrics tracked by the American Gas Association. In 2020, our Days Away, Restricted or Transferred (DART) was the lowest in company history and the lowest of all similar-sized local distribution companies for the third year in a row.
To build a better tomorrow for everyone, we have created a culture that embraces inclusion and diversity and encourages collaboration. Our programs and policies consider our employees’ physical, social, emotional and financial health and help attract diverse talent. Our CEO-chaired Inclusion and Diversity Council and employee-led resource groups encourage employee retention and development.
In 2020, we again had high participation in our annual employee engagement survey, with 90 percent of employees providing feedback. Employee engagement scores were in the top quartile of Gallup’s Overall Company Database and showed improvement for the fourth consecutive year.
World events in 2020, including a pandemic and social injustices, challenged us to further explore how we can strengthen a sense of belonging – from employees and customers to suppliers and the communities we serve. As a leader in our industry and the communities we serve, we are committed to listening and learning with a goal of providing a more equitable experience for all.
Investment in the Future
Technology is a major driver of true innovation. ONE Gas continues to invest in the development and adoption of innovative technology that improves operational and end-use efficiencies and allows us to continue to provide safe, reliable, cost-effective service while reducing our carbon footprint.
In 2020, we leveraged technology to quickly transition more than half of our workforce to a remote working environment in only three days due to the COVID-19 pandemic. The transition allowed our teams to continue reliable service for our customers and reduce risk for our employees.
We also piloted new ways to detect and reduce emissions with mobile methane detection technology. The technology allowed us to analyze our emissions data at a speed and scale not previously possible. The result was an increase in data-driven decision making to better inform our capital investments and prioritize pipe replacement.
In 2021 and beyond, we will continue investing in innovative solutions that lead to more reliable and resilient natural gas delivery systems that also lowers greenhouse gas emissions. This includes looking at how we can use our existing assets and technology to expand renewable natural gas capture from agriculture, waste-water treatment plants and landfills. We’re also participating in research studies that explore the use of hydrogen production and blending for use in our systems.
We pledge to create exceptional value for all our stakeholders and deliver naturalgas for a better tomorrow. Although we have only been operating under the ONE Gas name since 2014, we have been serving customers in these communities for more than 100 years. With our mission in mind, we are committed tocontinuously improve and invest in safety while caring forour employees, our communities and the environment.
Our core values — safety, ethics, inclusion and diversity,service and value — are the foundation for all that we do and guide our sustainability strategy. We believe that weshare the responsibility to protect our environment and are an important part of any energy transformation to lower carbon emissions — offering resiliency and reliability.
ONE Gas and natural gas as a fuel choice are nimble and responsive to change, as evident in our performanceover the past year. We’re confident natural gas willplay a critical role as the U.S. moves towards achievingemission reduction goals and increasing the use ofrenewable energy sources.
No single energy source will be the solution to supportour country’s energy needs. It will take multiple sources to satisfy the demand for affordable, resilient andreliable energy. For more than 100 years, the naturalgas industry has evolved through innovation to meetcustomer needs. We’ll continue to implement that spirit of innovation and leverage our resilient and sustainable infrastructure to be part of the solution for reachingnet-zero emissions.
Abetter tomorrow means embracing the opportunities presented through energy transformation and being part of real change for our planet. We look forward to showing you our progress on that journey.
Thank you for your support and interest in ONE Gas as we expand our role in the energy transformation underway and deliver on our mission for a better tomorrow.
John W. Gibson
ONE Gas, Inc.
Pierce H. Norton II
President and CEO
ONE Gas, Inc.
We reported 2020 net income of $196 million, or $3.68 per diluted share, compared with $187 million, or $3.51 per diluted share, in 2019; and 2020 capital expenditures and asset removal costs of $512 million, compared with $465 million in 2019. Our 2020 net margin increased by $28.1 million compared with last year, which primarily reflects new rates in our service territories along with an increase in net residential customer growth. In 2021, our diluted earnings per share performance is expected to be within a range of $3.68 to $3.92 per share. Our 2021 capital expenditures and asset removal costs are
expected to be approximately $540 million. On Jan. 19, 2021, the ONE Gas Board of Directors increased the quarterly dividend by 4 cents per share to 58 cents per share, effective for first quarter 2021, resulting in an annualized dividend of $2.32 per share.
