Boston & New York City February 26-28, 2018 Investor Meetings
Forward-Looking Statements Statements contained in this presentation that include company expectations or predictions should be considered forward-looking statements that are covered by the safe harbor provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934. It is important to note that the actual results could differ materially from those projected in such forward-looking statements. For additional information that could cause actual results to differ materially from such forward-looking statements, refer to ONE Gas Securities and Exchange Commission filings. All future cash dividends (declared or paid) discussed in this presentation are subject to the approval of the ONE Gas board of directors. All references in this presentation to guidance are based on news releases issued on Jan. 16, 2018 and Feb. 21, 2018, and are not being updated or affirmed by this presentation. Page 2
Company Overview Key Statistics One of the largest publicly traded natural gas distribution companies 2.2 million customers 42,800 miles of distribution and transmission pipeline Estimated 2018 average rate base: $3.4 billion* 42% in Oklahoma 30% in Kansas 28% in Texas ~3,500 employees 72% market share 88% market share 13% market share * Calculation consistent with utility ratemaking in each jurisdiction Page 3
Value Creation Strategy
Value Creation Strategy Sustainable Business Focused business strategy Significant scale Proximity to natural gas supply Conservative financial profile Regulatory diversity Well-defined capital investment plan 100% regulated natural gas distribution utility One of the largest publicly traded natural gas distributors High percentage of residential customers and fixed charges 2.2 million customers More than 70% of customers in metropolitan areas Location to shale plays provides accessibility to affordable long-term reserves Commitment to A-level investment-grade credit ratings Three states; one with six jurisdictions Average approximately 700,000 customers per state Page 5
Focused Business Strategy Well-defined Capital Investment Plan 70% 24% 6% $ millions 2018 Guidance $ 261 System Integrity $ 91 Customer Growth $ 23 Other/IT $ 375 Total Capital Expenditures System Integrity Customer Growth Other/IT Page 6
Significant Scale High Percentage of Residential Customers * * *Based on 2017 annual results Page 7
Significant Scale High Percentage of Fixed Charges Fixed Charges Sales customers* Kansas Oklahoma Texas Total 54% 88% 66% 71% Average Annual Heating Degree Days Normal 4,889 3,264 1,785 - Weather Normalization 100% 100% 100% 100% Governance Kansas Corporation Commission (three commissioners appointed by the governor to four-year staggered terms) Oklahoma Corporation Commission (three commissioners elected to sixyear staggered terms) Home Rule with six jurisdictions (Texas Railroad Commission has appellate authority) Note: Based on 2017 annual results * Percentage of total net margin on natural gas sales Page 8
Proximity to Natural Gas Supply Location Supports Sustainability Close proximity to significant natural gas reserves 118 active rigs in Oklahoma* 479 active rigs in Texas* 61% of all rigs in U.S. operating in ONE Gas territories* Leads to competitive natural gas delivered costs: Cost of the commodity Transportation costs Storage fees Topeka * Source: Baker Hughes, as of February 9, 2018 ONE Gas Natural Gas Distribution Areas Natural Gas Basins Natural Gas Shale Plays Page 9
Natural Gas vs. Electricity 3-to-1 Average Advantage Continues in ONE Gas Territories $50 3.7x 4.0 $40 $32.77 $30 $20 $10 2.4x $13.77 2.8x $39.04 3.0 $31.01 2.0 $10.90 $10.55 1.0 $- Texas Oklahoma Kansas Natural gas price equivalent of electricity/dth (1) OGS delivered cost of natural gas/dth (2) Natural gas advantage ratio (3) - (1) Source: United States Energy Information Agency, www.eia.gov, for the eleven-month period ended November 30, 2017. (2) Represents the average delivered cost of natural gas to a residential customer, including the cost of the natural gas supplied, fixed customer charge, delivery charges and charges for riders, surcharges and other regulatory mechanisms associated with the services we provide, for the year ended December 31, 2017. (3) Calculated as the ratio of the natural gas price equivalent per dekatherm of the average retail price of electricity per kilowatt hour to the ONE Gas delivered average cost of natural gas per dekatherm. Page 10
