Fitch Rates ONEOK Partners $1.4B Notes 'BBB'.

NEW YORK -- Fitch has assigned a 'BBB' rating to ONEOK Partners, L.P.'s (OKS) issuance of $1.4 billion senior notes, comprising $350 million 5.90% series due 2012, $450 million 6.15% series due 2016, and $600 million 6.65% series due 2036. The notes will rank equally with its other senior unsecured debt. The Rating Outlook is Stable. Note proceeds will be used to repay short-term debt at OKS including $1.05 billion of acquisition bridge debt used to finance the April 2006 dropdown of natural gas midstream and liquids assets from ONEOK, Inc. (ONEOK). ONEOK owns the 2% general partner and a 43.7% limited partner interest in OKS.

OKS' rating and stable rating outlook reflect the considerable scale and scope of operations and geographic diversity of its assets. Also considered in the rating is OKS' financial exposure to changes in commodity prices and the financial implications of ongoing expansion projects. In recent months OKS has committed to the development of the Overland Pass natural gas liquids (NGL) pipeline and completed the purchase of the remaining portion of Guardian Pipeline. As a result of these and other expenditures, Fitch expects OKS' Debt-to-EBITDA to be high for the rating category over the near term until the projects begin generating operating cash flow.

On balance, Fitch views OKS' blended business risk as 'moderate' or near average for comparable investment grade master limited partnerships (MLPs). The asset dropdown has provided some clear benefits through the increased scale and diversity of its assets by type and region. OKS, unlike many midstream companies, has no material assets sited in the Gulf region, off-shore or on-shore, subject to serious hurricane risk. Price risk is somewhat mitigated since OKS is long NGLs and short natural gas. In addition, ongoing efforts in contract reform should continue to reduce commodity price exposure.

Nearly 70% of OKS margin is currently generated from fee-based operations. Of that amount the economic split is relatively even between non-volume sensitive natural gas pipelines and volume sensitive NGL pipelines and gathering and processing services. Given the anticipated level of drilling activity for NGL rich natural gas in regions OKS operates in and certain limiting competitive factors, Fitch does not view near-term volume risk as material. The remainder of OKS' business is commodity price sensitive, including the value of NGLs held in storage and natural gas gathering and processing services under percentage of proceeds and higher-risk keep-whole arrangements. To lessen earnings volatility, a portion of the gathering and processing associated commodity price risk including some of the near-term keep-whole exposure, is hedged through financial instruments. Fitch sensitivity analysis primarily based on commodity price information provided by the company in its public disclosures, indicates that credit ratios would move to the lower range for the rating category in a reasonably weak commodity price environment.

Since the asset dropdown OKS has announced major expansion projects. It has formed a joint venture (JV) with Williams Cos. to build the Overland Pass 750-mile NGL pipeline from Opal, Wyoming to Conway, Kansas. OKS will initially own 99% of the JV with Williams owning 1%. The estimated cost to construct the pipeline is $450 million and expenditures to expand associated fractionation capabilities will add an additional $160 million. Williams, which will dedicate NGL production to the JV, has the option to increase its ownership up to 50%, which if exercised would result in OKS receiving proceeds it could use to de-leverage. In addition, in May 2006, OKS purchased for $77 million the remaining two-thirds of Guardian Pipeline, L.L.C. it didn't own and has announced plans to expand the system for an incremental $220-250 million.

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