Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of ONEOK, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of ONEOK, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Level 3 Commodity Derivative Assets and Liabilities

As described in Notes A and B to the consolidated financial statements, the Company’s level 3 commodity contracts derivative assets and liabilities total $103.8 million and $135.1 million, respectively, as of December 31, 2020. As disclosed by management, commodity price risk includes basis risk, which is the difference in price between various locations where commodities are purchased and sold. Management records all derivative instruments at fair value, with the exception of normal purchases and normal sales transactions that are expected to result in physical delivery. Many of the contracts in its derivative portfolio are executed in liquid markets where price transparency exists. Fair value measurements classified as Level 3 are composed predominantly of exchange-cleared and over-the-counter derivatives to hedge NGL price risk and natural gas basis risk. These measurements are based on inputs that may include one or more unobservable inputs, including internally developed commodity price curves, that incorporate market data from broker quotes and third-party pricing services. The commodity derivatives are generally valued using forward quotes provided by third-party pricing services that are validated with other market data.

The principal considerations for our determination that performing procedures relating to the valuation of level 3 commodity derivative assets and liabilities is a critical audit matter are (i) the significant judgment by management to determine the fair value of these derivatives; (ii) a high degree of auditor judgment, subjectivity and effort in evaluating audit evidence related to the valuation due to the use of internally developed commodity price curves that incorporate market data from broker quotes and third-party pricing services; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of level 3 commodity derivative assets and liabilities, including controls over the Company’s model, significant assumptions, and data. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of the level 3 commodity derivative assets and liabilities and comparison of the independent estimate to management’s estimate to evaluate the reasonableness of management’s estimate. Developing the independent estimate involved testing the completeness and accuracy of data provided by management and evaluating management’s assumptions related to the internally developed commodity price curves which incorporate market data from broker quotes and third-party pricing services.

Long-Lived Asset Impairment – Asset Group in the Powder River Basin

As described in Notes A and B to the consolidated financial statements, the Company’s net property, plant and equipment balance was $19.2 billion as of December 31, 2020. Management assesses the Company’s long-lived assets for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. An impairment is indicated if the carrying amount of a long-lived asset exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If an impairment is indicated, the Company will record an impairment loss equal to the difference between the carrying value and the fair value of the long-lived asset. In 2020, Management evaluated the Natural Gas Gathering and Processing segment asset groups and determined that the carrying value of certain long-lived asset groups were not recoverable and exceeded their estimated fair value. The Company recorded noncash impairment charges of $382.2 million in its Natural Gas Gathering and Processing segment, of which a portion includes a natural gas processing plant and infrastructure in the Powder River Basin and its related supply contracts. To estimate the fair value, Management used the income approach. Under the income approach, the discounted cash flow analysis included the following inputs that are not readily available: a discount rate reflective of industry cost of capital, estimated contract rates, volumes, operating margins, operating and maintenance costs, and capital expenditures.

The principal considerations for our determination that performing procedures relating to long-lived asset impairments of an asset group in the Powder River Basin is a critical audit matter are (i) the significant judgment by management when developing the fair value of the long-lived asset and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to volumes and operating margins.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s long-lived asset impairment assessment, including the controls over the valuation of long-lived assets. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of an asset group in the Powder River Basin; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of underlying data used in the model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the volumes and operating margins. Evaluating management’s assumptions related to the volumes and operating margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the asset group and (ii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

Tulsa, Oklahoma

February 23, 2021

We have served as the Company’s auditor since 2007.


ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
	2020		2019		2018
	(Thousands of dollars, except per share amounts)
Revenues
Commodity sales	$	7,255,259	$	8,916,047	$	11,395,642
Services	1,286,983		1,248,320		1,197,554
Total revenues (Note P)	8,542,242		10,164,367		12,593,196
Cost of sales and fuel (exclusive of items shown separately below)	5,110,146		6,788,040		9,422,708
Operations and maintenance	761,176		863,708		803,146
Depreciation and amortization	578,662		476,535		428,557
Impairment charges (Note A)	607,200		—		—
General taxes	125,028		119,156		103,922
(Gain) loss on sale of assets	(1,327)		2,575		(601)
Operating income	1,361,357		1,914,353		1,835,464
Equity in net earnings from investments (Note M)	143,241		154,541		158,383
Impairment of equity investments (Note A)	(37,730)		—		—
Allowance for equity funds used during construction	23,662		64,815		7,962
Other income	43,745		27,058		674
Other expense	(19,073)		(18,003)		(14,928)
Interest expense (net of capitalized interest of $75,436, $107,275 and $28,062, respectively)	(712,886)		(491,773)		(469,620)
Income before income taxes	802,316		1,650,991		1,517,935
Income taxes (Note L)	(189,507)		(372,414)		(362,903)
Net income	612,809		1,278,577		1,155,032
Less: Net income attributable to noncontrolling interests	—		—		3,329
Net income attributable to ONEOK	612,809		1,278,577		1,151,703
Less: Preferred stock dividends	1,100		1,100		1,100
Net income available to common shareholders	$	611,709	$	1,277,477	$	1,150,603

Basic EPS (Note I)	$	1.42	$	3.09	$	2.80

Diluted EPS (Note I)	$	1.42	$	3.07	$	2.78
Average shares (thousands)
Basic	431,105		413,560		411,485
Diluted	431,782		415,444		414,195

See accompanying Notes to Consolidated Financial Statements.


ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Years Ended December 31,
	2020		2019		2018
	(Thousands of dollars)
Net income	$	612,809	$	1,278,577	$	1,155,032
Other comprehensive income (loss), net of tax
Change in fair value of derivatives, net of tax of $49,292, $44,149 and $1,694, respectively	(165,023)		(147,803)		(5,673)
Derivative amounts reclassified to net income, net of tax of $(6,313), $6,058 and $(11,013), respectively	21,097		(21,057)		36,870
Change in retirement and other postretirement benefit plan obligations, net of tax of $7,812, $2,910 and $(1,425), respectively	(26,154)		(9,696)		4,771
Other comprehensive income (loss) of unconsolidated affiliates, net of tax of $2,201, $2,152 and $(724), respectively	(7,369)		(7,205)		2,424
Total other comprehensive income (loss), net of tax	(177,449)		(185,761)		38,392
Comprehensive income	435,360		1,092,816		1,193,424
Less: Comprehensive income attributable to noncontrolling interests	—		—		3,329
Comprehensive income attributable to ONEOK	$	435,360	$	1,092,816	$	1,190,095

See accompanying Notes to Consolidated Financial Statements.


ONEOK, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2020		2019
Assets	(Thousands of dollars)
Current assets
Cash and cash equivalents	$	524,496	$	20,958
Accounts receivable, net	829,796		835,121
Materials and supplies	143,178		201,749
NGLs and natural gas in storage	227,810		304,926
Commodity imbalances	11,959		25,267
Other current assets	132,536		82,313
Total current assets	1,869,775		1,470,334
Property, plant and equipment
Property, plant and equipment	23,072,935		22,051,492
Accumulated depreciation and amortization	3,918,007		3,702,807
Net property, plant and equipment (Note D)	19,154,928		18,348,685
Investments and other assets
Investments in unconsolidated affiliates (Note M)	805,032		861,844
Goodwill and intangible assets (Note E)	773,723		957,833

Other assets	475,296		173,425
Total investments and other assets	2,054,051		1,993,102
Total assets	$	23,078,754	$	21,812,121


ONEOK, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Continued)
	December 31,		December 31,
	2020		2019
Liabilities and equity	(Thousands of dollars)
Current liabilities
Current maturities of long-term debt (Note F)	$	7,650	$	7,650
Short-term borrowings (Note F)	—		220,000
Accounts payable	719,302		1,209,900
Commodity imbalances	186,372		104,480
Accrued taxes	89,428		75,422
Accrued interest	245,153		190,750
Operating lease liability (Note O)	13,610		1,883
Other current liabilities	83,032		210,213
Total current liabilities	1,344,547		2,020,298
Long-term debt, excluding current maturities (Note F)	14,228,421		12,479,757
Deferred credits and other liabilities
Deferred income taxes (Note L)	669,697		536,063
Operating lease liability (Note O)	87,610		13,509
Other deferred credits	706,081		536,543
Total deferred credits and other liabilities	1,463,388		1,086,115
Commitments and contingencies (Note N)
Equity (Note G)
ONEOK shareholders’ equity:
Preferred stock, $0.01 par value: authorized and issued 20,000 shares at December 31, 2020, and at December 31, 2019	—		—
Common stock, $0.01 par value: authorized 1,200,000,000 shares; issued 474,916,234 shares and outstanding 444,872,383 shares at December 31, 2020; issued 445,016,234 shares and outstanding 413,239,050 shares at December 31, 2019	4,749		4,450
Paid-in capital	7,353,396		7,403,895
Accumulated other comprehensive loss (Note H)	(551,449)		(374,000)
Retained earnings	—		—
Treasury stock, at cost: 30,043,851 shares at December 31, 2020, and 31,777,184 shares at December 31, 2019	(764,298)		(808,394)
Total equity	6,042,398		6,225,951
Total liabilities and equity	$	23,078,754	$	21,812,121

See accompanying Notes to Consolidated Financial Statements.

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ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Years Ended December 31,
	2020		2019		2018
	(Thousands of dollars)
Operating activities
Net income	$	612,809	$	1,278,577	$	1,155,032
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	578,662		476,535		428,557
Impairment charges	644,930		—		—
Equity in net earnings from investments	(143,241)		(154,541)		(158,383)
Distributions received from unconsolidated affiliates	144,352		163,476		170,528
Deferred income tax expense	186,730		372,729		361,010
Other, net	35,327		(26,101)		23,570
Changes in assets and liabilities:
Accounts receivable	(1,297)		(19,688)		383,993
NGLs and natural gas in storage	77,116		(8,259)		38,456
Accounts payable	(80,257)		(62,946)		(320,132)
Commodity imbalances	95,200		(1,934)		(44,302)
Accrued interest	54,403		29,373		26,068
Risk-management assets and liabilities	(187,458)		(86,268)		117,717
Other assets and liabilities, net	(118,208)		(14,174)		4,605
Cash provided by operating activities	1,899,068		1,946,779		2,186,719
Investing activities
Capital expenditures (less allowance for equity funds used during construction)	(2,195,381)		(3,848,349)		(2,141,475)
Distributions received from unconsolidated affiliates in excess of cumulative earnings	31,808		94,168		26,757
Other, net	(106,956)		(14,577)		(170)
Cash used in investing activities	(2,270,529)		(3,768,758)		(2,114,888)
Financing activities
Dividends paid	(1,605,366)		(1,457,628)		(1,335,058)
Distributions to noncontrolling interests	—		—		(3,500)
Borrowing (repayment) of short-term borrowings, net	(220,000)		220,000		(614,673)
Issuance of long-term debt, net of discounts	3,244,777		4,185,435		1,795,773
Debt financing costs	(28,247)		(29,747)		(13,441)
Repayment of long-term debt	(1,457,222)		(1,057,348)		(932,650)
Issuance of common stock	969,759		29,040		1,203,981
Acquisition of noncontrolling interests	—		—		(195,000)
Other, net	(28,702)		(58,790)		(2,481)
Cash provided by (used in) financing activities	874,999		1,830,962		(97,049)
Change in cash and cash equivalents	503,538		8,983		(25,218)
Cash and cash equivalents at beginning of period	20,958		11,975		37,193
Cash and cash equivalents at end of period	$	524,496	$	20,958	$	11,975
Supplemental cash flow information:
Cash paid for interest, net of amounts capitalized	$	760,984	$	435,165	$	418,244
Cash paid for income taxes, net of refunds	$	342	$	2,690	$	2,225

See accompanying Notes to Consolidated Financial Statements.


ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	ONEOK Shareholders’ Equity
	Common Stock Issued	Preferred Stock Issued	Common Stock		Preferred Stock		Paid-in Capital
	(Shares)		(Thousands of dollars)
January 1, 2018	423,166,234	20,000	$	4,232	$	—	$	6,588,878
Cumulative effect adjustment for adoption of ASUs (a)	—	—	—		—		—
Net income	—	—	—		—		—
Other comprehensive income	—	—	—		—		—

Preferred stock dividends - $55.00 per share (Note G)	—	—	—		—		—
Common stock issued	21,850,000	—	218		—		1,183,321
Common stock dividends - $3.245 per share (Note G)	—	—	—		—		(144,805)
Distributions to noncontrolling interests	—	—	—		—		—
Contributions from noncontrolling interests	—	—	—		—		—
Acquisition of noncontrolling interests (Note G)	—	—	—		—		(21,220)
Other, net	—	—	—		—		8,964
December 31, 2018	445,016,234	20,000	4,450		—		7,615,138
Cumulative effect adjustment for adoption of ASU 2016-02, “Leases (Topic 842)”	—	—	—		—		—
Net income	—	—	—		—		—
Other comprehensive loss (Note H)	—	—	—		—		—
Preferred stock dividends - $55.00 per share (Note G)	—	—	—		—		—
Common stock issued	—	—	—		—		(7,667)
Common stock dividends - $3.53 per share (Note G)	—	—	—		—		(180,421)



Other, net	—	—	—		—		(23,155)
December 31, 2019	445,016,234	20,000	4,450		—		7,403,895

Net income	—	—	—		—		—
Other comprehensive loss (Note H)	—	—	—		—		—
Preferred stock dividends - $55.00 per share (Note G)	—	—	—		—		(550)
Common stock issued	29,900,000	—	299		—		934,473
Common stock dividends - $3.74 per share (Note G)	—	—	—		—		(992,741)
Other, net	—	—	—		—		8,319
December 31, 2020	474,916,234	20,000	$	4,749	$	—	$	7,353,396


ONEOK, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Continued)
	ONEOK Shareholders’ Equity
	Accumulated Other Comprehensive Loss		Retained Earnings		Treasury Stock		Noncontrolling Interests in Consolidated Subsidiaries		Total Equity
	(Thousands of dollars)
January 1, 2018	$	(188,530)	$	—	$	(876,713)	$	157,485	$	5,685,352
Cumulative effect adjustment for adoption of ASUs (a)	(38,101)		39,803		—		17		1,719
Net income	—		1,151,703		—		3,329		1,155,032
Other comprehensive income	38,392		—		—		—		38,392

Preferred stock dividends - $55.00 per share (Note G)	—		(1,100)		—		—		(1,100)
Common stock issued	—		—		24,907		—		1,208,446
Common stock dividends - $3.245 per share (Note G)	—		(1,190,406)		—		—		(1,335,211)
Distributions to noncontrolling interests	—		—		—		(3,500)		(3,500)
Contributions from noncontrolling interests	—		—		—		16,449		16,449
Acquisition of noncontrolling interests (Note G)	—		—		—		(173,780)		(195,000)
Other, net	—		—		—		—		8,964
December 31, 2018	(188,239)		—		(851,806)		—		6,579,543
Cumulative effect adjustment for adoption of ASU 2016-02, “Leases (Topic 842)”	—		(67)		—		—		(67)
Net income	—		1,278,577		—		—		1,278,577
Other comprehensive loss (Note H)	(185,761)		—		—		—		(185,761)
Preferred stock dividends - $55.00 per share (Note G)	—		(1,100)		—		—		(1,100)
Common stock issued	—		—		43,412		—		35,745
Common stock dividends - $3.53 per share (Note G)	—		(1,277,410)		—		—		(1,457,831)



Other, net	—		—		—		—		(23,155)
December 31, 2019	(374,000)		—		(808,394)		—		6,225,951

Net income	—		612,809		—		—		612,809
Other comprehensive loss (Note H)	(177,449)		—		—		—		(177,449)
Preferred stock dividends - $55.00 per share (Note G)	—		(550)		—		—		(1,100)
Common stock issued	—		—		44,096		—		978,868
Common stock dividends - $3.74 per share (Note G)	—		(612,259)		—		—		(1,605,000)
Other, net	—		—		—		—		8,319
December 31, 2020	$	(551,449)	$	—	$	(764,298)	$	—	$	6,042,398

(a) - Includes cumulative effect for adoption of the following: ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”; ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”; and ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”

See accompanying Notes to Consolidated Financial Statements.

