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MAGELLAN ACQUISITION

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

On September 25, 2023, we completed the Magellan Acquisition. The acquisition strategically diversifies our complementary asset base and allows for significant expected synergies. Pursuant to the Merger Agreement, each common unit of Magellan was exchanged for a fixed ratio of 0.667 shares of ONEOK common stock and $25.00 of cash, for a total consideration of $14.1 billion. In addition, we assumed Magellan’s debt with a fair value of $4.0 billion. We issued approximately 135 million shares of common stock, with a fair value of approximately $9.0 billion as of the closing date of the Magellan Acquisition. We funded the cash portion of the acquisition with an underwritten public offering of $5.25 billion senior unsecured notes. In connection with the underwritten public offering, we terminated the undrawn commitment letter for the $5.25 billion unsecured 364-day bridge loan facility. For additional information on our long-term debt, see Note H.

Magellan’s operations are principally composed of transportation, storage and distribution of Refined Products, certain NGLs and crude oil. The assets acquired include 9,800 miles of Refined Products pipelines, 1,000 miles of crude oil pipelines, 54 Refined Products terminals, two marine terminals and 91MMBbl of operating storage capacity. We also acquired ownership interests in Magellan’s eight unconsolidated affiliates. In conjunction with the Magellan Acquisition, Magellan’s results of operations are reported within our new Refined Products and Crude segment, consistent with how information is presented to our chief operating decision maker.

The Magellan Acquisition was accounted for using the acquisition method of accounting for business combinations pursuant to Accounting Standards Codification 805, “Business Combinations,” which requires, among other things, assets acquired and liabilities assumed to be recorded at their fair values on the acquisition date. Determining the fair value of acquired assets and liabilities assumed requires management’s judgment and the use of independent valuation specialists. The purchase price allocation presented below is substantially complete. However, management continues to refine the preliminary valuation of certain assets acquired and liabilities assumed, such as working capital liabilities and long-lived assets, and may adjust the allocation in subsequent periods. The final valuation will be completed as we obtain the information necessary to complete the analysis, but no later than one year from the acquisition date.

The following tables set forth the acquisition consideration and preliminary purchase price allocation of assets acquired and liabilities assumed:


	At September 25, 2023
	(Millions of dollars and shares/units, except per share/unit data)
Magellan public common units outstanding	202.1
Cash consideration per Magellan unit	$25.00
Cash consideration	$	5,052
Magellan public common units outstanding	202.1
ONEOK exchange ratio per Magellan unit	0.667
Shares of ONEOK common stock issued	134.8
ONEOK common stock closing price on September 25, 2023	$66.54
Fair value of common stock issued	$	8,969
Fair value of Magellan replacement equity awards	93

Equity consideration	$	9,062
Total consideration	$	14,114


	At September 25, 2023
Assets acquired:	(Millions of dollars)
Cash and cash equivalents	$	37
Accounts receivables, net	333
Inventories	348
Other current assets	145
Property, plant and equipment	11,751
Investments in unconsolidated affiliates	922
Intangible assets	1,124
Other assets	116
Total assets acquired	14,776
Liabilities assumed:
Accounts payable	213
Other current liabilities (a)	673
Long-term debt, excluding current maturities	4,013
Other deferred credits and liabilities	187
Total liabilities assumed	5,086
Total identifiable net assets	9,690
Goodwill	4,424
Total purchase price	$	14,114

(a) - Includes contingent liabilities, primarily related to the amounts accrued for the Corpus Christi matter described in Note O. Amounts relating to the Corpus Christi matter are offset fully by insurance receivables, and we expect future losses in excess of amounts accrued, if any, to be recoverable through insurance.

During the period ended December 31, 2023, we further refined our valuation assumptions of assets acquired and liabilities assumed. As a result, we recorded measurement period adjustments resulting in an increase to identifiable net assets and a decrease to goodwill of $729 million, due primarily to an increase in the fair value of intangible assets and property, plant and equipment of $479 million and $189 million, respectively.

Property, plant and equipment:

Property, plant and equipment consists primarily of pipeline, pipeline-related equipment, storage tanks and processing equipment and will be depreciated on a straight-line basis over the estimated useful lives of the assets.

Intangible assets:

The preliminary value of net identifiable intangible assets relates to customer relationships that will be amortized over the period of expected benefit.

Long-term debt, excluding current maturities:

We assumed the outstanding debt of Magellan and utilized publicly traded prices to estimate the fair value. The debt comprises senior unsecured obligations with varying maturities and interest rates as outlined in Note H. Recognizing the debt at its acquisition date fair value resulted in a discount from the notional value. The discount will be amortized into interest expense over the remaining life of the debt.

Goodwill:

Goodwill primarily represents expected tax benefits from future depreciation and amortization of acquired assets and commercial synergies, and is expected to be fully deductible for tax purposes.

Results of Operations

The results of operations attributable to the Magellan Acquisition have been included in our Consolidated Financial Statements since the date of the acquisition through December 31, 2023. Revenue and income before income taxes attributable to the net assets acquired for the period September 25, 2023, through December 31, 2023, were $1.1 billion and $361 million, respectively.

For the year ended December 31, 2023, we recognized approximately $179 million of expensed transaction costs associated with the Magellan Acquisition, as outlined in the table below. These non-recurring costs are primarily related to advisory fees, severance and settlement of share-based awards for certain Magellan employees, as well as bridge facility commitment fees.

The following table sets forth the impact of acquisition related transaction costs in our Consolidated Statements of Income as of the period indicated:


	Year Ended
	December 31,
		2023
	(Millions of dollars)
Transaction costs		$	158
Interest expense		21
Total		$	179

Pro Forma Financial Information

The following table sets forth the unaudited supplemental pro forma financial information for the years ended December 31, 2023 and 2022, as if we had completed the Magellan Acquisition on January 1, 2022:


		Years Ended
		December 31,
			2023		2022
	(Millions of dollars)
Revenue			$	19,999	$	25,349
Net income			$	3,077	$	1,867

The summarized unaudited pro forma information reflects the following adjustments:

•Reflects depreciation and amortization based on the preliminary fair values of property, plant and equipment, and intangible assets;

•Reflects $179 million of non-recurring transaction costs incurred for the year ended December 31, 2023, respectively, that were reclassified and included in pro forma net income for the year ended December 31, 2022, as if they had been incurred on January 1, 2022;

•Reflects interest expense related to the underwritten public offering of $5.25 billion senior unsecured notes used to fund the cash consideration and other costs related to the Magellan Acquisition;

•Reflects the amortization of the debt discount to fair value of the Magellan long-term debt assumed;

•Reflects the amortization of excess fair value of the replacement share-based awards;

•Reflects the income tax effect of the pro forma adjustments; and

•Excludes the impact of historical activity between ONEOK and Magellan.

The unaudited pro forma financial information for the year ended December 31, 2023, includes a one-time operational gain of $779 million related to insurance proceeds on the Medford incident. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of our operating results that would have occurred had the transaction been completed at the beginning of the period presented, nor is it necessarily indicative of future results.