Our average annual dividend growth rate is expected to increase 6 percent to 8 percent between 2020 and 2025 with a targeted dividend payout ratio of 55 percent to 65 percent of net income, all subject to board approval.
|Total Revenues and Net Income|
|Total Revenues (thousands)||$1,530,268||$1,652,730||$1,633,731|
|Net Income (thousands)||$196,412||$186,749||$172,234|
|Earnings and Dividends|
|Dividends Per Share||$2.16||$2.00||$1.84|
|Margin, Volumes and Weather|
|Net Margin (thousands)*||$992,823||$964,756||$919,095|
|Total Volumes Delivered (Bcf)||385.1||396.4||392.5|
|Actual Heating Degree Days||9,241||10,490||10,521|
|Normal Heating Degree Days||9,765||9,828||9,959|
|Customers and Employees|
|Average Number of Customers (thousands)||2,220||2,194||2,179|
|Market Value Per Share: Year-end Closing Price||$76.77||$93.57||$79.60|
|Average Shares of Common Stock, Outstanding (thousands):|
Committed to the
We believe we have a shared responsibility to care for our planet and are committed to reduce our operational emissions through four key areas: accelerated pipeline replacement; increased public awareness and damage prevention programs; leak prevention and repair strategies; and energy efficiency programs.
EXCEEDING REDUCTION COMMITMENTS
Exceeded our Environmental Protection Agency Methane Challenge emissions reduction commitment for 4th year in a row.
Rebates for natural gas vehicles
47,292 metric tons of CO2e displaced through ONE Gas customer rebates for natural gas vehicles in 2020, which is equivalent to removing 10,215 cars from the road.
Continued Reduction of Emissions
22.1% reduction in emissions from a 2014 baseline. Based on our current replacement program, we expect to reduce emissions by 33% by 2024
Emissions Reduction from Pipeline ReplacementEnlarge
Vintage Pipeline as Portion of Total Pipeline Inventory (in Miles)Enlarge
Introduction to One Gas
Serving Over 2 Million Customers
ONE Gas, Inc. is a 100-percent regulated natural gas utility and trades on the New York Stock Exchange under the symbol “OGS.” ONE Gas is included in the S&P MidCap 400 Index and is one of the largest natural gas utilities in the United States. We provide natural gas distribution services to approximately 2.2 million customers in Kansas, Oklahoma and Texas. We are headquartered in Tulsa, Oklahoma.
Our largest natural gas distribution markets by customer count are Kansas City, Wichita and Topeka; Oklahoma City and Tulsa; and Austin and El Paso. These seven metropolitan areas account for 70 percent of our customers. We primarily serve residential, commercial and transportation customers in all three states.
72% market share, the largest in Kansas.
Mission & Vision
To deliver natural gas for a better tomorrow.
To be a premier natural gas distribution company, creating exceptional value for our stakeholders.
Our Core Values
We are committed to operating safely and in an environmentally responsible manner.
We are accountable to the highest ethical standards and are committed to compliance. Honesty, trust and integrity matter.
Inclusion & Diversity
We embrace an inclusive and diverse culture that encourages collaboration. Every employee makes a difference and contributes to our success.
We provide exceptional service and make continuous improvements in our pursuit of excellence.
We create value for all stakeholders, including our customers, employees, investors and communities.
Our Team of
Executivesas of April 1, 2021
Pierce H. Norton II, 61President and Chief Executive Officer
Robert S. McAnnally, 57Senior Vice President and Chief Operating Officer
Curtis L. Dinan, 53Senior Vice President and Chief Commercial Officer
Caron A. Lawhorn, 60Senior Vice President and Chief Financial Officer
Joseph L. McCormick, 61Senior Vice President, General Counsel and Assistant Secretary
Mark. A. Bender, 56Senior Vice President, Administration and Chief Information Officer
Julie A. White, 50Vice President, Communications, Public Affairs and Inclusion & Diversity
Our Board of