ONEOK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations - We are a corporation incorporated under the laws of the state of Oklahoma.

Our Natural Gas Gathering and Processing segment provides midstream services to producers in North Dakota, Montana, Wyoming, Kansas and Oklahoma. Raw natural gas is typically gathered at the wellhead, compressed and transported through pipelines to our processing facilities. Processed natural gas, usually referred to as residue natural gas, is then recompressed and delivered to natural gas pipelines, storage facilities and end users. The NGLs separated from the raw natural gas are sold and delivered through NGL pipelines to fractionation facilities for further processing.

Our Natural Gas Liquids segment owns and operates facilities that gather, fractionate, treat and distribute NGLs and store NGL products, primarily in Oklahoma, Kansas, Texas, New Mexico and the Rocky Mountain region, which includes the Williston, Powder River and DJ Basins. We provide midstream services to producers of NGLs and deliver those products to the two primary market centers, one in the Mid-Continent in Conway, Kansas, and the other in the Gulf Coast in Mont Belvieu, Texas. We own or have an ownership interest in FERC-regulated NGL gathering and distribution pipelines in Oklahoma, Kansas, Texas, New Mexico, Montana, North Dakota, Wyoming and Colorado, and terminal and storage facilities in Kansas, Missouri, Nebraska, Iowa and Illinois. We have a 50% ownership interest in Overland Pass Pipeline Company, which operates an interstate NGL pipeline originating in Wyoming and Colorado and terminating in Kansas. The majority of the pipeline-connected natural gas processing plants in the Williston Basin, Oklahoma, Kansas and the Texas Panhandle are connected to our NGL gathering systems. We lease rail cars and own and operate truck- and rail-loading and -unloading facilities connected to our NGL fractionation, storage and pipeline assets. We also own FERC-regulated NGL distribution pipelines in Kansas, Missouri, Nebraska, Iowa, Illinois and Indiana that connect our Mid-Continent assets with Midwest markets, including Chicago, Illinois. A portion of our ONEOK North System transports refined products, including unleaded gasoline and diesel, from Kansas to Iowa.

Our Natural Gas Pipelines segment, through its wholly owned assets, provides intrastate and interstate transportation and storage services to end users. We have 50% ownership interests in Northern Border Pipeline and Roadrunner, which provide transportation services to various end users. Our interstate pipelines are regulated by the FERC and are located in North Dakota, Minnesota, Wisconsin, Illinois, Indiana, Kentucky, Tennessee, Oklahoma, Texas and New Mexico. Our intrastate natural gas pipeline and storage assets are located in Oklahoma, Kansas and Texas. Our assets connect major natural gas producing basins and market hubs with end-use customers.

Consolidation - Our Consolidated Financial Statements include our accounts and the accounts of our subsidiaries over which we have control or are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

Investments in unconsolidated affiliates are accounted for using the equity method if we have the ability to exercise significant influence over operating and financial policies of our investee. Under this method, an investment is carried at its acquisition cost and adjusted each period for contributions made, distributions received and our share of the investee’s comprehensive income. For the investments we account for under the equity method, the premium or excess cost over underlying fair value of net assets is referred to as equity-method goodwill. Impairment of equity investments is recorded when the impairments are other than temporary. These amounts are recorded as investments in unconsolidated affiliates on our accompanying Consolidated Balance Sheets. See Note M for disclosures of our unconsolidated affiliates.

Distributions paid to us from our unconsolidated affiliates are classified as operating activities on our Consolidated Statements of Cash Flows until the cumulative distributions exceed our proportionate share of income from the unconsolidated affiliate since the date of our initial investment. The amount of cumulative distributions paid to us that exceeds our cumulative proportionate share of income in each period represents a return of investment and is classified as an investing activity on our Consolidated Statements of Cash Flows.

Use of Estimates - The preparation of our Consolidated Financial Statements and related disclosures in accordance with GAAP requires us to make estimates and assumptions with respect to values or conditions that cannot be known with certainty that affect the reported amounts on our Consolidated Financial Statements. Items that may be estimated include, but are not limited to, the economic useful life of assets, fair value of assets, liabilities and equity-method investments, obligations under employee benefit plans, provisions for uncollectible accounts receivable, expenses for services received but for which no invoice has been received, provision for income taxes, including any deferred tax valuation allowances, the results of litigation and various other

recorded or disclosed amounts. In addition, a portion of our revenues and cost of sales and fuel are recorded based on current month prices and estimated volumes. The estimates are reversed in the following month when we record actual volumes and prices.

We evaluate our estimates on an ongoing basis using historical experience, consultation with experts and other methods we consider reasonable based on the particular circumstances. Nevertheless, actual results may differ significantly from the estimates. Any effects on our financial position or results of operations from revisions to these estimates are recorded in the period when the facts that give rise to the revision become known.

Fair Value Measurements - 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.

Many of the contracts in our derivative portfolio are executed in liquid markets where price transparency exists. Our financial commodity derivatives are generally settled through a NYMEX or ICE clearing broker account with daily margin requirements. We validate our valuation inputs with third-party information and settlement prices from other sources, where available.

We compute the fair value of our derivative portfolio by discounting the projected future cash flows from our derivative assets and liabilities to present value using interest-rate yields to calculate present-value discount factors derived from the implied forward LIBOR yield curve. The fair value of our forward-starting interest-rate swaps is determined using financial models that incorporate the implied forward LIBOR yield curve for the same period as the future interest-rate swap settlements. We consider current market data in evaluating counterparties’, as well as our own, nonperformance risk, net of collateral, by using counterparty-specific bond yields. Although we use our best estimates to determine the fair value of the derivative contracts we have executed, the ultimate market prices realized could differ materially from our estimates.

Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our financial statements based on the observability of inputs used to estimate such fair value. The levels of the hierarchy are described below:

Level 1 - fair value measurements are based on unadjusted quoted prices for identical securities in active markets. These balances are composed predominantly of exchange-traded derivative contracts for natural gas and crude oil.
Level 2 - fair value measurements are based on significant observable pricing inputs, including quoted prices for similar assets and liabilities in active markets and inputs from third-party pricing services supported with corroborative evidence. These balances are composed of over-the-counter interest-rate derivatives.
Level 3 - fair value measurements are based on inputs that may include one or more unobservable inputs, including internally developed commodity price curves that incorporate market data from broker quotes and third-party pricing services. These balances are composed predominantly of exchange-cleared and over-the-counter derivatives to hedge NGL price risk and natural gas basis risk between various transaction locations and the NYMEX Henry Hub. Our commodity derivatives are generally valued using forward quotes provided by third-party pricing services that are validated with other market data. We believe any measurement uncertainty at December 31, 2020, is immaterial as our Level 3 fair value measurements are based on unadjusted pricing information from broker quotes and third-party pricing services. We do not believe that our Level 3 fair value estimates have a material impact on our results of operations, as our derivatives are primarily accounted for as hedges.

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 for which fair value is determined using multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety.

See Note B for our fair value measurements disclosures.

Cash and Cash Equivalents - Cash equivalents consist of highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.

Revenue Recognition - Revenues are recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. Our payment terms vary by customer and contract type, including requiring payment before products or services are

delivered to certain customers. However, the term between customer prepayments, completion of our performance obligations, invoicing and receipt of payment due is not significant.

Upon adoption of Topic 606 in January 2018, we determined that certain Natural Gas Gathering and Processing segment fee with POP contracts and Natural Gas Liquids segment exchange services contracts that include the purchase of commodities are supplier contracts. Contractual fees in these identified contracts are recorded as a reduction of the commodity purchase price in cost of sales and fuel. In 2017 and prior periods, these fees were recorded as services revenue.

Performance Obligations and Revenue Sources - Revenue sources are disaggregated in Note Q and are derived from commodity sales and services revenues, as described below:

Commodity Sales (all segments) - We contract to deliver residue natural gas, condensate, unfractionated NGLs and/or NGL products to customers at a specified delivery point. Our sales agreements may be daily or longer-term contracts for a specified volume. We consider the sale and delivery of each unit of a commodity an individual performance obligation as the customer is expected to control, accept and benefit from each unit individually. We record revenue when the commodity is delivered to the customer as this represents the point in time when control of the product is transferred to the customer. Revenue is recorded based on the contracted selling price, which is generally index-based and settled monthly.

Services

Gathering only contracts (Natural Gas Gathering and Processing segment) - Under this type of contract, we charge fees for providing midstream services, which include gathering and treating our customer’s natural gas. Our performance obligation begins with delivery of raw natural gas to our system. This service is treated as one performance obligation that is satisfied over time. We use the output method based on delivery of product to our system as the measure of progress, as our services are performed simultaneously.

Fee with POP contracts with producer take-in-kind rights (Natural Gas Gathering and Processing segment) - Under this type of contract, we do not control the stream of unprocessed natural gas that we receive at the wellhead due to the producer’s take-in-kind rights. We purchase a portion of the raw natural gas stream, charge fees for providing midstream services, which include gathering, treating, compressing and processing our customer’s natural gas. After performing these services, we return primarily the residue natural gas to the producer, sell the remaining commodities and remit a portion of the commodity sales proceeds to the producer less our contractual fees. Our performance obligation begins with delivery of raw natural gas to our system. This service is treated as one performance obligation that is satisfied over time. We use the output method based on delivery of product to our system as the measure of progress, as our services are performed simultaneously.

Transportation and exchange contracts (Natural Gas Liquids segment) - Under this type of contract, we charge fees for providing midstream services, which may include a bundled combination of gathering, transporting and/or fractionation of our customer’s NGLs. Our performance obligation begins with delivery of unfractionated NGLs or NGL products to our system. These services represent a series of distinct services that are treated as one performance obligation that is satisfied over time. We use the output method based on delivery of product to our system as the measure of progress, as our services are performed simultaneously. For transportation services under a tariff on our NGL transportation pipelines, fees are recorded upon redelivery to our customer at the completion of the transportation services.

Storage contracts (Natural Gas Liquids and Natural Gas Pipelines segments) - We reserve a stated storage capacity and inject/withdraw/store commodities for our customer. The capacity reservation and injection/withdrawal/storage services are considered a bundled service, as we integrate them into one stand-ready obligation provided on a daily basis over the life of the agreement and satisfied over time. Fixed capacity reservation fees are allocated and evenly recognized in revenue. Capacity reservation fees that vary based on a stated or implied economic index and correspond with the costs to provide our services are recognized in revenue as invoiced to our customers. For contracts that do not include a capacity reservation, transportation, injection and withdrawal fees are recognized in revenue as those services are provided and are dependent on the volume transported, injected or withdrawn by our customer, which is at our customer’s discretion. We use the output method based on the passage of time to measure satisfaction of the performance obligation associated with our daily stand-ready services.

Firm service transportation contracts (Natural Gas Pipelines segment) - We reserve a stated transportation capacity and transport commodities for our customer. The capacity reservation and transportation services are considered a bundled service, as we integrate them into one stand-ready obligation provided on a daily basis over the life of the agreement and satisfied over time. Fixed capacity reservation fees are allocated and evenly recognized in revenue. Capacity reservation fees that vary based on a stated or implied economic index and correspond with the costs to provide our services are recognized in revenue based on a daily effective fee rate. If the capacity reservation fees vary solely as a contract feature, contract assets or liabilities are recorded for the difference between the amount recorded in revenue and the amount billed to the customer. Transportation fees

are recognized in revenue as those services are provided and are dependent on the volume transported by our customer, which is at our customer’s discretion. We use the output method based on the passage of time to measure satisfaction of the performance obligation associated with our daily stand-ready services.

Interruptible transportation contracts (Natural Gas Pipelines segment) - We agree to transport natural gas on our pipelines between the customer’s specified nomination and delivery points if capacity is available after satisfying firm transportation service obligations. The transaction price is based on the transportation fees times the volumes transported. We use the output method based on delivery of product to the customer to measure satisfaction of the performance obligation. The total consideration for delivered volumes is recorded in revenue at the time of delivery, when the customer obtains control.

See Note P for our revenue disclosures.

Contract Assets and Contract Liabilities - Contract assets and contract liabilities are recorded when the amount of revenue recognized from a contract with a customer differs from the amount billed to the customer and recorded in accounts receivable. Our contract asset balances at the beginning and end of the period primarily relate to our firm service transportation contracts with tiered rates. Our contract liabilities primarily represent deferred revenue on contributions in aid of construction received from customers for which revenue is recognized over the contract periods, which range from 5 to 10 years, and deferred revenue on NGL storage contracts for which revenue is recognized over a one-year term.

Cost of Sales and Fuel - Cost of sales and fuel primarily includes (i) the cost of purchased commodities, including NGLs, natural gas and condensate, (ii) fees incurred for third-party transportation, fractionation and storage of commodities, (iii) fuel and power costs incurred to operate our own facilities that gather, process, transport and store commodities, and (iv) an offset from the contractual fees deducted from the cost of purchased commodities under the contract types below:

Fee with POP contracts with no producer take-in-kind rights (Natural Gas Gathering and Processing segment) - We purchase raw natural gas and charge contractual fees for providing midstream services, which include gathering, treating, compressing and processing the producer’s natural gas. After performing these services, we sell the commodities and return a portion of the commodity sales proceeds to the producer less our contractual fees.

Purchase with fee (Natural Gas Liquids segment) - Under this type of contract, we purchase raw, unfractionated NGLs at an index price and charge fees for providing midstream services, which may include a bundled combination of gathering, transporting and/or fractionation of our customer’s NGLs.

Operations and Maintenance - Operations and maintenance primarily includes (i) payroll and benefit costs, (ii) third-party costs for operations, maintenance and integrity management, regulatory compliance and environmental and safety, and (iii) other business-related service costs.

Accounts Receivable - Accounts receivable represent valid claims against nonaffiliated customers for products sold or services rendered. Upon adoption of ASU 2016-13 in January 2020, we present accounts receivable net of an allowance for credit losses to reflect the net amount expected to be collected. We assess the creditworthiness of our counterparties on an ongoing basis and require security, including prepayments and other forms of collateral, when appropriate. Outstanding customer receivables are reviewed regularly for possible nonpayment indicators, and allowances for credit losses are recorded based upon management’s estimate of collectability, current conditions and supportable forecasts at each balance sheet date. At December 31, 2020, our allowance for credit losses was not material. See “Recently Issued Accounting Standards Update” table below for more information.

Inventory - The values of current NGLs and natural gas in storage are determined using the lower of weighted-average cost or net realizable value. Noncurrent NGLs and natural gas are classified as property and valued at cost. Materials and supplies are valued at average cost. Certain large equipment inventory, which will ultimately be capitalized to property, plant and equipment when utilized, is included in other assets in our Consolidated Balance Sheets and is valued at weighted-average cost.

Commodity Imbalances - Commodity imbalances represent amounts payable or receivable for NGL exchange contracts and natural gas pipeline imbalances and are valued at market prices. Under the majority of our NGL exchange agreements, we physically receive volumes of unfractionated NGLs, including the risk of loss and legal title to such volumes, from the exchange counterparty. In turn, we deliver NGL products back to the customer and charge them gathering, transportation and fractionation fees. To the extent that the volumes we receive under such agreements differ from those we deliver, we record a net exchange receivable or payable position with the counterparties. These net exchange receivables and payables are generally settled with movements of NGL products rather than with cash. Natural gas pipeline imbalances are settled in cash or in-kind, subject to the terms of the pipelines’ tariffs or by agreement.