Financial Objectives
2018 Guidance Announced January 16, 2018 Net income: range of $156-$168 million EPS: range of $2.96 - $3.20 Rate base expected to grow an average of approximately 6.0-6.5% per year between 2017-2022 Expected average annual EPS growth of 5-7% between 2017 and 2022 2017 includes $0.13 per share benefit, net, from a new accounting standard, Kansas accounting authority order and tax reform** $3.50 $3.00 $2.50 $2.00 $1.50 $2.07 $2.24 Diluted EPS $2.65 $3.08 $3.08 2014 2015 2016 2017 2018G* 2019-2022 *Represents midpoint of guidance range ** Refer to Earnings Release dated February 21, 2018 for details of how these items impacted diluted earnings per share Page 12
Growing Dividends Building Shareholder Value Quarterly dividend of 46 cents per share, resulting in an annualized dividend of $1.84 per share * Target dividend payout ratio of 55-65% of net income Expected average annual dividend growth of 7-9% between 2017 and 2022 $0.84 $1.20 Dividends Declared $1.40 $1.68 $1.84 2014** 2015 2016 2017 2018G* 2019-2022 *Subject to quarterly board approval **In 2014, we paid dividends totaling $0.84 per share ($0.28 per share in each of our 2 nd, 3 rd and 4 th quarters) Page 13
Capital Investment Drives Rate Base Growth Capital Spending Exceeds Depreciation Majority of capital expenditures for safety, reliability and efficiency System integrity and replacement Efficiency Automated meter reading Operational efficiency efforts Government relocations Fleet and facilities New service lines and main extensions for customer growth Information technology Note: Capital expenditures include accruals and any adjustments in the year (in millions) $375-$415/year $366 $375 $294 $302 $307 $140 $151 $164 $119 $131 2014 2015 2016 2017 2018G 2019-2022 Depreciation Page 14
Capital Expenditures By State Oklahoma Kansas Texas 2018: 2.3x depreciation 2018: 1.9x depreciation 2018: 3.1x depreciation $161 $155 $136 $132 $134 $106 $98 $105 $116 (in millions) $57 $63 $64 $67 $73 $82 $81 $85 $41 $44 $47 $50 $52 $89 $88 $76 $21 $24 $29 $34 $39 2014 2015 2016 2017 2018G 2014 2015 2016 2017 2018G 2014 2015 2016 2017 2018G Note: Capital expenditures include accruals and any adjustments in the year Depreciation Page 15
Investment Horizon Long-Term Commitment to System Modernization Pipeline Replacement (miles) 2018-2022 Estimate (miles) 2017 281 144 425 2016 259 131 390 1,150 750 2015 245 180 425 2014 352 123 475 Page 16 ¹ Vintage Replacement Program ² Risk-Mitigation and Government Relocations Pipeline replacement due to changes in state or federal regulations is not projected in this 5-year replacement estimate. Replacement mileage includes service lines, distribution mains and transmission pipelines. 1 The vintage asset replacement program includes: cast iron, wrought iron, unprotected bare steel, protected bare steel, vintage plastic. 2 Risk-mitigation pipeline replacement is due to asset operational performance, efficiency and government relocation projects.
Focused on O&M expenses Building a Foundation for Long-term Affordability Leveraging technology to control expenses by: Increasing efficiency and optimizing processes Enhancing value for customers by more user-friendly and efficient websites, and applications Making data-driven decisions (in millions) O&M Expense* $411 $397 $400 2016 2017 2018G* *Reflects retrospective adoption of ASU 2017-07 Page 17
2018 Cash Flow Sources and Uses Dividends and capital expenditures primarily funded by cash flow from operations $700 million revolving credit facility $528 $528 Financing requirements $148 Cash flow from operations* $380 Asset removal costs $56 Capital expenditures $375 (in millions) Dividends $97 Sources * Before changes in working capital Uses Page 18
Investment Grade Commitment to Investment-Grade Ratings Strong liquidity position will support capital expenditure and working capital needs Stable operating cash flows $700 million revolving credit facility Commercial paper program Strong investment-grade credit ratings Rating Agency Rating Outlook Capital Structure As of December 31, 2017 Long-term Debt 38% Equity 62% Page 19 Moody s A2 Negative* S&P A Stable * On January 19, 2018, Moody s changed outlook to negative from stable based on the potential impacts of the Tax Cuts and Jobs Act of 2017.
