ONE Gas Q2 Earnings Call Highlights

ONE Gas (NYSE:OGS) reported higher second-quarter earnings and said it now expects full-year adjusted results to fall within the upper half of its previously issued 2026 guidance range, supported by new rates, Texas regulatory benefits, customer growth and cost discipline.

Adjusted net income for the second quarter was $52.1 million, or $0.82 per diluted share, compared with $32.7 million, or $0.54 per share, a year earlier. GAAP earnings per share rose to $0.74 from $0.53. Chief Executive Officer Sid McAnnally said adjusted earnings per share grew 16% in the first half from the prior-year period despite weather that was 25% warmer.

McAnnally said the company maintained average customer bills flat year over year while increasing its dividend. The board declared a quarterly dividend of $0.68 per share, unchanged from the prior quarter.

Guidance Moves Toward Upper Half

The company maintained its full-year adjusted net income guidance of $306 million to $314 million and adjusted EPS guidance of $4.83 to $4.95. However, Chief Financial Officer Chris Sighinolfi said ONE Gas now expects adjusted net income of $310 million to $314 million and adjusted EPS of $4.89 to $4.95.

Sighinolfi attributed the outlook in part to approximately $16 million of revenue from new rates during the quarter and greater-than-expected benefits from Texas House Bill 4384. The Texas law allows gas utilities to defer depreciation expense and ad valorem taxes, while accruing carrying costs on eligible capital projects between their in-service dates and inclusion in customer rates.

ONE Gas now expects House Bill 4384 to contribute about $0.42 to full-year adjusted EPS. Sighinolfi said the benefit can fluctuate quarterly based on the timing and amount of eligible capital placed into service. He said the second quarter generally represents a larger share of the annual benefit due to the cadence of the company’s annual Gas Reliability Infrastructure Program, or GRIP, filing.

The company also benefited from capacity-release revenue after warm winter weather reduced gas storage withdrawals. ONE Gas ended the first quarter with storage inventory about 25% above plan, allowing it to release capacity during the refill season. The company recognized about $900,000 of related revenue during the second quarter and $2.8 million year to date, with an estimated additional $1.2 million opportunity through the injection season.

Regulatory Updates

Oklahoma Natural Gas filed a performance-based rate change application in February seeking a $28.7 million increase. An administrative law judge recommended approval as filed following a June hearing, and interim rates subject to refund began in late June.

Texas Gas Service requested a $36.9 million revenue increase in its March GRIP filing. The Texas Railroad Commission approved the request in June, and the resulting rates became effective in July. Sighinolfi said the filing was the company’s first statewide GRIP filing and the first to reflect expanded House Bill 4384 provisions.

Meanwhile, Kansas Gas Service filed in July for an approximately $14.3 million increase under the state’s Gas System Reliability Surcharge statute. Rates are expected to take effect in October. The filing reflects provisions of Kansas House Bill 2435, which expanded eligible investments, raised the maximum residential monthly surcharge to $1.35 from $0.80 and reduced the review period to 90 days from 120 days.

The company said it does not plan to file a full rate case until its Oklahoma filing in 2027, as required by tariff.

Large-Load Projects and Capital Deployment

President and Chief Operating Officer Curtis Dinan said ONE Gas completed $188 million of capital projects in the quarter, roughly in line with the same period last year. Through July, the company had installed 11,000 new meters, led by activity in Oklahoma City and El Paso.

The company has three high-volume projects under contract that collectively represent about $15 million in incremental annual revenue and $175 million of associated capital. Their in-service dates range from the second half of 2026 through 2028.

• A Western Farmers gas-fired generation project in southern Oklahoma remains on track for third-quarter 2028 service. The project includes a 43-mile, 24-inch pipeline, with installation expected to begin in early 2027.
• An El Paso project serving an advanced manufacturing facility is in construction or commissioning and is expected to enter service during the current quarter.
• An Oklahoma data-center project is also expected to enter service during the current quarter.

Dinan said the data-center project had previously been among six late-stage opportunities discussed by the company. The five remaining late-stage prospects span Kansas, Oklahoma and Texas and could support approximately 3 gigawatts of generation and as much as 1 billion cubic feet per day of demand. ONE Gas also has 17 additional opportunities in earlier stages of evaluation.

Management said some of the remaining late-stage projects could be contracted before year-end, while others could move into 2027.

Costs, Financing and Dividend Strategy

Second-quarter operations and maintenance expense increased about 6.6% from a year earlier, moderating from an increase of more than 8% in the first quarter. The company cited elevated line-locating work related largely to fiber installation, as well as higher fleet fuel costs tied to geopolitical unrest.

Still, ONE Gas maintained its long-term expectation for annual O growth of 3% to 4%. Sighinolfi said the company expects year-over-year O growth to move “meaningfully” lower in the third and fourth quarters as it realizes efficiencies from bringing more work in-house.

Line-locating activity increased about 7% year over year in the quarter, while damages declined 6%, Dinan said. The company has also insourced 40% of its watch-and-protect function in Oklahoma and expects to complete that transition by year-end.

Excluding amounts related to KGSS-I, interest expense fell $3.8 million from the prior-year quarter, partly due to lower commercial-paper rates. ONE Gas has forward-sale equity agreements totaling about $41.5 million, representing roughly half of its equity need for the year, according to Sighinolfi.

Management said its current five-year plan contemplates annual dividend growth of 1% to 2% through 2030, while the company seeks to fund a greater share of capital investments internally. Sighinolfi said the board will continue to evaluate dividend policy as part of its planning process.

About ONE Gas (NYSE:OGS)

ONE Gas, Inc is a publicly traded natural gas utility company focused on the regulated distribution of natural gas to residential, commercial and industrial customers. Headquartered in Tulsa, Oklahoma, the company owns and operates an integrated system of transmission and distribution pipelines, storage facilities and compressor stations designed to deliver safe, reliable energy to end users. Its operations are governed by state utility commissions, which set rates and service standards in the markets the company serves.

The company's service territory spans three states: Oklahoma, Kansas and the Texas Panhandle.

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