Derivatives and Risk Management - We utilize derivatives to reduce our market-risk exposure to commodity price and interest-rate fluctuations and to achieve more predictable cash flows. We record all derivative instruments at fair value, with the exception of normal purchases and normal sales transactions that are expected to result in physical delivery. Commodity price and interest-rate volatility may have a significant impact on the fair value of derivative instruments as of a given date. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The table below summarizes the various ways in which we account for our derivative instruments and the impact on our Consolidated Financial Statements:


		Recognition and Measurement
Accounting Treatment		Balance Sheet		Income Statement
Normal purchases and normal sales	-	Fair value not recorded	-	Change in fair value not recognized in earnings
Mark-to-market	-	Recorded at fair value	-	Change in fair value recognized in earnings
Cash flow hedge	-	The gain or loss on the derivative instrument is reported initially as a component of accumulated other comprehensive income (loss)	-	The gain or loss on the derivative instrument is reclassified out of accumulated other comprehensive income (loss) into earnings when the forecasted transaction affects earnings
Fair value hedge	-	Recorded at fair value	-	The gain or loss on the derivative instrument is recognized in earnings
	-	Change in fair value of the hedged item is recorded as an adjustment to book value	-	Change in fair value of the hedged item is recognized in earnings

To reduce our exposure to fluctuations in natural gas, NGLs and condensate prices, we periodically enter into futures, forward purchases and sales, options or swap transactions in order to hedge anticipated purchases and sales of natural gas, NGLs and condensate. Interest-rate swaps are used from time to time to manage interest-rate risk. Under certain conditions, we designate our derivative instruments as a hedge of exposure to changes in fair values or cash flows. We formally document all relationships between hedging instruments and hedged items, as well as risk-management objectives and strategies for undertaking various hedge transactions, and methods for assessing and testing correlation and hedge effectiveness. We specifically identify the forecasted transaction that has been designated as the hedged item in a cash flow hedge relationship. We assess hedging relationships at the inception of the hedge and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective. We also document our normal purchases and normal sales transactions that we expect to result in physical delivery and that we elect to exempt from derivative accounting treatment.

The realized revenues and purchase costs of our derivative instruments not considered held for trading purposes and derivatives that qualify as normal purchases or normal sales that are expected to result in physical delivery are reported on a gross basis.

Cash flows from futures, forwards, options and swaps that are accounted for as hedges are included in the same category as the cash flows from the related hedged items in our Consolidated Statements of Cash Flows.

See Notes B and C for disclosures of our fair value measurements and risk-management and hedging activities, respectively.

Property, Plant and Equipment - Our properties are stated at cost, including AFUDC and capitalized interest. In some cases, the cost of regulated property retired or sold, plus removal costs, less salvage, is charged to accumulated depreciation. Gains and losses from sales or transfers of nonregulated properties or an entire operating unit or system of our regulated properties are recognized in income. Maintenance and repairs are charged directly to expense.

The interest portion of AFUDC and capitalized interest represent the cost of borrowed funds used to finance construction activities for regulated and nonregulated projects, respectively. We capitalize interest costs during the construction or upgrade of qualifying assets. These costs are recorded as a reduction to interest expense. The equity portion of AFUDC represents the capitalization of the estimated average cost of equity used during the construction of major projects and is recorded in the cost of our regulated properties and as a credit to the allowance for equity funds used during construction.

Our properties are depreciated using the straight-line method over their estimated useful lives. Generally, we apply composite depreciation rates to functional groups of property having similar economic circumstances. We periodically conduct depreciation studies to assess the economic lives of our assets. For our regulated assets, these depreciation studies are completed as a part of our rate proceedings or tariff filings, and the changes in economic lives, if applicable, are implemented prospectively when the new rates are approved. For our nonregulated assets, if it is determined that the estimated economic life

changes, the changes are made prospectively. Changes in the estimated economic lives of our property, plant and equipment could have a material effect on our financial position or results of operations.

Property, plant and equipment on our Consolidated Balance Sheets includes construction work in process for capital projects that have not yet been placed in service and therefore are not being depreciated. Assets are transferred out of construction work in process when they are substantially complete and ready for their intended use.

See Note D for our property, plant and equipment disclosures.

Impairment of Goodwill and Long-Lived Assets, Including Intangible Assets - We assess our goodwill for impairment at least annually as of July 1, unless events or changes in circumstances indicate an impairment may have occurred before that time. At July 1, 2020, we assessed qualitative factors subsequent to our first quarter 2020 impairment charges discussed below to determine whether it was more likely than not that the fair value of our Natural Gas Liquids and Natural Gas Pipelines reporting units were less than their carrying amount. After assessing qualitative factors (including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance), we determined that it was more likely than not that the fair value of our Natural Gas Liquids and Natural Gas Pipelines reporting units were not less than their respective carrying value, no further testing was necessary and goodwill was not considered impaired. At July 1, 2020, there was no remaining goodwill associated with our Natural Gas Gathering and Processing reporting unit.

Late in the first quarter 2020, we experienced a significant decline in our share price and market capitalization as the energy industry experienced historic events that led to a simultaneous demand and supply disruption. The World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide, which contributed to a massive economic slowdown and decreased demand for crude oil, natural gas and NGLs. In addition, Saudi Arabia and Russia increased production of crude oil as the two countries competed for market share. As a result, the global supply of crude oil significantly exceeded demand and led to a collapse in crude oil prices. Due to the impact of these events, we performed a Step 1 analysis in the first quarter 2020 to test our goodwill for impairment and evaluated certain long-lived asset groups and equity investments for impairment.

Goodwill - In the Step 1 analysis, an assessment is made by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. In January 2020, we adopted ASU 2017-04 in which the requirement to calculate the implied fair value of goodwill under the two-step impairment test was eliminated.

To estimate the fair value of our reporting units, we use two generally accepted valuation approaches, an income approach and a market approach, using assumptions consistent with a market participant’s perspective. Under the income approach, we use anticipated cash flows over a period of years plus a terminal value and discount these amounts to their present value using appropriate discount rates. Under the market approach, we apply EBITDA multiples to forecasted EBITDA. The multiples used are consistent with historical asset transactions. The forecasted cash flows are based on average forecasted cash flows for a reporting unit over a period of years.

Based on the results of our impairment test, we concluded that the carrying value of the Natural Gas Gathering and Processing reporting unit exceeded its estimated fair value, resulting in a noncash impairment charge of $153.4 million, which is included within impairment charges in our Consolidated Statement of Income for the year ended December 31, 2020. The estimated fair value of our Natural Gas Liquids and Natural Gas Pipelines reporting units substantially exceeded their respective carrying values.

Long-lived assets - We assess our long-lived assets for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. An impairment is indicated if the carrying amount of a long-lived asset exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If an impairment is indicated, we record an impairment loss equal to the difference between the carrying value and the fair value of the long-lived asset.

In 2020, we evaluated our Natural Gas Gathering and Processing segment asset groups and determined that the carrying value of certain long-lived asset groups in the Powder River Basin, western Oklahoma and Kansas were not recoverable and exceeded their estimated fair value. We recorded noncash impairment charges of $382.2 million, which includes a natural gas processing plant and infrastructure in the Powder River Basin and its related supply contracts and natural gas processing plants and infrastructure in western Oklahoma and Kansas. In our Natural Gas Liquids segment, we recorded noncash impairment charges of $71.6 million related primarily to certain inactive assets, as our expectation for future use of the assets changed. These

charges are included within impairment charges in our Consolidated Statement of Income for the year ended December 31, 2020.

Investments in unconsolidated affiliates - The impairment test for equity-method investments considers whether the fair value of the equity investment as a whole, not the underlying net assets, has declined and whether that decline is other than temporary. Therefore, we periodically evaluate the amount at which we carry our equity-method investments to determine whether current events or circumstances warrant adjustments to our carrying values.

In 2020, we evaluated our investments in unconsolidated affiliates and concluded that the carrying value of our 10.2% investment in Venice Energy Services Company in our Natural Gas Gathering and Processing segment exceeded its estimated fair value, resulting in a noncash impairment charge of $30.5 million, which includes an impairment to our equity-method goodwill of $22.3 million. We also concluded that the carrying value of our 50% investment in Chisholm Pipeline Company in our Natural Gas Liquids segment exceeded its estimated fair value, resulting in a noncash impairment charge of $7.2 million. These impairment charges are included within impairment of equity investments in our Consolidated Statement of Income for the year ended December 31, 2020.

See Notes D, E and M for our long-lived assets, goodwill and intangible assets and investments in unconsolidated affiliates disclosures, respectively.

Regulation - Depending on the specific service provided, our natural gas transmission pipelines, NGL pipelines and certain natural gas storage facilities are subject to rate regulation and/or accounting requirements by one or more of the FERC, OCC, KCC and RRC. Accordingly, portions of our Natural Gas Liquids and Natural Gas Pipelines segments follow the accounting and reporting guidance for regulated operations. In our Consolidated Financial Statements and our Notes to Consolidated Financial Statements, regulated operations are defined pursuant to Financial Accounting Standards Board’s (FASB) ASC 980, Regulated Operations. During the rate-making process for certain of our assets, regulatory authorities set the framework for what we can charge customers for our services and establish the manner that our costs are accounted for, including allowing us to defer recognition of certain costs and permitting recovery of the amounts through rates over time as opposed to expensing such costs as incurred. Certain examples of types of regulatory guidance include costs for fuel and losses, acquisition costs, contributions in aid of construction, charges for depreciation, and gains or losses on disposition of assets. This allows us to stabilize rates over time rather than passing such costs on to the customer for immediate recovery. Actions by regulatory authorities could have an effect on the amounts we may charge our customers. Any difference in the amount recoverable and the amount deferred is recorded as income or expense at the time of the regulatory action. A write-off of regulatory assets and costs not recovered may be required if all or a portion of the regulated operations have rates that are no longer (i) established by independent, third-party regulators and (ii) set at levels that will recover our costs when considering the demand and competition for our services.

Retirement and Other Postretirement Employee Benefits - We have defined benefit retirement plans covering certain employees and former employees. We sponsor welfare plans that provide postretirement medical and life insurance benefits to certain employees hired prior to 2017 who retire with at least five years of service. The expense and liability related to these plans is calculated using statistical and other factors that attempt to anticipate future events. These factors include assumptions about the discount rate, expected return on plan assets, rate of future compensation increases, mortality and employment length. In determining the projected benefit obligations and costs, assumptions can change from period to period and may result in changes in the costs and liabilities we recognize.

See Note K for our retirement and other postretirement employee benefits disclosures.

Income Taxes - Deferred income taxes are provided for the difference between the financial statement and income tax basis of assets and liabilities and carryforward items based on income tax laws and rates existing at the time the temporary differences are expected to reverse. Generally, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date of the rate change.

We utilize a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that is taken or expected to be taken in a tax return. We reflect penalties and interest as part of income tax expense as they become applicable for tax provisions that do not meet the more-likely-than-not recognition threshold and measurement attribute. During 2020, 2019 and 2018, we had no uncertain tax positions that required the establishment of a material reserve.

We utilize the “with-and-without” approach for intra-period tax allocation for purposes of allocating total tax expense (or benefit) for the year among the various financial statement components.

We file numerous consolidated and separate income tax returns with federal tax authorities of the United States along with the tax authorities of several states. We are not under any United States federal audits or statute waivers at this time.

See Note L for our income taxes disclosures.

Asset Retirement Obligations - Asset retirement obligations represent legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. Certain of our natural gas gathering and processing, NGL and natural gas pipeline facilities are subject to agreements or regulations that give rise to our asset retirement obligations for removal or other disposition costs associated with retiring the assets in place upon the discontinued use of the assets. We recognize the fair value of a liability for an asset retirement obligation in the period when it is incurred if a reasonable estimate of the fair value can be made. We are not able to estimate reasonably the fair value of the asset retirement obligations for portions of our assets, primarily certain pipeline assets, because the settlement dates are indeterminable given our expected continued use of the assets with proper maintenance. We expect our pipeline assets, for which we are unable to estimate reasonably the fair value of the asset retirement obligation, will continue in operation as long as supply and demand for natural gas and NGLs exist. Based on the widespread use of natural gas for heating and cooking activities for residential users and electric-power generation for commercial users, as well as use of NGLs by the petrochemical industry, we expect supply and demand to exist for the foreseeable future.

For our assets that we are able to make an estimate, the fair value of the liability is added to the carrying amount of the associated asset, and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for an amount other than the carrying amount of the liability, we will recognize a gain or loss on settlement. The depreciation and accretion expense are immaterial to our Consolidated Financial Statements.

Contingencies - Our accounting for contingencies covers a variety of business activities, including contingencies for legal and environmental exposures. We accrue these contingencies when our assessments indicate that it is probable that a liability has been incurred or an asset will not be recovered and an amount can be estimated reasonably. We expense legal fees as incurred and base our legal liability estimates on currently available facts and our estimates of the ultimate outcome or resolution. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of a remediation feasibility study. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Our expenditures for environmental evaluation, mitigation, remediation and compliance to date have not been significant in relation to our financial position or results of operations, and our expenditures related to environmental matters had no significant effect on earnings or cash flows during 2020, 2019 and 2018. Actual results may differ from our estimates resulting in an impact, positive or negative, on earnings.

See Note N for additional discussion of contingencies.

Share-Based Payments - We expense the fair value of share-based payments net of estimated forfeitures. We estimate forfeiture rates based on historical forfeitures under our share-based payment plans.

See Note J for our share-based payments disclosures.

Earnings per Common Share - Basic EPS is calculated based on the daily weighted-average number of shares of common stock outstanding during the period, vested restricted and performance units that have been deferred and share awards deferred under the compensation plan for non-employee directors. Diluted EPS is calculated based on the daily weighted-average number of shares of common stock outstanding during the period plus potentially dilutive components. The dilutive components are calculated based on the dilutive effect for each quarter. For fiscal-year periods, the dilutive components for each quarter are averaged to arrive at the fiscal year-to-date dilutive component.

See Note I for our EPS disclosures.

Segment Reporting - Our chief operating decision-maker reviews the financial performance of each of our three segments, as well as our financial performance as a whole, on a regular basis. Adjusted EBITDA by segment is utilized in this evaluation. We believe this 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 are commonly employed by financial analysts and others to evaluate our financial performance and to compare financial performance among companies in our industry. Adjusted EBITDA for each segment is defined as net income adjusted for interest expense, depreciation and amortization, noncash impairment charges,

income taxes, allowance for equity funds used during construction, noncash compensation expense, and other noncash items. This calculation may not be comparable with similarly titled measures of other companies.

See Note Q for our segments disclosures.

Reclassifications - Certain reclassifications have been made in the prior-year financial statements to conform to the current-year presentation.

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. ASUs not listed below were assessed and determined to be either not applicable or clarifications of ASUs previously issued or listed below. Except as discussed below, there have been no new accounting pronouncements that have become effective or have been issued that are of significance or potential significance to us. The following table provides a brief description of recently adopted accounting pronouncements and our analysis of the effects on our financial statements:


Standard	Description	Date of Adoption	Effect on the Financial Statements or Other Significant Matters
Standards that were adopted as of December 31, 2020
ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”	The standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented net of the allowance for credit losses to reflect the net carrying value at the amount expected to be collected on the financial asset; and the initial allowance for credit losses for purchased financial assets, including available-for-sale debt securities, to be added to the purchase price rather than being reported as a credit loss expense.	First quarter 2020	The impact of adopting this standard was not material.
ASU 2017-04, “Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”	The standard simplifies the subsequent measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill under step 2. Instead, an entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard does not change step zero or step 1 assessments.	First quarter 2020	We adopted and implemented this standard prior to recording noncash impairment charges related to our goodwill, as described above.
ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”	The standard provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.	First quarter 2020	The impact of adopting this standard was not material.
Standards that are not yet adopted as of December 31, 2020
ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”	The standard simplifies certain concepts in Topic 740, Income Taxes.	First quarter 2021	We adopted this standard in January 2021, and the impact of adopting this standard was not material.

B. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements - The following tables set forth our recurring fair value measurements for the periods indicated:


	December 31, 2020
	Level 1		Level 2		Level 3		Total - Gross		Netting (a)		Total - Net
	(Thousands of dollars)
Derivative assets
Commodity contracts
Financial contracts	$	6,697	$	—	$	103,801	$	110,498	$	(110,498)	$	—


Total derivative assets	$	6,697	$	—	$	103,801	$	110,498	$	(110,498)	$	—

Derivative liabilities
Commodity contracts
Financial contracts	$	(10,489)	$	—	$	(135,122)	$	(145,611)	$	145,611	$	—

Interest-rate contracts	—		(203,407)		—		(203,407)		—		(203,407)
Total derivative liabilities	$	(10,489)	$	(203,407)	$	(135,122)	$	(349,018)	$	145,611	$	(203,407)

(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, 2020, we held no cash and posted $63.1 million of cash with various counterparties, including $35.1 million of cash collateral that is offsetting derivative net liability positions under master-netting arrangements in the table above. The remaining $28.0 million of cash collateral in excess of derivative net liability positions is included in other current assets in our Consolidated Balance Sheet.