Regulatory Update
Regulatory Mechanisms Overview Oklahoma Natural Gas Performance-based rate structure (PBR) with an ROE band of 9-10 percent that provides for annual rate reviews between rate cases Kansas Gas Service Gas System Reliability Surcharge (GSRS) for incremental safety-related and government-mandated capital investments made between rate cases Rate cases as needed or required Texas Gas Service Gas Reliability Infrastructure Program (GRIP) for capital investments made between rate cases Cost-of-service adjustments for capital investments and certain changes in operating expenses Pipeline Integrity Testing (PIT) rider for related expenses Rate cases as needed or required Page 21
Tax Reform Tax Cuts and Jobs Act of 2017 Oklahoma: On January 9 th, the Oklahoma Corporation Commission approved an order directing ONG to record a deferred liability to reflect the reduced federal corporate tax rate, beginning on the effective date of the order. Kansas: On January 18 th, the Kansas Corporation Commission issued an accounting order which requires KGS to establish a separate regulatory liability for the difference in taxes included in our rates, effective January 1, 2018. Texas: On January 23 rd, the Texas Railroad Commission directed Commission staff to develop recommendations to ensure that gas utility customers receive any tax savings beginning January 1, 2018. Excess deferred taxes measured at new 21% tax rate will be credited to customers over remaining life of fixed assets. Page 22
Return on Equity Minimize the Gap Goal: Minimize the gap between allowed and actual returns 2018 ROE estimate: 7.3% 2017 ROE achieved: 7.9% 2016 ROE achieved: 7.7% 2015 ROE achieved: 7.4% 2014 ROE achieved: 7.6% 7.6% 7.4% 7.7% 7.9% 7.3% 2014 2015 2016 2017 2018G Page 23
Regulatory Filing Timeline Oklahoma & Kansas Filed general rate case application in June 2015, new rates approved and effective January 2016 General rate case application filing in June 2021, with new rates effective early 2022, if applicable ONG 2015 2016 2017 2018 2019 2020 2021 2022 Performance-based rates change approved August 2017, no modification to base rates Performance-based rate filings in March 2018, 2019 and 2020 KGS Filed general rate case application in General rate case application May 2016, new rates approved and filing by July 2018 effective January 2017 2015 2016 2017 2018 2019 2020 2021 2022 $2.9 million GSRS approved November 2017, with new rates effective December 2017 GSRS filing annually in August, with new rates effective in January of the following year; rate cases as needed Page 24
Regulatory Filing Timeline Texas Jurisdiction Filing Highlights Status Increase in Base Rates Rates Effective Rio Grande Valley Return on equity: 9.5% Common equity ratio: 61.3% (actual) $0.9 million impact to operating income Approval for recovery of actual PIT costs via rider, estimated at $1.7 million per year Approved $1.9 million October 2017 Central Texas GRIP for both incorporated and environs areas Approved $4.9 million June 2017 West Texas GRIP for both incorporated and environs areas PIT filing for expenses incurred in the prior year Approved Approved $4.3 million $0.5 million July 2017 April 2017 North Texas Annual COSA filing to adjust base rates for incorporated cities Approved $0.9 million August 2017 Other GRIP and COSA increases in other Texas jurisdictions Approved $1.4 million 2017 Page 25
Rate Base Capital Investment Drives Rate Base Growth Rate Base 2018 Estimated Rate Base Total: $3.4 billion* (in billions) $2.3 $2.4 $2.9 $3.2 $3.4 28% 30% 42% 2014 2015 2016 2017 2018G Oklahoma Kansas Texas * Estimated average rate base; calculation consistent with utility ratemaking in each jurisdiction Page 26
Key Takeaways Focused Strategy Well-defined capital investment plan with 70% targeted toward system integrity Rate base expected to grow an average of 6.0-6.5% per year between 2017-2022 Focus on controlling operating expenses Minimize gap between actual and allowed returns Annual filings for rate adjustments between rate cases File rate cases as warranted Incremental regulated revenue Committed to stable and conservative financial profile Expected average annual dividend growth of 7-9% between 2017 and 2022 Target dividend payout ratio of 55-65% of net income Page 27
Questions
Appendix
Corporate Structure Corporation 100% regulated natural gas distribution All debt issued at OGS Division capital structures match Corporate capital structure Page 30
Customer and Asset Mix Key Statistics as of Dec. 31, 2017 Kansas Gas Service Oklahoma Natural Gas Texas Gas Service Total Average Number of Customers 638,119 871,482 656,480 2,166,081 Average Number of Employees 1,000 1,100 800 3,500* Distribution Miles 11,400 18,500 10,300 40,200 Transmission Miles 1,600 700 300 2,600 High-Density Cities Percentage of Customers in Metropolitan Areas Kansas City, Topeka, Wichita Oklahoma City, Tulsa Austin, El Paso 7 cities make up the majority of customers 69% 82% 77% 76% Market Share - Customers Served 72% 88% 13% * Includes corporate employees Page 31