	December 31, 2019
	Level 1		Level 2		Level 3		Total - Gross		Netting (a)		Total - Net
	(Thousands of dollars)
Derivative assets
Commodity contracts
Financial contracts	$	10,892	$	—	$	55,557	$	66,449	$	(28,588)	$	37,861

Interest-rate contracts	—		581		—		581		—		581
Total derivative assets	$	10,892	$	581	$	55,557	$	67,030	$	(28,588)	$	38,442

Derivative liabilities
Commodity contracts
Financial contracts	$	(4,811)	$	—	$	(24,785)	$	(29,596)	$	28,588	$	(1,008)

Interest-rate contracts	—		(201,941)		—		(201,941)		—		(201,941)
Total derivative liabilities	$	(4,811)	$	(201,941)	$	(24,785)	$	(231,537)	$	28,588	$	(202,949)

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


	Years Ended
	December 31,
Derivative Assets (Liabilities)	2020		2019
	(Thousands of dollars)
Net assets at beginning of period	$	30,772	$	40,484
Total changes in fair value:

Settlements included in net income (a)	(31,660)		(40,344)
New Level 3 derivatives included in other comprehensive loss (b)	(36,568)		30,627
Unrealized change included in other comprehensive loss (b)	6,135		5

Net assets (liabilities) at end of period	$	(31,321)	$	30,772

(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 years ended December 31, 2020 and 2019, there were no transfers in or out of Level 3 of the fair value hierarchy.

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.

The estimated fair value of our consolidated long-term debt, including current maturities, was $16.3 billion and $13.8 billion at December 31, 2020 and 2019, respectively. The book value of our consolidated long-term debt, including current maturities, was $14.2 billion and $12.5 billion at December 31, 2020 and 2019, 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.

Nonrecurring Fair Value Measurements - In 2020, we incurred noncash impairment charges for certain long-lived assets and equity investments. The valuation of these assets and investments required the use of significant unobservable inputs. To estimate the fair value, we used two generally accepted valuation approaches, an income approach and a market approach. Under the income approach, our discounted cash flow analysis included the following inputs that are not readily available: a discount rate reflective of industry cost of capital, our estimated contract rates, volumes, operating margins, operating and maintenance costs and capital expenditures. Under the market approach, our inputs included EBITDA multiples, which were estimated from recent peer acquisition transactions, and forecasted EBITDA, which incorporates inputs similar to those used under the income approach. The estimated fair value of these assets is classified as Level 3. See Note A for additional information about our impairment charges.

C. 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 NGL products; 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 the following commodity derivative instruments to reduce the near-term commodity price risk associated with a portion of the forecasted sales of these commodities:

Futures contracts - Standardized contracts to purchase or sell natural gas and crude oil for future delivery or settlement under the provisions of exchange regulations;
Forward contracts - Nonstandardized commitments between two parties to purchase or sell natural gas, crude oil or NGLs for future physical delivery. These contracts are typically nontransferable and can only be canceled with the consent of both parties;
Swaps - Exchange of one or more payments based on the value of one or more commodities. These instruments transfer the financial risk associated with a future change in value between the counterparties of the transaction, without also conveying ownership interest in the asset or liability; and
Options - Contractual agreements that give the holder the right, but not the obligation, to buy or sell a fixed quantity of a commodity at a fixed price within a specified period of time. Options may either be standardized and exchange-traded or customized and nonexchange-traded.

We may also use other instruments, including collars, to mitigate commodity price risk. A collar is a combination of a purchased put option and a sold call option, which places a floor and a ceiling price for commodity sales being hedged.

In our Natural Gas Gathering and Processing segment, we are exposed to commodity price risk as a result of retaining a portion of the commodity sales proceeds associated with our fee with POP contracts. Under certain fee with POP contracts, our fees and POP percentage may increase or decrease if production volumes, delivery pressures or commodity prices change relative to specified thresholds. In certain commodity price environments, our contractual fees on these certain fee with POP contracts may decrease, which impacts the average fee rate in our Natural Gas Gathering and Processing segment. We also are exposed to basis risk between the various production and market locations where we buy and sell commodities. As part of our hedging

strategy, we use the previously described commodity derivative financial instruments and physical-forward contracts to reduce the impact of price fluctuations related to natural gas, NGLs and condensate.

In our Natural Gas Liquids segment, we are primarily exposed to commodity price risk resulting from the relative values of the various NGL products to each other, the value of NGLs in storage and the relative value of NGLs to natural gas. We are also exposed to location price differential risk as a result of the relative value of NGL purchases at one location and sales at another location, primarily related to our optimization and marketing business. As part of our hedging strategy, we utilize physical-forward contracts and commodity derivative financial instruments to reduce the impact of price fluctuations related to NGLs.

In our Natural Gas Pipelines segment, we are primarily exposed to commodity price risk on our intrastate pipelines because they consume natural gas in operations and retain natural gas from our customers for operations or as part of our fee for services provided. When the amount consumed in operations differs from the amount provided by our customers, our pipelines must buy or sell natural gas, or store or use natural gas inventory, which can expose this segment to commodity price risk depending on the regulatory treatment for this activity. To the extent that commodity price risk in our Natural Gas Pipelines segment is not mitigated by fuel cost-recovery mechanisms, we may use physical-forward sales or purchases to reduce the impact of natural gas price fluctuations. At December 31, 2020 and 2019, there were no financial derivative instruments with respect to our natural gas pipeline operations.

Interest-rate risk - We manage interest-rate risk through the use of fixed-rate debt, floating-rate debt and interest-rate swaps. Interest-rate swaps are agreements to exchange interest payments at some future point based on specified notional amounts.

In 2020, we settled $750 million of our forward-starting interest-rate swaps related to our underwritten public offerings of $1.75 billion senior unsecured notes resulting in a loss of $152.5 million, which is included in accumulated other comprehensive loss and amortized to interest expense over the term of the related debt. We also settled the remaining $1.3 billion of our interest-rate swaps used to hedge our LIBOR-based interest payments resulting in a loss of $48.3 million, which was recognized into interest expense upon repayment of the remaining balance of our $1.5 Billion Term Loan Agreement.

At December 31, 2020, and December 31, 2019, we had forward-starting interest-rate swaps with notional amounts totaling $1.1 billion and $1.8 billion, respectively, to hedge the variability of interest payments on a portion of our forecasted debt issuances. At December 31, 2019, we had interest-rate swaps with notional amounts totaling $1.3 billion to hedge the variability of our LIBOR-based interest payments, all of which have settled as of December 31, 2020. All of our interest-rate swaps are designated as cash flow hedges.

Fair Values of Derivative Instruments - See Note A for a discussion of the inputs associated with our fair value measurements. The following table sets forth the fair values of our derivative instruments presented on a gross basis for the periods indicated:


		December 31, 2020				December 31, 2019
	Location in our Consolidated Balance Sheets	Assets		(Liabilities)		Assets		(Liabilities)
		(Thousands of dollars)
Derivatives designated as hedging instruments
Commodity contracts (a)
Financial contracts (b)	Other current assets	$	107,461	$	(142,573)	$	64,858	$	(26,997)
	Other deferred credits	—		—		1,591		(2,599)


Interest-rate contracts	Other current liabilities	—		—		—		(90,161)
	Other assets/other deferred credits	—		(203,407)		581		(111,780)
Total derivatives designated as hedging instruments		107,461		(345,980)		67,030		(231,537)
Derivatives not designated as hedging instruments
Commodity contracts (a)
Financial contracts (b)		3,037		(3,038)		—		—
Total derivatives not designated as hedging instruments		3,037		(3,038)		—		—
Total derivatives		$	110,498	$	(349,018)	$	67,030	$	(231,537)

(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 December 31, 2020, our derivative net liability positions under master-netting arrangements for financial contracts were fully offset by $35.1 million of cash collateral.

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


		December 31, 2020	December 31, 2019
	Contract Type		Net Purchased/Payor (Sold/Receiver)
Derivatives designated as hedging instruments: (a)
Cash flow hedges
Fixed price
-Natural gas (Bcf)	Futures		(43.3)		(59.0)
-Crude oil and NGLs (MMBbl)	Futures		(4.6)		(9.5)
Basis
-Natural gas (Bcf)	Futures		(43.3)		(59.0)
Interest-rate contracts (Billions of dollars)	Swaps		$	1.1	$	3.1

(a) - Notional amounts for derivatives not designated as hedging instruments are excluded from the table above due to fully offsetting notional quantities of 0.8 Bcf for crude oil and NGLs fixed priced derivative instruments for the year ended December 31, 2020.

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:


		Years Ended December 31,
	2020			2019			2018
		(Thousands of dollars)
Commodity contracts		$	(5,699)		$	38,819		$	53,217
Interest-rate contracts		(208,616)			(230,771)			(60,584)
Total unrealized change in fair value of cash flow hedges in other comprehensive income (loss)		$	(214,315)		$	(191,952)		$	(7,367)

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
	Years Ended December 31,
	2020	2019		2018
		(Thousands of dollars)
Commodity contracts	Commodity sales revenues	$	85,436	$	94,547	$	(37,596)
	Cost of sales and fuel	(19,170)		(44,202)		8,000
Interest-rate contracts (a)	Interest expense	(93,676)		(23,230)		(18,287)
Total change in fair value of cash flow hedges reclassified from accumulated other comprehensive loss into net income on derivatives		$	(27,410)	$	27,115	$	(47,883)

(a) - The year ended December 31, 2020, includes a loss of $48.3 million on the settlement of our remaining $1.3 billion interest-rate swaps used to hedge our LIBOR-based interest payments.

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 overall credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit ratings, bond yields and credit default swap rates), collateral requirements under certain circumstances and the use of standardized master-netting agreements that allow us to net the positive and negative exposures associated with a single counterparty. We use internally developed credit ratings for counterparties that do not have a credit rating.

Our financial commodity derivatives are generally settled through a NYMEX or ICE clearing broker account with daily margin requirements. However, we may enter into financial derivative instruments that contain provisions that require us to maintain an investment-grade credit rating from S&P, Fitch and/or Moody’s. If our credit ratings on our senior unsecured long-term debt were to decline below investment grade, the counterparties to the derivative instruments could request collateralization on derivative instruments in net liability positions. There were no financial derivative instruments with contingent features related to credit risk at December 31, 2020.

The counterparties to our derivative contracts typically consist of major energy companies, financial institutions and commercial and industrial end users. This concentration of counterparties may affect our overall exposure to credit risk, either positively or negatively, in that the counterparties may be affected similarly by changes in economic, regulatory or other conditions. Based on our policies, exposures, credit and other reserves, we do not anticipate a material adverse effect on our financial position or results of operations as a result of counterparty nonperformance.

At December 31, 2020, the credit exposure from our derivative assets is with investment-grade companies in the financial services sector.

D. PROPERTY, PLANT AND EQUIPMENT

The following table sets forth our property, plant and equipment by property type, for the periods indicated:


	Estimated Useful Lives (Years)	December 31, 2020		December 31, 2019
		(Thousands of dollars)
Nonregulated
Gathering pipelines and related equipment	5 to 40	$	4,143,752	$	4,316,936
Processing and fractionation and related equipment	3 to 40	5,084,802		4,439,332
Storage and related equipment	3 to 54	798,785		684,635
Transmission pipelines and related equipment	5 to 54	810,434		797,678
General plant and other	2 to 60	647,675		610,013
Construction work in process	—	1,265,736		1,645,663
Regulated
Storage and related equipment	5 to 25	9,180		9,180
Natural gas transmission pipelines and related equipment	5 to 77	1,569,268		1,552,546
NGL transmission pipelines and related equipment	5 to 88	8,423,544		6,126,056
General plant and other	2 to 50	72,535		66,507
Construction work in process	—	247,224		1,802,946
Property, plant and equipment		23,072,935		22,051,492
Accumulated depreciation and amortization - nonregulated		(2,514,328)		(2,471,649)
Accumulated depreciation and amortization - regulated		(1,403,679)		(1,231,158)
Net property, plant and equipment		$	19,154,928	$	18,348,685

The average depreciation rates for our regulated property are set forth, by segment, in the following table for the periods indicated:


	Years Ended December 31,
	2020	2019	2018
Natural Gas Liquids	2.2%	2.0%	1.9%
Natural Gas Pipelines	2.1%	2.1%	2.1%

We incurred costs for construction work in process that had not been paid at December 31, 2020, 2019 and 2018, of $151.7 million, $544.8 million and $388.3 million, respectively. Such amounts are not included in capital expenditures (less AFUDC and capitalized interest) on the Consolidated Statements of Cash Flows.

Impairment Charges - In 2020, we evaluated our Natural Gas Gathering and Processing segment asset groups and determined that the carrying value of certain long-lived asset groups in the Powder River Basin, western Oklahoma and Kansas were not recoverable and exceeded their estimated fair value. As a result, we recorded noncash impairment charges of $362.3 million, which includes a natural gas processing plant and infrastructure in the Powder River Basin and its related supply contracts and natural gas processing plants and infrastructure in western Oklahoma and Kansas. In our Natural Gas Liquids segment, we recorded noncash impairment charges of $71.6 million related primarily to certain inactive assets, as our expectation for future use of the assets changed. These charges are included within impairment charges in our Consolidated Statement of Income for the year ended December 31, 2020. For additional information on our impairment charges, see Note A.

E. GOODWILL AND INTANGIBLE ASSETS

Goodwill - The following table sets forth our goodwill, by segment, for the periods indicated:


	December 31, 2020		December 31, 2019
	(Thousands of dollars)
Natural Gas Gathering and Processing	$	—	$	153,404
Natural Gas Liquids	371,217		371,217
Natural Gas Pipelines	156,375		156,375
Total goodwill	$	527,592	$	680,996

Impairment Charges - Based on the results of our goodwill impairment test in the first quarter 2020, we concluded that the carrying value of the Natural Gas Gathering and Processing reporting unit exceeded its estimated fair value, resulting in a noncash impairment charge of $153.4 million, which is included within impairment charges in our Consolidated Statement of Income for the year ended December 31, 2020. For additional information on our impairment charges, see Note A.

Intangible Assets - Our intangible assets relate primarily to contracts acquired through acquisitions in our Natural Gas Liquids and Natural Gas Gathering and Processing segments, which are being amortized over periods of 15 to 40 years. Amortization expense for intangible assets was $10.8 million in 2020 and $11.9 million in 2019 and 2018, and the aggregate amortization expense for each of the next five years is estimated to be $10.4 million. The following table reflects the gross carrying amount and accumulated amortization of intangible assets for the periods presented:


	December 31, 2020		December 31, 2019
	(Thousands of dollars)
Gross intangible assets	$	381,435	$	414,345
Accumulated amortization	(135,304)		(137,508)
Net intangible assets	$	246,131	$	276,837

Impairment Charges - In our Natural Gas Gathering and Processing segment, we recorded noncash impairment charges to intangible assets of $19.9 million related to supply contracts associated with our natural gas processing plant in the Powder River Basin, which was also impaired. These charges are included within impairment charges in our Consolidated Statement of Income for the year ended December 31, 2020. For additional information on our impairment charges, see Note A.

F. DEBT

The following table sets forth our consolidated debt for the periods indicated:


	December 31, 2020		December 31, 2019
	(Thousands of dollars)
Commercial paper outstanding, bearing a weighted-average interest rate of 2.16% as of December 31, 2019	$	—	$	220,000
Senior unsecured obligations:
$1,500,000 term loan at 2.70% as of December 31, 2019, due November 2021	—		1,250,000
$700,000 at 4.25% due February 2022	541,877		547,397
$900,000 at 3.375% due October 2022	895,814		900,000
$425,000 at 5.0% due September 2023	425,000		425,000
$500,000 at 7.5% due September 2023	500,000		500,000
$500,000 at 2.75% due September 2024	500,000		500,000
$500,000 at 4.9% due March 2025	500,000		500,000
$400,000 at 2.2% due September 2025	387,000		—
$600,000 at 5.85% due January 2026	600,000		—
$500,000 at 4.0% due July 2027	500,000		500,000
$800,000 at 4.55% due July 2028	800,000		800,000
$100,000 at 6.875% due September 2028	100,000		100,000
$700,000 at 4.35% due March 2029	700,000		700,000
$750,000 at 3.4% due September 2029	714,251		750,000
$850,000 at 3.1% due March 2030	780,093		—
$600,000 at 6.35% due January 2031	600,000		—
$400,000 at 6.0% due June 2035	400,000		400,000
$600,000 at 6.65% due October 2036	600,000		600,000
$600,000 at 6.85% due October 2037	600,000		600,000
$650,000 at 6.125% due February 2041	650,000		650,000
$400,000 at 6.2% due September 2043	400,000		400,000
$700,000 at 4.95% due July 2047	689,006		700,000
$1,000,000 at 5.2% due July 2048	1,000,000		1,000,000
$750,000 at 4.45% due September 2049	713,676		750,000
$500,000 at 4.5% due March 2050	451,270		—
$300,000 at 7.15% due January 2051	300,000		—
Guardian Pipeline
Weighted average 7.85% due December 2022	13,657		21,307
Total debt	14,361,644		12,813,704
Unamortized portion of terminated swaps	13,314		15,032
Unamortized debt issuance costs and discounts	(138,887)		(121,329)
Current maturities of long-term debt	(7,650)		(7,650)
Short-term borrowings (a)	—		(220,000)
Long-term debt	$	14,228,421	$	12,479,757

(a) - Individual issuances of commercial paper under our commercial paper program generally mature in 90 days or less.

$2.5 Billion Credit Agreement - In May 2019, we extended the term of our $2.5 Billion Credit Agreement by one year to June 2024. Our $2.5 Billion Credit Agreement is a revolving credit facility and contains certain financial, operational and legal covenants. Among other things, these covenants include maintaining a ratio of 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 June 2020, we amended our $2.5 Billion Credit Agreement by, among other things, modifying the leverage ratio so that we may net up to $700 million of cash on hand against our consolidated indebtedness for purposes of calculating the ratio’s numerator for the fiscal quarters ending June 30, 2020, September 30, 2020, and December 31, 2020. In October 2020, we acquired additional interest in one of our equity investments and a related asset for $27 million, 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 for the fourth quarter 2020 and the two following quarters. Thereafter, the covenant will decrease to 5.0 to 1.

Our $2.5 Billion Credit Agreement includes a $100 million sublimit for the issuance of standby letters of credit and a $200 million sublimit for swingline loans. Under the terms of our $2.5 Billion Credit Agreement, we may request an increase in the size of the facility to an aggregate of $3.5 billion by either commitments from new lenders or increased commitments from existing lenders. Our $2.5 Billion Credit Agreement contains provisions for an applicable margin rate and an annual facility fee, both of which adjust with changes in our credit ratings. Based on our current credit ratings, borrowings, if any, will accrue at LIBOR, or alternate benchmark rate, plus 110 basis points, and the annual facility fee is 15 basis points. At December 31, 2020, our ratio of indebtedness to adjusted EBITDA was 4.6 to 1, and we were in compliance with all covenants under our $2.5 Billion Credit Agreement.

At December 31, 2020 and 2019, we had letters of credit issued totaling $7.7 million and $4.7 million, respectively, and no borrowings outstanding under our $2.5 Billion Credit Agreement.

Senior Unsecured Obligations - All notes are senior unsecured obligations, ranking equally in right of payment with all of our existing and future unsecured senior indebtedness, and are structurally subordinate to any of the existing and future debt and other liabilities of any non-guarantor subsidiaries.

Issuances - In May 2020, we completed an underwritten public offering of $1.5 billion senior unsecured notes consisting of $600 million, 5.85% senior notes due 2026; $600 million, 6.35% senior notes due 2031; and $300 million, 7.15% senior notes due 2051. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $1.48 billion. A portion of the proceeds was used to repay the outstanding borrowings under our $1.5 Billion Term Loan Agreement. The remainder was used for general corporate purposes.

In March 2020, we completed an underwritten public offering of $1.75 billion senior unsecured notes consisting of $400 million, 2.2% senior notes due 2025; $850 million, 3.1% senior notes due 2030; and $500 million, 4.5% senior notes due 2050. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $1.73 billion. A portion of the proceeds was used to pay all outstanding amounts under our commercial paper program. The remainder was used for general corporate purposes, which included repayment of other existing indebtedness and funding capital expenditures.

In August 2019, we completed an underwritten public offering of $2.0 billion senior unsecured notes consisting of $500 million, 2.75% senior notes due 2024; $750 million, 3.4% senior notes due 2029; and $750 million, 4.45% senior notes due 2049. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $1.97 billion. The proceeds were used for general corporate purposes, including repayment of existing indebtedness and funding capital expenditures.

In March 2019, we completed an underwritten public offering of $1.25 billion senior unsecured notes consisting of $700 million, 4.35% senior notes due 2029 and an additional issuance of $550 million of our existing 5.2% senior notes due 2048. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, and exclusive of accrued interest, were $1.23 billion. The proceeds were used for general corporate purposes, including repayment of existing indebtedness and funding capital expenditures.

In November 2018, we entered into our $1.5 Billion Term Loan Agreement with a syndicate of banks, which was fully drawn as of June 30, 2019. The proceeds were used for general corporate purposes, including repayment of existing indebtedness and funding capital expenditures.

In July 2018, we completed an underwritten public offering of $1.25 billion senior unsecured notes consisting of $800 million, 4.55% senior notes due 2028 and $450 million, 5.2% senior notes due 2048. The net proceeds, after deducting underwriting discounts, commissions and offering expenses, were $1.23 billion. The proceeds were used for general corporate purposes, which included repayment of existing indebtedness and funding capital expenditures.

Repayments - In May 2020, we repaid the remaining $1.25 billion of our $1.5 Billion Term Loan Agreement with cash on hand from our May 2020 public offering of $1.5 billion senior unsecured notes.

In 2020, we repurchased in the open market outstanding principal of certain of our senior notes in the amount of $224.4 million for an aggregate repurchase price of $199.6 million with cash on hand. In connection with these open market repurchases, we recognized $22.3 million of net gains on extinguishment of debt, which is included in other income in our Consolidated Statement of Income for the year ended December 31, 2020.

In September 2019, we redeemed our $300 million, 3.8% senior notes due March 2020 at a redemption price of $308.0 million, including the outstanding principal, plus accrued and unpaid interest, with cash on hand from our public offering of $2.0 billion senior unsecured notes in August 2019. In connection with this early redemption, we incurred a $2.7 million loss on extinguishment of debt, which is included in other expense in our Consolidated Statements of Income for the year ended December 31, 2019.

In August 2019, we repaid $250 million of our $1.5 Billion Term Loan agreement with cash on hand.

In March 2019, we repaid our $500 million, 8.625% senior notes at maturity with a combination of cash on hand and short-term borrowings.

In 2018, we repaid our $425 million, 3.2% senior notes due September 2018 with cash on hand and the remaining $500 million of the ONEOK Partners Term Loan Agreement due 2019 with a combination of cash on hand and short-term borrowings.

The aggregate maturities of long-term debt outstanding as of December 31, 2020, for the years 2021 through 2025 are shown below:


	Senior Unsecured Obligations		Guardian Pipeline		Total
	(Millions of dollars)
2021	$	—	$	7.7	$	7.7
2022	$	1,437.7	$	6.0	$	1,443.7
2023	$	925.0	$	—	$	925.0
2024	$	500.0	$	—	$	500.0
2025	$	887.0	$	—	$	887.0

Covenants - Our senior notes are governed by indentures containing covenants, including among other provisions, limitations on our ability to place liens on our property or assets and to sell and leaseback our property. The indentures governing our 6.875% senior notes due 2028 include an event of default upon acceleration of other indebtedness of $15 million or more, and the indentures governing the remainder of our senior notes include an event of default upon the acceleration of other indebtedness of $100 million or more. Such events of default would entitle the trustee or the holders of 25% in aggregate principal amount of the outstanding senior notes to declare those senior notes immediately due and payable in full. The indenture for the 7.5% notes due 2023 also contains a provision that allows the holders of the notes to require ONEOK to offer to repurchase all or any part of their notes if a change of control and a credit rating downgrade occur at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any.

We may redeem our senior notes, in whole or in part, at any time prior to their maturity at a redemption price equal to the principal amount, plus accrued and unpaid interest and a make-whole premium. We may redeem the balance of our senior notes due 2022, 2023, 2024, 2025, 2026, 2027, 2028 (4.55%), 2029, 2030, 2031, 2041, 2043, 2047, 2048, 2049, 2050 and 2051 at a redemption price equal to the principal amount, plus accrued and unpaid interest, starting one to six months before the maturity date as stipulated in the respective contract terms. Our senior notes are senior unsecured obligations, ranking equally in right of payment with all of our existing and future unsecured senior indebtedness.

Guardian Pipeline Senior Notes - These senior notes were issued under a master shelf agreement dated November 8, 2001, with certain financial institutions. Principal payments are due quarterly through 2022. Guardian Pipeline’s senior notes contain financial covenants that require the maintenance of certain financial ratios as defined in the master shelf agreement based on Guardian Pipeline’s financial position and results of operations. Upon any breach of these covenants, all amounts outstanding under the master shelf agreement may become due and payable immediately. At December 31, 2020, Guardian Pipeline was in compliance with its financial covenants.

Other - We amortize premiums, discounts and expenses incurred in connection with the issuance of long-term debt consistent with the terms of the respective debt instrument.

Debt Guarantees - ONEOK, ONEOK Partners and the Intermediate Partnership have cross guarantees in place for our and ONEOK Partners’ indebtedness.

G. EQUITY

Noncontrolling Interests - In July 2018, we acquired the remaining 20% interest in West Texas LPG Pipeline Limited Partnership for $195 million with cash on hand. We are now the sole owner of ONEOK West Texas NGL, formerly known as West Texas LPG.

Series A and B Convertible Preferred Stock - There are no shares of Series A or Series B Preferred Stock currently issued or outstanding.

Equity Issuances - In July 2020, we established an “at-the-market” equity program for the offer and sale from time to time of our common stock up to an aggregate offering price of $1.0 billion. The program allows us to offer and sell common stock at prices we deem appropriate through a sales agent, in forward sales transactions through a forward seller or directly to one or more of the program’s managers acting as principals. Sales of our common stock may be made by means of ordinary brokers’ transactions on the NYSE, in block transactions or as otherwise agreed to between us and the sales agent. We are under no obligation to offer and sell common stock under the program. No shares have been sold through our “at-the-market” program as of the date of this report.

In June 2020, we completed an underwritten public offering of 29.9 million shares of our common stock at a public offering price of $32.00 per share, generating net proceeds, after deducting underwriting discounts, commissions and offering expenses, of $937.0 million. A portion of the proceeds was, and we anticipate the remainder will be, used for general corporate purposes, including repayment of existing indebtedness and funding capital expenditures.

In January 2018, we completed an underwritten public offering of 21.9 million shares of our common stock at a public offering price of $54.50 per share, generating net proceeds of $1.2 billion. We used the net proceeds from this offering to fund capital expenditures and for general corporate purposes, which included repaying a portion of our outstanding indebtedness.

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 totaled $1.6 billion, $1.5 billion and $1.3 billion for 2020, 2019 and 2018, respectively. In addition to the increase in dividends paid per share outlined in the table below, dividends paid increased due to the increase in number of shares outstanding as a result of our equity issuances. The following table sets forth the quarterly dividends per share paid on our common stock in the periods indicated:


	Years Ended December 31,
	2020		2019		2018
First Quarter	$	0.935	$	0.860	$	0.770
Second Quarter	0.935		0.865		0.795
Third Quarter	0.935		0.890		0.825
Fourth Quarter	0.935		0.915		0.855
Total	$	3.74	$	3.53	$	3.245

Additionally, in February 2021, we maintained and paid a quarterly dividend of $0.935 per share ($3.74 per share on an annualized basis), which was paid to shareholders of record as of February 1, 2021.

The Series E Preferred Stock pays quarterly dividends on each share of Series E Preferred Stock, when, as 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 $1.1 million in 2020, 2019 and 2018. We paid quarterly dividends totaling $0.3 million for the Series E Preferred Stock in February 2021.

H. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the balance in accumulated other comprehensive loss for the periods indicated:


	Risk- Management Assets/Liabilities (a)		Retirement and Other Postretirement Benefit Plan Obligations (a) (b)		Risk- Management Assets/Liabilities of Unconsolidated Affiliates (a)		Accumulated Other Comprehensive Loss (a)
	(Thousands of dollars)
January 1, 2019	$	(64,660)	$	(121,785)	$	(1,794)	$	(188,239)
Other comprehensive loss before reclassifications	(147,803)		(19,490)		(7,275)		(174,568)
Amounts reclassified to net income (c)	(21,057)		9,794		70		(11,193)
Other comprehensive loss	(168,860)		(9,696)		(7,205)		(185,761)
December 31, 2019	(233,520)		(131,481)		(8,999)		(374,000)
Other comprehensive loss before reclassifications	(165,023)		(40,341)		(8,635)		(213,999)
Amounts reclassified to net income (c)	21,097		14,187		1,266		36,550
Other comprehensive loss	(143,926)		(26,154)		(7,369)		(177,449)
December 31, 2020	$	(377,446)	$	(157,635)	$	(16,368)	$	(551,449)

(a) - All amounts are presented net of tax.

(b) - Includes amounts related to supplemental executive retirement plan.

(c) - See Note C for details of amounts reclassified to net income for risk-management assets/liabilities and Note K for retirement and other postretirement benefit plan obligations.

The following table sets forth information about the balance of accumulated other comprehensive loss at December 31, 2020, representing unrealized gains (losses) related to risk-management assets and liabilities:


	Risk- Management Assets/Liabilities (a)
	(Thousands of dollars)
Commodity derivative instruments expected to be realized within the next 24 months (b)	$	(27,303)
Settled interest-rate swaps to be recognized over the life of the long-term, fixed-rate debt (c)	(193,519)
Interest-rate swaps with future settlement dates expected to be amortized over the life of long-term debt	(156,624)
Accumulated other comprehensive loss at December 31, 2020	$	(377,446)

(a) - All amounts are presented net of tax.

(b) - Based on December 31, 2020, commodity prices, we expect $27.0 million in net losses, net of tax, over the next 12 months and $0.3 million in net losses, net of tax, thereafter.

The remaining amounts in accumulated other comprehensive loss relate primarily to our retirement and other postretirement benefit plan obligations, which are expected to be amortized over the average remaining service period of employees participating in these plans.

I. EARNINGS PER SHARE

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


	Year Ended December 31, 2020
	Income		Shares	Per Share Amount
	(Thousands, except per share amounts)
Basic EPS
Net income available for common stock	$	611,709	431,105	$	1.42
Diluted EPS
Effect of dilutive securities	—		677
Net income available for common stock and common stock equivalents	$	611,709	431,782	$	1.42


	Year Ended December 31, 2019
	Income		Shares	Per Share Amount
	(Thousands, except per share amounts)
Basic EPS
Net income available for common stock	$	1,277,477	413,560	$	3.09
Diluted EPS
Effect of dilutive securities	—		1,884
Net income available for common stock and common stock equivalents	$	1,277,477	415,444	$	3.07


	Year Ended December 31, 2018
	Income		Shares	Per Share Amount
	(Thousands, except per share amounts)
Basic EPS
Net income attributable to ONEOK available for common stock	$	1,150,603	411,485	$	2.80
Diluted EPS
Effect of dilutive securities	—		2,710
Net income attributable to ONEOK available for common stock and common stock equivalents	$	1,150,603	414,195	$	2.78

J. SHARE-BASED PAYMENTS

Our Equity Compensation Plan (ECP) and Long-Term Incentive Plan (LTIP) historically provided for the granting of stock-based compensation, including incentive stock options, nonstatutory stock options, stock bonus awards, restricted stock unit awards and performance unit awards to eligible employees and the granting of stock awards to non-employee directors. The ECP was terminated immediately following the issuance of new awards in February 2018. The awards issued prior to the termination remain subject to the terms of the ECP and the applicable award agreement. Similarly, the LTIP was terminated in May 2018, and the awards issued under the LTIP prior to the termination date remain subject to the terms of the LTIP and the applicable award agreement. In May 2018, our shareholders approved the ONEOK, Inc. Equity Incentive Plan (EIP), which has been used for all new equity awards since such date. We have reserved 8.5 million shares of common stock for issuance under the EIP and at December 31, 2020, we had 6.9 million shares available for issuance under the plan. This calculation of available shares reflects shares issued and estimated shares expected to be issued upon vesting of outstanding awards granted under the EIP, excluding estimated forfeitures expected to be returned to the plan.