Regulatory Constructs By State Mechanism Oklahoma Kansas Texas* Performance-based rates X Capital investments; safety-related riders X** X X Weather normalization X X X Purchased Gas Adjustment/Cost of Gas riders X X X Energy efficiency/conservation programs X X Pension and Other Post-Retirement Benefits Trackers X** X X Cost-of-Service Adjustment X** X * Six jurisdictions in Texas; not all mechanisms apply to each jurisdiction ** Incorporated in performance-based rates Page 32
Regulatory Information By State as of January 2018 - Authorized Rate Base (in millions) Rate Base per Customer Authorized Rate of Return Authorized Return on Equity Oklahoma Natural Gas¹ $1,257 $1,442 7.31% 9-10% Kansas Gas Service² $947 $1,483 N/A N/A Texas Gas Service¹ $822 $1,252 7.4% 9.6% ¹ The rate base, authorized rate of return and authorized return on equity presented in this table are those from the last approved rate filings for each jurisdiction. These amounts are not necessarily indicative of current or future rate bases, rates of return or returns on equity. ² The most recent rate case was settled without a determination of rate base, return on equity or rate of return; rate base reflects Kansas Gas Service s estimate of rate base contained within the settlement. Page 33
Authorized Rate Base Historical by State at Year End Oklahoma¹ Kansas² Texas¹ $1,202 $1,257 (in millions) $938 $979 $781 $826 $925 $947 $542 $639 $760 $822 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 Page 34 ¹ Rate bases presented in this table are those from the last approved rate filings for each jurisdiction. These amounts are not necessarily indicative of current or future rate bases. ² Last rate case was settled without a determination of rate base and includes the amounts included in the company s filings; these amounts are not necessarily indicative of current or future rate base. 2014, 2015, 2016 and 2017 rate base reflects GSRS approvals.
Oklahoma Natural Gas Rate Case New Rates Effective January 2016 Highlights Amount Customer impact Rate base Return on equity $29.995 million $2.96 per month increase for typical residential customer $1.2 billion 9.5% (midpoint of allowed band) Common equity ratio* 60.5% Debt costs 3.95% Other Continuation of Performance Based Rate Change (PBR) plan Regulatory asset for $2.4 million of separation costs * The initial common equity ratio will be 60.5 percent, unchanged from the original filed request. For each future PBRC filing, the maximum allowed common equity ratio will decrease by 1 percent beginning with a 59 percent common equity ratio in the 2017 PBRC review of calendar year 2016, and ending with a 56 percent common equity ratio in the 2020 PBRC review of calendar year 2019. Page 35
Kansas Gas Service Rate Case New Rates Effective January 2017 Highlights* Increase in base rates $15.5 million total increase, $8.1 million net increase (already recovering $7.4 million through GSRS) Operating income impact Approximately $9.1 million in 2017 Other New rates effective January 1, 2017 * Rate case settlement agreement is a black box settlement, meaning the parties agreed to a specific revenue number but no specific return on equity. Page 36
Kansas Gas Service Accounting Authority Order Highlights Details The agreement allows Kansas Gas Service to defer manufactured gas plant (MGP) costs for the investigation and remediation at the 12 former MGP sites incurred after January 1, 2017, up to a cap of $15.0 million, net of any related insurance recoveries and amortize approved costs in a future rate proceeding over a 15-year period The unamortized amounts will not be included in rate base or accumulate carrying charges At the time future investigation and remediation work, net of any related insurance recoveries, is expected to exceed $15.0 million, Kansas Gas Service will be required to file an application with the KCC for approval to increase the $15.0 million cap Estimated Costs A regulatory asset of approximately $5.9 million was recorded in the fourth quarter 2017 for estimated costs that were accrued at January 1, 2017 Status Approved November 2017 Page 37
Texas Gas Service Central Texas Service Area New Rates Effective November 2016 Highlights Increase in base rates $6.8 million; $3.4 million impact to operating income Return on equity 9.5% Common equity ratio 60.1% Other Approved consolidation of the South Texas service area with the Central Texas service area November 2016: New rates effective for customers of incorporated cities of the former Central Texas service area and the unincorporated areas of the new Central Texas consolidated area January 2017: New rates effective for customers in incorporated areas of the former South Texas consolidated service area Page 38
Texas Gas Service West Texas Service Area New Rates Effective October 2016 Increase in base rates Return on equity 9.5% Common equity ratio 60.1% Other Highlights $8.8 million; $7.6 million impact to operating income September 2016: Approved consolidation of the El Paso, Dell City and Permian service areas into a new West Texas service area October 2016: New rates went into effect except for the incorporated cities of the former Permian service area December 2016: New rates went into effect for the incorporated cities in the former Permian service area Page 39