Restricted Stock Units - We have granted restricted stock units to key employees that vest at the end of a three-year period and entitle the grantee to receive shares of our common stock. Restricted stock unit awards are measured at fair value as if they were vested and issued on the grant date and adjusted for estimated forfeitures. Restricted stock unit awards accrue dividend equivalents in the form of additional restricted stock units prior to vesting. Compensation expense is recognized on a straight-line basis over the vesting period of the award.

Performance Unit Awards - We have granted performance unit awards to key employees that vest at the end of a three-year period. Upon vesting, a holder of outstanding performance units is entitled to receive a number of shares of our common stock equal to a percentage (0% to 200%) of the performance units granted, based on our total shareholder return over the vesting period, compared with the total shareholder return of a peer group of other energy companies over the same period. Performance unit awards are measured at fair value on the grant date based on a Monte Carlo model and adjusted for estimated forfeitures. Performance unit awards accrue dividend equivalents in the form of additional performance units prior to vesting. Compensation expense is recognized on a straight-line basis over the vesting period of the award.

Stock Compensation for Non-Employee Directors

The EIP provides for the granting of nonstatutory stock options and stock bonus awards to non-employee directors, including performance unit awards and restricted stock unit awards. Under the EIP, awards may be granted by the Executive Compensation Committee at any time, until grants have been made for all shares authorized under the EIP. The maximum number of shares of common stock and cash-based awards that can be issued to a participant under the EIP during any year is limited to $0.8 million in value as of the grant date. No performance unit awards or restricted stock unit awards have been made to non-employee directors, and there are no options outstanding.

General

For all awards outstanding, we used a 3% forfeiture rate based on historical forfeitures under our share-based payment plans. We currently use treasury stock to satisfy our share-based payment obligations.

Compensation expense for our share-based payment plans was $29.4 million, $46.5 million and $33.2 million during 2020, 2019 and 2018, respectively, before related tax benefits of $14.1 million, $31.7 million and $12.2 million, respectively.

Restricted Stock Unit Activity

As of December 31, 2020, we had $16.7 million of total unrecognized compensation cost related to our nonvested restricted stock unit awards, which is expected to be recognized over a weighted-average period of 1.8 years. The following tables set forth activity and various statistics for our restricted stock unit awards:


	Number of Units	Weighted Average Price
Nonvested December 31, 2019	698,990	$	54.05
Granted	216,392	$	76.49
Released to participants	(240,576)	$	46.58
Forfeited	(28,519)	$	65.20
Nonvested December 31, 2020	646,287	$	63.85


	2020		2019		2018
Weighted-average grant date fair value (per share)	$	76.49	$	58.07	$	46.94
Fair value of units granted (thousands of dollars)	$	16,552	$	15,238	$	13,907
Grant date fair value of units vested (thousands of dollars)	$	11,204	$	10,691	$	9,552

Performance Unit Activity

As of December 31, 2020, we had $25.0 million of total unrecognized compensation cost related to the nonvested performance unit awards, which is expected to be recognized over a weighted-average period of 1.8 years. The following tables set forth activity and various statistics related to the performance unit awards and the assumptions used in the valuations at the respective grant dates:


	Number of Units	Weighted Average Price
Nonvested December 31, 2019	937,821	$	66.67
Granted	283,029	$	88.43
Released to participants	(300,423)	$	58.99
Forfeited	(86,181)	$	74.83
Nonvested December 31, 2020	834,246	$	75.96


	2020	2019	2018
Volatility (a)	21.70%	27.10%	39.20%
Dividend yield	4.87%	5.05%	5.49%
Risk-free interest rate	1.39%	2.47%	2.44%

(a) - Volatility was based on historical volatility over three years using daily stock price observations.


	2020		2019		2018
Weighted-average grant date fair value (per share)	$	88.43	$	68.02	$	59.57
Fair value of units granted (thousands of dollars)	$	25,028	$	23,020	$	22,081
Grant date fair value of units vested (thousands of dollars)	$	17,722	$	15,018	$	12,545

Employee Stock Purchase Plan

We have reserved a total of 11.6 million shares of common stock for issuance under our Employee Stock Purchase Plan (the ESPP). Subject to certain exclusions, all employees are eligible to participate in the ESPP. Employees can choose to have up

to 10% of their base pay withheld from each paycheck during the offering period to purchase our common stock, subject to terms and limitations of the plan. The purchase price of the stock is 85% of the lower of its grant date or exercise date market price. Approximately 68%, 62% and 60% of employees participated in the plan in 2020, 2019 and 2018, respectively. Under the plan, we sold 359,977 shares at a weighted average of $27.78 per share in 2020, 171,590 shares at a weighted average of $51.24 per share in 2019 and 165,877 shares at a weighted average of $45.53 per share in 2018.

Employee Stock Award Program

Under our Employee Stock Award Program, we issue, for no monetary consideration, to all eligible employees one share of our common stock when the per-share closing price of our common stock on the NYSE is at or above each one dollar increment above its previous high closing price. The total number of shares of our common stock available for issuance under this program is 900,000. Shares issued to employees under this program during 2020, 2019 and 2018 totaled 2,871, 14,022 and 2,553, respectively. Compensation expense related to the Employee Stock Award Program was $0.2 million, $1.0 million and $0.2 million for 2020, 2019 and 2018, respectively. As of the date of this report, the next award will be issued when our common stock closes at or above $78.

Deferred Compensation Plan for Non-Employee Directors

Our Deferred Compensation Plan for Non-Employee Directors provides our non-employee directors the option to defer all or a portion of their compensation for their service on our Board of Directors. Under the plan, directors may elect either a cash deferral option or a phantom stock option. Under the cash deferral option, directors may elect to defer the receipt of all or a portion of their annual retainer fees, which will be credited with interest during the deferral period. Under the phantom stock option, directors may defer all or a portion of their annual retainer fees and receive such fees on a deferred basis in the form of shares of common stock under our EIP, which earn the equivalent of dividends declared on our common stock. Shares are distributed to non-employee directors at the fair market value of our common stock at the date of distribution.

K. EMPLOYEE BENEFIT PLANS

Retirement and Other Postretirement Benefit Plans

Retirement Plans - We have a defined benefit pension plan covering certain employees and former employees hired prior to January 1, 2005. In addition, we have a supplemental executive retirement plan for the benefit of certain officers who participate in our defined benefit pension plan. Our defined benefit pension plan and our supplemental executive retirement plan are both closed to new participants. We fund our defined benefit pension plan at a level needed to maintain or exceed the minimum funding levels required by the Employee Retirement Income Security Act of 1974, as amended, and the Pension Protection Act of 2006.

All employees are eligible to make salary deferrals and receive company matching contributions under our 401(k) Plan, and employees that do not participate in our defined benefit pension plan are also eligible to receive quarterly and annual profit-sharing contributions under our 401(k) Plan.

Other Postretirement Benefit Plans - We sponsor health and welfare plans that provide postretirement medical and life insurance benefits to employees hired prior to 2017 who retire with at least five years of full-time service. The postretirement medical plan for pre-Medicare participants is contributory, with retiree contributions adjusted periodically, and contains other cost-sharing features such as deductibles and coinsurance. The postretirement medical plan for Medicare-eligible participants is an account-based plan under which participants may elect to purchase private insurance policies under a private exchange and/or seek reimbursement of other eligible medical expenses.

Obligations and Funded Status - The following table sets forth our retirement and other postretirement benefit plans benefit obligations and fair value of plan assets for the periods indicated:


	Retirement Benefits				Other Postretirement Benefits
	December 31,				December 31,
	2020		2019		2020		2019
Change in benefit obligation	(Thousands of dollars)
Benefit obligation, beginning of period	$	534,849	$	466,994	$	52,309	$	46,840
Service cost	8,154		7,825		460		468
Interest cost	18,318		20,528		1,771		2,038
Plan participants’ contributions	—		—		1,032		1,142
Actuarial loss	37,951		55,954		2,860		5,101
Benefits paid	(16,200)		(16,452)		(3,917)		(3,280)
Benefit obligation, end of period	583,072		534,849		54,515		52,309

Change in plan assets
Fair value of plan assets, beginning of period	346,792		290,684		39,060		30,800
Actual return on plan assets (a)	36,400		58,060		(15,699)		8,087
Employer contributions	12,100		14,500		—		2,000
Plan participants’ contributions	—		—		1,032		1,142
Benefits paid	(16,200)		(16,452)		(3,519)		(2,969)
Fair value of plan assets, end of period	379,092		346,792		20,874		39,060
Balance at December 31	$	(203,980)	$	(188,057)	$	(33,641)	$	(13,249)

Current liabilities	$	(4,679)	$	(4,616)	$	—	$	—
Noncurrent liabilities	(199,301)		(183,441)		(33,641)		(13,249)
Balance at December 31	$	(203,980)	$	(188,057)	$	(33,641)	$	(13,249)

(a) - Other Postretirement Benefits for the year ended December 31, 2020, includes a $13.2 million tax loss incurred from the exit of an investment in an insurance contract.

The table above includes the supplemental executive retirement plan obligation. ONEOK has investments included in other assets on the Consolidated Balance Sheets, which totaled $116.2 million and $98.9 million at December 31, 2020 and 2019, respectively, for the purpose of offsetting the obligation. These assets are excluded from the table above as the assets are maintained in a rabbi trust and are not treated as assets of the supplemental executive retirement plan.

The accumulated benefit obligation for our retirement plans was $548.2 million and $498.8 million at December 31, 2020 and 2019, respectively.

The actuarial losses impacting our benefit obligations for our retirement and other postretirement benefit plans are due primarily to changes in the discount rate assumptions discussed in the “Actuarial Assumptions” section below.

Components of Net Periodic Benefit Cost - The following table sets forth the components of net periodic benefit cost for our retirement and other postretirement benefit plans for the periods indicated:


	Retirement Benefits						Other Postretirement Benefits
	Years Ended December 31,						Years Ended December 31,
	2020		2019		2018		2020		2019		2018
	(Thousands of dollars)
Components of net periodic benefit cost
Service cost	$	8,154	$	7,825	$	7,339	$	460	$	468	$	845
Interest cost	18,318		20,528		17,659		1,771		2,038		2,108
Expected return on plan assets	(24,964)		(23,600)		(23,917)		(2,894)		(2,285)		(2,690)
Amortization of prior service cost (credit)	114		—		—		—		(227)		(1,662)
Amortization of net loss	18,306		12,649		17,060		5		297		1,338
Net periodic benefit cost (income)	$	19,928	$	17,402	$	18,141	$	(658)	$	291	$	(61)

Other Comprehensive Income (Loss) - The following table sets forth the amounts recognized in other comprehensive income (loss) related to our retirement and other postretirement benefits for the periods indicated:


	Retirement Benefits						Other Postretirement Benefits
	Years Ended December 31,						Years Ended December 31,
	2020		2019		2018		2020		2019		2018
	(Thousands of dollars)
Net gain (loss) (a)	$	(31,016)	$	(25,389)	$	(16,351)	$	(21,453)	$	700	$	6,545
Prior service cost	—		(601)		—		—		—		—
Amortization of prior service cost (credit) (b)	114		—		—		—		(227)		(1,662)
Amortization of net loss (b)	18,306		12,649		17,060		5		297		1,338
Deferred income taxes (c)	2,897		3,068		(18,928)		4,933		(177)		(2,831)
Total recognized in other comprehensive income (loss)	$	(9,699)	$	(10,273)	$	(18,219)	$	(16,515)	$	593	$	3,390

(a) - Other Postretirement Benefits for the year ended December 31, 2020, includes a $13.2 million tax loss incurred from the exit of an investment in an insurance contract.

(b) - These components are recognized in accumulated other comprehensive loss and are reclassified to other expense in our Consolidated Statements of Income, with related income tax benefits of $4.2 million, $2.9 million and $3.8 million reclassified to income tax expense for the years ended December 31, 2020, 2019, and 2018, respectively.

(c) - Year ended December 31, 2018, includes the impact of adopting ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”

The table below sets forth the amounts in accumulated other comprehensive loss that had not yet been recognized as components of net periodic benefit expense for the periods indicated:


	Retirement Benefits				Other Postretirement Benefits
	December 31,				December 31,
	2020		2019		2020		2019
	(Thousands of dollars)
Prior service cost	$	(487)	$	(601)	$	—	$	—
Accumulated loss (a)	(185,662)		(172,952)		(25,558)		(4,110)
Accumulated other comprehensive loss	(186,149)		(173,553)		(25,558)		(4,110)


Deferred income taxes	49,251		46,354		6,322		1,389
Accumulated other comprehensive loss, net of tax	$	(136,898)	$	(127,199)	$	(19,236)	$	(2,721)

(a) - Other Postretirement Benefits for the year ended December 31, 2020, includes a $13.2 million tax loss incurred from the exit of an investment in an insurance contract.

Actuarial Assumptions - The following table sets forth the weighted-average assumptions used to determine benefit obligations for retirement and other postretirement benefits for the periods indicated:


	Retirement Benefits		Other Postretirement Benefits
	December 31,		December 31,
	2020	2019	2020	2019
Discount rate	3.00%	3.50%	2.75%	3.50%
Compensation increase rate	3.60%	3.70%	NA	NA

The following table sets forth the weighted-average assumptions used to determine net periodic benefit costs for the periods indicated:


	Years Ended December 31,
	2020	2019	2018
Discount rate - retirement plans	3.50%	4.50%	3.75%
Discount rate - other postretirement plans	3.50%	4.50%	3.75%
Expected long-term return on plan assets	7.50%	7.50%	8.00%
Compensation increase rate	3.70%	3.65%	3.00%

We determine our overall expected long-term rate of return on plan assets based on our review of historical returns and economic growth models.

We determine our discount rates annually utilizing portfolios of high quality bonds matched to the estimated benefit cash flows of our retirement and other postretirement benefit plans. Bonds selected to be included in the portfolios are only those rated by S&P or Moody’s as an AA or Aa2 rating or better and exclude callable bonds, bonds with less than a minimum issue size, yield outliers and other filtering criteria to remove unsuitable bonds.

Health Care Cost Trend Rates - The following table sets forth the assumed health care cost-trend rates for the periods indicated:


	2020	2019
Health care cost-trend rate assumed for next year	6.50%	7.00%
Rate to which the cost-trend rate is assumed to decline (the ultimate trend rate)	5.00%	5.00%
Year that the rate reaches the ultimate trend rate	2024	2024

Plan Assets - Our investment strategy is to invest plan assets in accordance with sound investment practices that emphasize long-term fundamentals. The goal of this strategy is to maximize investment returns while managing risk in order to meet the plan’s current and projected financial obligations. The investment allocation for our other postretirement benefit plans is to target a diversified mix of approximately 30% fixed income and 70% equity securities. The investment allocation for our defined benefit pension plan follows a glide path approach of liability-driven investing that shifts a higher portfolio weighting to fixed income as the plan’s funded status increases. The purpose of liability-driven investing is to structure the asset portfolio to more closely resemble the pension liability and thereby more effectively hedge against changes in the liability. The plan’s current investments include a diverse blend of various domestic and international equities, investments in various classes of debt securities, real estate and hedge funds. The target allocation for the assets of our retirement plan as of December 31, 2020, is as follows:


Domestic and international equities	42	%
Long duration fixed income	30	%
Return-seeking credit	11	%
Hedge funds	10	%
Real estate funds	7	%
Total	100	%

As part of our risk management for the plans, minimums and maximums have been set for each of the asset classes listed above.

The following tables set forth the plan assets by fair value category as of the measurement date for our defined benefit pension and other postretirement benefit plans:


	Pension Benefits
	December 31, 2020
Asset Category	Level 1		Level 2		Level 3		Subtotal		Measured at NAV (d)		Total
	(Thousands of dollars)
Investments:
Equity securities (a)	$	43	$	—	$	—	$	43	$	164,099	$	164,142
Real estate funds	—		—		—		—		24,134		24,134
Government obligations	—		—		—		—		45,237		45,237
Corporate obligations (b)	—		—		—		—		101,626		101,626
Common/collective trusts	—		4,890		—		4,890		—		4,890

Other investments (c)	—		—		—		—		39,063		39,063
Fair value of plan assets	$	43	$	4,890	$	—	$	4,933	$	374,159	$	379,092

(a) - This category represents securities of the respective market sector from diverse industries.

(b) - This category represents bonds from diverse industries.

(c) - This category represents alternative investments in limited partnerships, which can be redeemed with a 30-day notice with no further restrictions. There are no unfunded capital commitments.

(d) - Plan asset investments measured at fair value using the net asset value per share.


	Pension Benefits
	December 31, 2019
Asset Category	Level 1		Level 2		Level 3		Subtotal		Measured at NAV (d)		Total
	(Thousands of dollars)
Investments:
Equity securities (a)	$	47	$	—	$	—	$	47	$	149,985	$	150,032
Real estate funds	—		—		—		—		23,885		23,885
Government obligations	—		—		—		—		50,708		50,708
Corporate obligations (b)	—		—		—		—		85,898		85,898
Common/collective trusts	—		3,263		—		3,263		—		3,263
Cash	63		—		—		63		—		63
Other investments (c)	—		—		—		—		32,943		32,943
Fair value of plan assets	$	110	$	3,263	$	—	$	3,373	$	343,419	$	346,792

(a) - This category represents securities of the respective market sector from diverse industries.

(b) - This category represents bonds from diverse industries.

(c) - This category represents alternative investments in limited partnerships, which can be redeemed with a 30-day notice with no further restrictions. There are no unfunded capital commitments.

(d) - Plan asset investments measured at fair value using the net asset value per share.


	Other Postretirement Benefits
	December 31, 2020
Asset Category	Level 1		Level 2		Level 3		Total
	(Thousands of dollars)
Investments:
Equity securities (a) (b)	$	15,116	$	—	$	—	$	15,116
Money market funds	—		808		—		808
Municipal obligations (b)	4,950		—		—		4,950
Fair value of plan assets	$	20,066	$	808	$	—	$	20,874

(a) - This category represents securities of the respective market sector from diverse industries.

(b) - Net proceeds of $16.2 million from the exit of an investment in an insurance contract were reinvested in various equity securities and municipal obligations.


	Other Postretirement Benefits
	December 31, 2019
Asset Category	Level 1		Level 2		Level 3		Total
	(Thousands of dollars)
Investments:
Equity securities (a)	$	2,043	$	—	$	—	$	2,043
Money market funds	—		2,428		—		2,428
Insurance and group annuity contracts	—		34,589		—		34,589
Fair value of plan assets	$	2,043	$	37,017	$	—	$	39,060

(a) - This category represents securities of the respective market sector from diverse industries.

Contributions - During 2020, we made $12.1 million in contributions to our defined benefit pension plan and no contributions to our other postretirement plans. We contributed $11.2 million to our defined benefit pension plan in January 2021 and do not expect to make any contributions to our other postretirement plans in the remainder of 2021.

Pension and Other Postretirement Benefit Payments - Benefit payments for our defined benefit pension and other postretirement benefit plans for the period ending December 31, 2020, were $16.2 million and $3.9 million, respectively. The following table sets forth the defined benefit pension and other postretirement benefits payments expected to be paid in 2021 through 2030:


	Pension Benefits		Other Postretirement Benefits
Benefits to be paid in:	(Thousands of dollars)
2021	$	19,460	$	3,297
2022	$	20,325	$	3,408
2023	$	21,216	$	3,371
2024	$	22,234	$	3,335
2025	$	23,260	$	3,322
2026 through 2030	$	127,038	$	15,848

The expected benefits to be paid are based on the same assumptions used to measure our benefit obligation at December 31, 2020, and include estimated future employee service.

Other Employee Benefit Plans

401(k) Plan - We have a 401(k) Plan covering all employees, and employee contributions are discretionary. We match 100% of employee 401(k) Plan contributions up to 6% of each participant’s eligible compensation, subject to certain limits. We also make profit-sharing contributions under our 401(k) Plan for employees who do not participate in our defined benefit pension plan. We generally make a quarterly profit sharing contribution equal to 1% of each profit-sharing participant’s eligible compensation during the quarter and an annual discretionary profit-sharing contribution equal to a percentage of each profit-sharing participant’s eligible compensation. Our contributions made to the plan, including profit-sharing contributions, were $27.1 million, $30.4 million and $28.0 million in 2020, 2019 and 2018, respectively.

Nonqualified Deferred Compensation Plan - The 2020 Nonqualified Deferred Compensation Plan and its predecessor nonqualified deferred compensation plans (collectively, the NQDC Plan) provide a select group of management and highly compensated employees, as approved by our Chief Executive Officer, with the option to defer portions of their compensation and receive notional employer contributions that generally are not available due to limitations on employer and employee contributions to qualified defined contribution plans under federal tax laws. Our contributions to the plan were not material in 2020, 2019 and 2018.

L. INCOME TAXES

The following table sets forth our provision for income taxes for the periods indicated:


	Years Ended December 31,
	2020		2019		2018
	(Thousands of dollars)
Current tax expense (benefit)
Federal	$	980	$	(1,278)	$	260
State	1,797		963		1,633
Total current tax expense (benefit)	2,777		(315)		1,893
Deferred tax expense
Federal	154,068		327,806		319,551
State	32,662		44,923		41,459
Total deferred tax expense	186,730		372,729		361,010
Total provision for income taxes	$	189,507	$	372,414	$	362,903

The following table is a reconciliation of our income tax provision for the periods indicated:


	Years Ended December 31,
	2020			2019			2018
	(Thousands of dollars)
Income before income taxes	$	802,316		$	1,650,991		$	1,517,935
Less: Net income attributable to noncontrolling interests	—			—			3,329
Net income attributable to ONEOK before income taxes	802,316			1,650,991			1,514,606
Federal statutory income tax rate	21.0		%	21.0		%	21.0		%
Provision for federal income taxes	168,486			346,708			318,067

State income taxes, net of federal benefit	13,580			34,545			38,668
Deferred tax rate change, inclusive of valuation allowance	20,879			11,340			5,552
Excess tax benefits from share-based compensation	(7,380)			(20,983)			(4,644)
Other, net	(6,058)			804			5,260
Income tax provision	$	189,507		$	372,414		$	362,903

The following table sets forth the tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities for the periods indicated:


	December 31, 2020		December 31, 2019
Deferred tax assets	(Thousands of dollars)
Employee benefits and other accrued liabilities	$	96,741	$	99,510
Federal net operating loss	1,473,093		858,030
State net operating loss and benefits	258,929		171,779
Derivative instruments	134,499		83,710

Other	12,894		12,769
Total deferred tax assets	1,976,156		1,225,798
Valuation allowance for state net operating loss and tax credits
Carryforward expected to expire prior to utilization	(121,212)		(94,794)
Net deferred tax assets	1,854,944		1,131,004
Deferred tax liabilities
Excess of tax over book depreciation	87,021		84,631
Investment in partnerships (a)	2,437,620		1,582,436

Total deferred tax liabilities	2,524,641		1,667,067
Net deferred tax assets (liabilities)	$	(669,697)	$	(536,063)

(a) Due primarily to excess of tax over book depreciation.

The majority of our tax benefits relate to federal and state net operating losses and carry forward indefinitely. Due to the Tax Cuts and Jobs Act and the impact of increased expensing for capital investment, we believe that it is more likely than not that the tax benefits of certain carryforwards will not be utilized prior to their expirations; therefore, we recorded a valuation allowance of $20.9 million, $11.3 million and $5.6 million through net income related to these tax benefits in 2020, 2019 and 2018, respectively.

M. UNCONSOLIDATED AFFILIATES

Investments in Unconsolidated Affiliates - The following table sets forth our investments in unconsolidated affiliates for the periods indicated:


	Net Ownership Interest	December 31, 2020		December 31, 2019
		(Thousands of dollars)
Northern Border Pipeline	50%	$	291,987	$	307,209
Overland Pass Pipeline	50%	409,573		417,473
Roadrunner	50%	66,794		80,816


Other (a)	Various	36,678		56,346
Investments in unconsolidated affiliates (b)		$	805,032	$	861,844

(a) - Year ended December 31, 2020, includes the impact of noncash impairment charges of $37.7 million related to the equity investments discussed below, offset partially by an acquisition of additional equity interest for $20.0 million.

(b) - Equity-method goodwill (Note A) was $16.5 million and $38.8 million at December 31, 2020 and 2019, respectively.

Equity in Net Earnings from Investments and Impairments - The following table sets forth our equity in net earnings (loss) from investments for the periods indicated:


	Years Ended December 31,
	2020		2019		2018
	(Thousands of dollars)
Northern Border Pipeline	$	75,409	$	68,871	$	67,854
Overland Pass Pipeline	38,618		63,698		65,887
Roadrunner	29,017		26,839		22,993


Other	197		(4,867)		1,649
Equity in net earnings from investments	$	143,241	$	154,541	$	158,383

Impairment of equity investments	$	(37,730)	$	—	$	—

Impairment Charges - In 2020, we incurred a noncash impairment charge of $30.5 million related to our 10.2% investment in Venice Energy Services Company in our Natural Gas Gathering and Processing segment, which includes $22.3 million related to equity-method goodwill, and a $7.2 million noncash impairment charge related to our 50% investment in Chisholm Pipeline Company in our Natural Gas Liquids segment. These impairment charges are included within impairment of equity investments in our Consolidated Statement of Income for the year ended December 31, 2020. For additional information on our impairment charges, see Note A.

We incurred expenses in transactions with unconsolidated affiliates of $135.4 million, $164.7 million and $153.9 million for 2020, 2019 and 2018, respectively, primarily related to Overland Pass Pipeline and Northern Border Pipeline. Accounts payable to our equity-method investees at December 31, 2020 and 2019, were $8.4 million and $13.5 million, respectively.

Northern Border Pipeline - The Northern Border Pipeline partnership agreement provides that distributions to Northern Border Pipeline’s partners are to be made on a pro rata basis according to each partner’s percentage interest. The Northern Border Pipeline Management Committee determines the amount and timing of such distributions. Any changes to, or suspension of, the cash distribution policy of Northern Border Pipeline requires the unanimous approval of the Northern Border Pipeline Management Committee. Cash distributions are equal to 100% of distributable cash flow as determined from Northern Border Pipeline’s financial statements based upon EBITDA less interest expense and maintenance capital expenditures. As determined by the Northern Border Pipeline Management Committee, we received an additional distribution of $50.0 million from Northern Border Pipeline during the year ended December 31, 2019. Loans or other advances from Northern Border Pipeline to its partners or affiliates are prohibited under its credit agreement. In 2020, 2019 and 2018, we made no contributions to Northern Border Pipeline.

Northern Border Pipeline entered into a settlement with shippers that was approved by the FERC in February 2018. The settlement provides for tiered rate reductions beginning January 1, 2018, that reduced tariff rates 12.5% by January 2020, compared with previous tariff rates, and requires new rates to be established by January 2024. The impact of lower tariff rates on Northern Border Pipeline’s earnings and cash distributions was not material to us.

Overland Pass Pipeline - The Overland Pass Pipeline agreement provides that distributions to Overland Pass Pipeline’s members are to be made on a pro rata basis according to each member’s percentage interest. The Overland Pass Pipeline Company Management Committee determines the amount and timing of such distributions. Any changes to, or suspension of, the cash distributions from Overland Pass Pipeline requires the unanimous approval of the Overland Pass Pipeline Company Management Committee. Cash distributions are equal to 100% of available cash as defined in the limited liability company agreement. In 2020, 2019 and 2018, our contributions to Overland Pass Pipeline were not material.

Roadrunner - The Roadrunner agreement provides that distributions to members are made on a pro rata basis according to each member’s ownership interest. As the operator, we have been delegated the authority to determine such distributions in accordance with, and on the frequency set forth in, the Roadrunner agreement. Cash distributions are equal to 100% of available cash, as defined in the limited liability company agreement. In 2020, 2019 and 2018, our contributions to Roadrunner were not material.

We have an operating agreement with Roadrunner that provides for reimbursement or payment to us for management services and certain operating costs. Reimbursements and payments from Roadrunner included in operating income in our Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018, were not material.

N. COMMITMENTS AND CONTINGENCIES

Commitments - Firm transportation and storage contracts are fixed-price contracts that provide us with firm transportation and storage capacity. The following table sets forth our firm transportation and storage contract payments for the periods indicated:


	Firm Transportation and Storage Contracts
	(Millions of dollars)
2021	$	70.9
2022	60.9
2023	55.8
2024	53.4
2025	47.9
Thereafter	227.8
Total	$	516.7

Environmental Matters and Pipeline Safety - The operation of pipelines, plants and other facilities for the gathering, processing, fractionation, transportation and storage of natural gas, NGLs, condensate and other 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, 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 - We are a party to various litigation matters and claims that have arisen in the normal course of our operations. While the results of these litigation matters and claims cannot be predicted with certainty, we believe the reasonably possible losses from such matters, individually and in the aggregate, are not material. Additionally, we believe the probable final outcome of such matters will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.

O. LEASES

We adopted Topic 842 using the modified retrospective method and the optional transition method to record the adoption impact through a cumulative-effect adjustment to retained earnings as of January 1, 2019. Results for reporting periods

beginning after January 1, 2019, are presented under Topic 842, while prior periods are not adjusted and continue to be reported under the accounting standards in effect for those periods.

We lease certain buildings, warehouses, office space, pipeline capacity, land and equipment, including pipeline equipment, rail cars and information technology equipment. Our lease payments are generally straight-line and the exercise of lease renewal options, which vary in term, is at our sole discretion. We include renewal periods in a lease term if we are reasonably certain to exercise available renewal options. We apply the short-term policy election, which allows us to exclude from recognition leases with an initial term of 12 months or less. Our lease agreements do not include any residual value guarantees or material restrictive covenants.

Through ONEOK Leasing Company, L.L.C. and ONEOK Parking Company, L.L.C., we own an office building and a parking garage and lease excess space in these facilities to affiliates and others. Our consolidated lease income is not material.

In December 2019, we entered into an operating lease for pipeline capacity with a lease term of 10 years that commenced January 1, 2020. In connection with this lease, we recognized an operating lease right-of-use asset and a lease liability with remaining balances of $69.0 million and $69.9 million, respectively, as of December 31, 2020.

The following table sets forth information about our lease assets and liabilities included in our Consolidated Balance Sheet for the periods indicated:


Leases	Location in our Consolidated Balance Sheet	December 31, 2020		December 31, 2019
		(Thousands of dollars)
Assets
Operating leases	Other assets	$	100,154	$	15,147
Finance lease	Property, plant and equipment	28,286		28,286
Finance lease	Accumulated depreciation	(2,451)		(1,320)
Total leased assets		$	125,989	$	42,113

Liabilities
Current
Operating leases	Operating lease liability	$	13,610	$	1,883
Finance lease	Other current liabilities	2,153		1,949
Noncurrent
Operating leases	Operating lease liability	87,610		13,509
Finance lease	Other deferred credits	22,143		24,296
Total lease liabilities		$	125,516	$	41,637

The following table sets forth supplemental cash flow information related to our leases:


	Years Ended December 31,
	2020		2019
	(Thousands of dollars)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	13,245	$	6,213
Financing cash flows for finance lease	$	1,949	$	1,764
Right-of-use assets obtained in exchange for operating lease liabilities (noncash)	$	99,547	$	4,097

The following table sets forth information about our lease costs for the periods indicated:


		Years Ended December 31,
	Location in our Consolidated Statement of Income	2020		2019
		(Thousands of dollars)
Operating leases	Operations and maintenance	$	17,162	$	6,803
Finance lease
Amortization of lease assets	Depreciation and amortization	1,131		1,131
Interest on lease liabilities	Interest expense	2,537		2,721
Total lease cost		$	20,830	$	10,655

The following table sets forth information about our leases for the periods indicated:


	December 31, 2020	December 31, 2019
Weighted average remaining lease term (years)
Operating leases	8.3	10.4
Finance lease	7.8	8.8
Weighted average discount rate (a)
Operating leases	3.20%	4.58%
Finance lease	10.00%	10.00%

(a) - Our weighted-average discount rates represent the rate implicit in the lease or our incremental borrowing rate for a term equal to the remaining term of the lease.