Safety and Environment Operating Safely and Environmentally Responsibly Ongoing effort to replace aging assets Replaced approximately 425 miles of distribution and transmission facilities in 2017 Replaced approximately 23 miles of cast iron pipe in 2017 Remaining 25 miles of cast iron pipe expected to be replaced by year end 2019 Utilize peer-review safety process and employee training to promote consistent, steady improvement in workplace safety Currently ranked in the top quartile of American Gas Association member companies for all three safety metrics Page 40
Customer Growth Average Customer Count 2,101 2,114 2,127 2,140 2,152 2,166 (in thousands) 2012 2013 2014 2015 2016 2017 Page 41
Diverse Employment Mix State Employment by Sector* Other Financial Services Services 6% 6% Leisure & Hospitality 9% Manufacturing 11% Kansas Construction 4% Other Services 5% Professional & Business Services 13% Mining ¹ 1% Trade, Transportation & Utilities ² 19% Education & Health Services 14% Government 18% Construction 5% Financial Activities 5% Other Services 5% Manufacturing 8% Leisure & Hospitality 10% Professional & Business Services 11% Oklahoma Mining ¹ 3% Government 21% Trade, Transportation & Utilities ² 18% Education & Health Services 14% Other Services 5% Construction 6% Financial Activities 6% Manufacturing 7% Texas Leisure & Hospitality 11% Professional & Business Services 13% Mining ¹ 2% Trade, Transportation & Utilities ² 20% Education & Health Services 14% Government 16% Page 42 * Non-farm employment, seasonally adjusted ¹ Includes oil drilling, extraction and exploration & production companies ² Includes oil, natural gas and petroleum pipeline transportation and midstream companies Source: U.S. Bureau of Labor Statistics, December 2017 data
Service Territory Population Growth 1.45% CAGR (2000-2017) 1,400,000 1,200,000 1,000,000 800,000 ONE Gas Major Metro U.S. Census County Population County 2000 Population 2016 Population % Growth Travis, TX 811,776 1,199,323 48% El Paso, TX 679,568 837,918 23% Oklahoma, OK 660,581 782,970 19% Tulsa, OK 563,475 642,940 14% Johnson, KS 451,541 584,451 29% Sedgwick, KS 452,901 511,995 13% Total 3,619,842 4,559,597 26% Travis County, TX El Paso County, TX Oklahoma County, OK 600,000 400,000 Tulsa County, OK Johnson County, KS Sedgwick County, KS 200,000 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 * Source: U.S. Census Bureau, updated May 15, 2017 Page 43
Compressed Natural Gas (CNG) Current Outlook 100 stations supplied 1.4 115 stations supplied 2.0 CNG Volume Dth in millions 129 stations supplied 143 stations supplied 147 stations supplied 2.3 2.5 2.6 2013 2014 2015 2016 2017 Currently operate 27 fueling stations accessible to the public, 5 private stations Currently transporting supply to 65 retail and 50 private CNG stations Rebate program in Oklahoma; Austin, Texas Industry Continued interest in CNG for transportation, particularly by fleet operators Tax incentives and rebates further contribute to positive economics Note: Updated as of December 31, 2017 Page 44
Cost of Gas Passed Through to Customers Actual costs of the commodity, transportation and storage of natural gas are passed through to customers without markup Natural gas used in operations is recovered in Purchased Gas or Cost of Gas riders Cost of Gas component of bad debts and hedging costs are included in cost of gas Lease 50 Bcf of natural gas storage No direct commodity risk to ONE Gas divisions Page 45
Cash Flow From Operations Before Changes In Working Capital * (Millions of dollars) 2018 Guidance 2017 Change Net Income $ 162 $ 163 $ (1) Depreciation and amortization 164 152 12 Deferred taxes 41 92 (51) Other 13 16 (3) Cash flow from operations before changes in working capital $ 380 $ 423 $ (43) * Amounts shown are midpoints of ranges provided. Page 46
Non-GAAP Information ONE Gas has disclosed in this presentation cash flow from operations before changes in working capital, which is a non-gaap financial measure. Cash flow from operations before changes in working capital is used as a measure of the company's financial performance. Cash flow from operations before changes in working capital is defined as net income adjusted for depreciation and amortization, deferred income taxes, and certain other noncash items. The non-gaap financial measure described above is useful to investors as an indicator of financial performance of the company's investments to generate cash flows sufficient to support our capital expenditure programs and pay dividends to our investors. ONE Gas cash flow from operations before changes in working capital should not be considered in isolation or as a substitute for net income or any other measure of financial performance presented in accordance with GAAP. This non-gaap financial measure excludes some, but not all, items that affect net income. Additionally, this calculation may not be comparable with similarly titled measures of other companies. A reconciliation of cash flow from operations before changes in working capital is included in this presentation. Page 47