The following table sets forth the maturity of our lease liabilities as of December 31, 2020:


	Finance Lease		Operating Leases
	(Millions of dollars)

2021	$	4.5	$	16.5
2022	4.5		15.1
2023	4.5		13.8
2024	4.5		12.5
2025	4.5		11.1
2026 and beyond	12.6		47.1
Total lease payments	35.1		116.1
Less: Interest	10.8		14.9
Present value of lease liabilities	$	24.3	$	101.2

P. REVENUES

Accounting Policies - See Note A for revenue recognition accounting policies.

Contract Assets and Contract Liabilities - Our contract asset balances at the beginning and end of the years ended December 31, 2020 and 2019, are not material. The following table sets forth the changes in our contract liability balances for the periods indicated:


Contract Liabilities	(Millions of dollars)
Balance at January 1, 2019	$	31.7
Revenue recognized included in beginning balance	(15.6)
Net additions	41.0
Balance at December 31, 2019 (a)	57.1
Revenue recognized included in beginning balance (c)	(36.1)
Net additions	20.4
Balance at December 31, 2020 (b)	$	41.4

(a) - Contract liabilities of $22.2 million and $34.9 million are included in other current liabilities and other deferred credits, respectively, in our Consolidated Balance Sheet.

(b) - Contract liabilities of $23.7 million and $17.7 million are included in other current liabilities and other deferred credits, respectively, in our Consolidated Balance Sheet.

Receivables from Customers and Revenue Disaggregation - Substantially all of the balances in accounts receivable on our Consolidated Balance Sheets at December 31, 2020 and 2019, relate to customer receivables. Revenues sources are disaggregated in Note Q.

Practical Expedients - 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.

Transaction Price Allocated to Unsatisfied Performance Obligations - The following table presents aggregate value allocated to unsatisfied performance obligations as of December 31, 2020, 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 23 years:


Expected Period of Recognition in Revenue	(Millions of dollars)
2021	$	328.2
2022	263.0
2023	235.4
2024	197.9
2025 and beyond	762.0
Total estimated transaction price allocated to unsatisfied performance obligations	$	1,786.5

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. Information on the nature of the variable consideration excluded and the nature of the performance obligations to which the variable consideration relates can be found in the description of the major contract types discussed in Note A. The amounts we determined to be fully constrained relate to future sales obligations under long-term sales contracts where the transaction price is not known and minimum volume agreements, which we consider to be fully constrained until invoiced.

Q. SEGMENTS

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

our Natural Gas Gathering and Processing segment gathers, treats and processes natural gas;
our Natural Gas Liquids segment gathers, treats, fractionates and transports NGLs and stores, markets and distributes NGL products; and
our Natural Gas Pipelines segment transports and stores natural gas via regulated intrastate and interstate natural gas transmission pipelines and natural gas storage facilities.

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

Accounting Policies - The accounting policies of the segments are described in Note A.

For each of the years ended December 31, 2020, 2019 and 2018, we had no single customer from which we received 10% or more of our consolidated revenues.

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


Year Ended December 31, 2020	Natural Gas Gathering and Processing		Natural Gas Liquids (a)		Natural Gas Pipelines (b)		Total Segments
	(Thousands of dollars)
NGL and condensate sales	$	889,388	$	6,409,332	$	—	$	7,298,720
Residue natural gas sales	771,486		—		8,693		780,179
Gathering, processing and exchange services revenue	141,943		488,574		—		630,517
Transportation and storage revenue	—		182,915		470,097		653,012
Other	17,304		9,192		1,192		27,688
Total revenues (c)	1,820,121		7,090,013		479,982		9,390,116
Cost of sales and fuel (exclusive of depreciation and operating costs)	(843,976)		(5,108,558)		(6,809)		(5,959,343)
Operating costs	(326,938)		(412,900)		(141,713)		(881,551)
Equity in net earnings (loss) from investments	(1,123)		39,938		104,426		143,241
Noncash compensation expense and other	1,952		8,748		1,540		12,240
Segment adjusted EBITDA	$	650,036	$	1,617,241	$	437,426	$	2,704,703

Depreciation and amortization	$	(247,010)	$	(271,900)	$	(55,739)	$	(574,649)
Impairment charges	$	(566,145)	$	(78,785)	$	—	$	(644,930)
Investments in unconsolidated affiliates	$	22,757	$	423,494	$	358,781	$	805,032
Total assets	$	6,499,908	$	13,636,109	$	2,100,213	$	22,236,230
Capital expenditures	$	446,142	$	1,655,759	$	71,918	$	2,173,819

(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $2.0 billion, of which $1.8 billion related to sales within the segment, and cost of sales and fuel of $520.6 million.

(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $298.5 million and cost of sales and fuel of $30.4 million.

(c) - Intersegment revenues are primarily commodity sales which are based on the contracted selling price, which is generally index-based and settled monthly, and for the Natural Gas Gathering and Processing segment totaled $865.6 million. Intersegment revenues for the Natural Gas Liquids and Natural Gas Pipelines segments were not material.


Year Ended December 31, 2020	Total Segments		Other and Eliminations		Total
	(Thousands of dollars)
Reconciliations of total segments to consolidated
NGL and condensate sales	$	7,298,720	$	(820,851)	$	6,477,869
Residue natural gas sales	780,179		(10,860)		769,319
Gathering, processing and exchange services revenue	630,517		—		630,517
Transportation and storage revenue	653,012		(14,599)		638,413
Other	27,688		(1,564)		26,124
Total revenues (a)	$	9,390,116	$	(847,874)	$	8,542,242

Cost of sales and fuel (exclusive of depreciation and operating costs)	$	(5,959,343)	$	849,197	$	(5,110,146)
Operating costs	$	(881,551)	$	(4,653)	$	(886,204)
Depreciation and amortization	$	(574,649)	$	(4,013)	$	(578,662)
Impairment charges	$	(644,930)	$	—	$	(644,930)
Equity in net earnings from investments	$	143,241	$	—	$	143,241
Investments in unconsolidated affiliates	$	805,032	$	—	$	805,032
Total assets	$	22,236,230	$	842,524	$	23,078,754
Capital expenditures	$	2,173,819	$	21,562	$	2,195,381

(a) - Noncustomer revenue for the year ended December 31, 2020, totaled $65.8 million related primarily to gains from derivatives on commodity contracts.


Year Ended December 31, 2019	Natural Gas Gathering and Processing		Natural Gas Liquids (a)		Natural Gas Pipelines (b)		Total Segments
	(Thousands of dollars)
NGL and condensate sales	$	1,224,378	$	7,910,833	$	—	$	9,135,211
Residue natural gas sales	966,149		—		1,244		967,393
Gathering, processing and exchange services revenue	164,299		414,238		—		578,537
Transportation and storage revenue	—		197,483		466,266		663,749
Other	13,813		9,962		4,477		28,252
Total revenues (c)	2,368,639		8,532,516		471,987		11,373,142
Cost of sales and fuel (exclusive of depreciation and operating costs)	(1,302,310)		(6,690,918)		(4,628)		(7,997,856)
Operating costs	(368,352)		(456,892)		(157,230)		(982,474)
Equity in net earnings (loss) from investments	(6,292)		65,123		95,710		154,541
Noncash compensation expense and other	10,965		15,936		2,977		29,878
Segment adjusted EBITDA	$	702,650	$	1,465,765	$	408,816	$	2,577,231

Depreciation and amortization	$	(219,519)	$	(196,132)	$	(57,250)	$	(472,901)
Investments in unconsolidated affiliates	$	34,426	$	439,393	$	388,025	$	861,844
Total assets	$	6,795,744	$	12,551,476	$	2,094,072	$	21,441,292
Capital expenditures	$	926,489	$	2,796,604	$	99,221	$	3,822,314

(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $1.4 billion, of which $1.2 billion related to revenues within the segment, and cost of sales and fuel of $496.8 million.

(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $285.3 million and cost of sales and fuel of $20.0 million.

(c) - Intersegment revenues are primarily commodity sales which are based on the contracted selling price, which is generally index-based and settled monthly, and for the Natural Gas Gathering and Processing segment totaled $1.2 billion. Intersegment revenues for the Natural Gas Liquids and Natural Gas Pipelines segments were not material.


Year Ended December 31, 2019	Total Segments		Other and Eliminations		Total
	(Thousands of dollars)
Reconciliations of total segments to consolidated
NGL and condensate sales	$	9,135,211	$	(1,190,424)	$	7,944,787
Residue natural gas sales	967,393		(1,418)		965,975
Gathering, processing and exchange services revenue	578,537		—		578,537
Transportation and storage revenue	663,749		(15,646)		648,103
Other	28,252		(1,287)		26,965
Total revenues (a)	$	11,373,142	$	(1,208,775)	$	10,164,367

Cost of sales and fuel (exclusive of depreciation and operating costs)	$	(7,997,856)	$	1,209,816	$	(6,788,040)
Operating costs	$	(982,474)	$	(390)	$	(982,864)
Depreciation and amortization	$	(472,901)	$	(3,634)	$	(476,535)
Equity in net earnings from investments	$	154,541	$	—	$	154,541
Investments in unconsolidated affiliates	$	861,844	$	—	$	861,844
Total assets	$	21,441,292	$	370,829	$	21,812,121
Capital expenditures	$	3,822,314	$	26,035	$	3,848,349

(a) - Noncustomer revenue for the year ended December 31, 2019, totaled $139.6 million related primarily to gains from derivatives on commodity contracts.


Year Ended December 31, 2018	Natural Gas Gathering and Processing		Natural Gas Liquids (a)		Natural Gas Pipelines (b)		Total Segments
	(Thousands of dollars)
NGL and condensate sales	$	1,775,991	$	10,319,847	$	—	$	12,095,838
Residue natural gas sales	1,084,162		—		9,772		1,093,934
Gathering, processing and exchange services revenue	163,194		404,897		—		568,091
Transportation and storage revenue	—		199,018		414,969		613,987
Other	11,230		10,816		6,994		29,040
Total revenues (c)	3,034,577		10,934,578		431,735		14,400,890
Cost of sales and fuel (exclusive of depreciation and operating costs)	(2,041,448)		(9,176,813)		(15,984)		(11,234,245)
Operating costs	(368,939)		(394,115)		(144,259)		(907,313)
Equity in net earnings from investments	410		67,126		90,847		158,383
Noncash compensation expense and other	7,007		9,829		3,912		20,748
Segment adjusted EBITDA	$	631,607	$	1,440,605	$	366,251	$	2,438,463

Depreciation and amortization	$	(196,090)	$	(174,007)	$	(55,118)	$	(425,215)
Investments in unconsolidated affiliates	$	42,630	$	451,040	$	475,480	$	969,150
Total assets	$	6,078,473	$	9,663,640	$	2,131,669	$	17,873,782
Capital expenditures	$	694,611	$	1,306,341	$	119,185	$	2,120,137

(a) - Our Natural Gas Liquids segment has regulated and nonregulated operations. Our Natural Gas Liquids segment’s regulated operations had revenues of $1.2 billion, of which $1.1 billion related to revenues within the segment, and cost of sales and fuel of $506.0 million.

(b) - Our Natural Gas Pipelines segment has regulated and nonregulated operations. Our Natural Gas Pipelines segment’s regulated operations had revenues of $266.6 million and cost of sales and fuel of $26.0 million.

(c) - Intersegment revenues are primarily commodity sales which are based on the contracted selling price, which is generally index-based and settled monthly, and for the Natural Gas Gathering and Processing segment totaled $1.8 billion. Intersegment revenues for the Natural Gas Liquids and Natural Gas Pipelines segments were not material.


Year Ended December 31, 2018	Total Segments		Other and Eliminations		Total
	(Thousands of dollars)
Reconciliations of total segments to consolidated
NGL and condensate sales	$	12,095,838	$	(1,794,342)	$	10,301,496
Residue natural gas sales	1,093,934		(2,832)		1,091,102
Gathering, processing and exchange services revenue	568,091		(21)		568,070
Transportation and storage revenue	613,987		(10,550)		603,437
Other	29,040		51		29,091
Total revenues (a)	$	14,400,890	$	(1,807,694)	$	12,593,196

Cost of sales and fuel (exclusive of depreciation and operating costs)	$	(11,234,245)	$	1,811,537	$	(9,422,708)
Operating costs	$	(907,313)	$	245	$	(907,068)
Depreciation and amortization	$	(425,215)	$	(3,342)	$	(428,557)
Equity in net earnings from investments	$	158,383	$	—	$	158,383
Investments in unconsolidated affiliates	$	969,150	$	—	$	969,150
Total assets	$	17,873,782	$	357,889	$	18,231,671
Capital expenditures	$	2,120,137	$	21,338	$	2,141,475

(a) - Noncustomer revenue for the year ended December 31, 2018, totaled $(16.2) million related primarily to losses from derivatives on commodity contracts.


	Years Ended December 31,
	2020		2019		2018
Reconciliation of net income to total segment adjusted EBITDA	(Thousands of dollars)
Net income	$	612,809	$	1,278,577	$	1,155,032
Add:
Interest expense, net of capitalized interest	712,886		491,773		469,620
Depreciation and amortization	578,662		476,535		428,557
Income tax expense	189,507		372,414		362,903
Impairment charges	644,930		—		—
Noncash compensation expense	8,540		26,699		37,954
Other corporate costs and equity AFUDC (a)	(42,631)		(68,767)		(15,603)
Total segment adjusted EBITDA	$	2,704,703	$	2,577,231	$	2,438,463

(a) - The year ended December 31, 2020, includes corporate net gains of $22.3 million on extinguishment of debt related to open market repurchases. The year ended December 31, 2019, includes higher equity AFUDC related to our capital-growth projects compared with 2020 and 2018.

R. QUARTERLY FINANCIAL DATA (UNAUDITED)


Year Ended December 31, 2020	First Quarter (a)		Second Quarter (b)		Third Quarter (c)		Fourth Quarter (c)
	(Thousands of dollars, except per share amounts)
Total revenues	$	2,136,672	$	1,660,729	$	2,174,264	$	2,570,577
Operating income (loss)	$	(83,469)	$	355,730	$	550,433	$	538,663
Net income (loss)	$	(141,857)	$	134,321	$	312,316	$	308,029
Net income (loss) available to common shareholders	$	(142,132)	$	134,046	$	312,041	$	307,754
Earnings (loss) per share total
Basic	$	(0.34)	$	0.32	$	0.70	$	0.69
Diluted	$	(0.34)	$	0.32	$	0.70	$	0.69

(a) - Due to historic events as a result of COVID-19 impacting supply, demand and commodity prices, we evaluated our goodwill, certain long-lived asset groups and equity investments for impairment and recorded $641.8 million in impairment charges.

(b) - In the second quarter 2020, due to the commodity price environment and continued global and regional economic disruptions due primarily to COVID-19, many of our crude oil and natural gas producers curtailed production, which significantly reduced volumes on our system.

(c) - In the third quarter 2020, many of our producers reversed curtailments, bringing volumes back to pre-COVID-19 levels as prices and demand improved from second quarter 2020 lows and remained stable.


Year Ended December 31, 2019	First Quarter		Second Quarter		Third Quarter		Fourth Quarter

	(Thousands of dollars except per share amounts)
Total revenues	$	2,779,958	$	2,457,575	$	2,263,228	$	2,663,606

Operating income	$	468,742	$	476,146	$	482,151	$	487,314
Net income	$	337,208	$	311,963	$	309,155	$	320,251

Net income available to common shareholders	$	336,933	$	311,688	$	308,880	$	319,976
EPS total
Basic	$	0.82	$	0.75	$	0.75	$	0.77
Diluted	$	0.81	$	0.75	$	0.74	$	0.77

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