ONEOK Partners (OKS) 8-K/A Other Events

Exhibit 99.1

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors, Unitholders and Shareholders

ONEOK Partners, L.P.

ONEOK, Inc.:

We have audited the accompanying combined balance sheets of the ONEOK Energy Assets as of December 31, 2005 and 2004, and the related combined statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2005. These combined financial statements are the responsibility of ONEOK Energy Assets’ management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the ONEOK Energy Assets as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

As discussed in Note A to the combined financial statements, ONEOK Energy Assets adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003.

KPMG LLP

Tulsa, Oklahoma

June 22, 2006

ONEOK Energy Assets

COMBINED STATEMENTS OF INCOME

	Quarters Ended March 31,				Years Ended December 31,
	2006 (Unaudited)		2005 (Unaudited)		2005		2004		2003
	(Thousands of dollars)
Revenues
Operating revenues	$	1,162,571	$	519,702	$	3,423,775	$	2,007,564	$	1,768,497
Cost of sales and fuel		1,013,851		429,601		2,956,917		1,661,622		1,490,027
Net Margin		148,720		90,101		466,858		345,942		278,470
Operating Expenses
Operations and maintenance		47,530		32,294		170,761		134,290		124,885
Depreciation and amortization		19,277		10,509		59,104		41,574		38,370
General taxes		4,407		4,416		20,987		14,664		17,395
Total Operating Expenses		71,214		47,219		250,852		190,528		180,650
Operating Income		77,506		42,882		216,006		155,414		97,820
Other income		2,444		209		2,529		1,329		1,640
Other expense		684		87		10,356		5,620		426
Interest expense		21,281		12,252		33,684		58,231		59,538
Income before Income Taxes		57,985		30,752		174,495		92,892		39,496
Income Taxes		22,167		11,783		66,959		37,227		14,328
Income before cumulative effect of changes in accounting principles		35,818		18,969		107,536		55,665		25,168
Cumulative effect of changes in accounting principles, net of tax (Note A)		—		—		—		—		(1,806	)
Net Income	$	35,818	$	18,969	$	107,536	$	55,665	$	23,362

See accompanying Notes to Combined Financial Statements.

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ONEOK Energy Assets

COMBINED BALANCE SHEETS

	March 31, 2006 (Unaudited)			December 31, 2005		December 31, 2004
	(Thousands of dollars)
Assets
Current Assets
Cash	$	5,190		$	6,162	$	—
Trade accounts receivable, net		254,458			382,386		175,834
Gas in storage, natural gas liquids in storage and imbalances		186,549			225,714		68,388
Commodity exchanges		39,704			133,159		—
Risk management assets (Note C)		2,333			975		7,662
Other current assets		33,937			21,412		11,510
Total Current Assets		522,171			769,808		263,394
Property, Plant and Equipment
Property, plant and equipment		2,442,439			2,420,347		1,501,837
Accumulated depreciation and amortization		433,123			414,032		363,110
Net Property, Plant and Equipment		2,009,316			2,006,315		1,138,727
Deferred Charges and Other Assets
Goodwill and intangibles (Note D)		515,192			515,003		38,241
Investments and other		65,714			71,983		31,469
Total Deferred Charges and Other Assets		580,906			586,986		69,710
Total Assets	$	3,112,393		$	3,363,109	$	1,471,831
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	363,182		$	362,636	$	170,197
Commodity exchanges		140,228			234,490		359
Risk management liabilities (Note C)		4,641			5,827		4,353
Other		47,267			63,904		42,126
Total Current Liabilities		555,318			666,857		217,035
Due to Parent		864,093			1,068,410		547,709
Deferred Credits and Other Liabilities
Deferred income taxes		374,476			351,704		322,039
Other deferred credits		29,148			22,727		22,593
Total Deferred Credits and Other Liabilities		403,624			374,431		344,632
Commitments and Contingencies (Note F)
Shareholders’ Equity
Common stock		462			462		462
Paid in capital		1,031,127			1,030,238		245,329
Accumulated other comprehensive income (loss) (Note E)		(38	)		722		2,211
Retained earnings		257,807			221,989		114,453
Total Shareholders’ Equity		1,289,358			1,253,411		362,455
Total Liabilities and Shareholders’ Equity	$	3,112,393		$	3,363,109	$	1,471,831

See accompanying Notes to Combined Financial Statements.

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ONEOK Energy Assets

COMBINED STATEMENTS OF CASH FLOWS

	Quarters Ended March 31,						Years Ended December 31,
	2006 (Unaudited)			2005 (Unaudited)			2005			2004			2003
	(Thousands of Dollars)
Operating Activities
Net income	$	35,818		$	18,969		$	107,536		$	55,665		$	23,362
Depreciation and amortization		19,277			10,509			59,104			41,574			38,370
Cumulative effect of change in accounting principle, net		—			—			—			—			1,806
Gain on sale of assets		(1,305	)		(16	)		(329	)		(189	)		(207	)
Income (loss) from equity investments, net		(252	)		1,733			10,477			(227	)		(213	)
Deferred income taxes		24,673			2,263			31,423			21,236			20,869
Allowance for doubtful accounts		—			(99	)		(99	)		(1,300	)		(1,090	)
Changes in assets and liabilities (net of acquisition effects):
Accounts and notes receivable		128,056			9,677			(152,127	)		(47,887	)		56,749
Inventories		41,571			13,175			(24,120	)		(13,418	)		(19,981	)
Commodity exchanges		(807	)		—			7,132			359			—
Regulatory assets		—			—			—			—			(15	)
Accounts payable		71			(17,684	)		27,035			32,059			1,899
Risk management assets and liabilities		(3,304	)		4,872			5,290			(1,098	)		(2,877	)
Other assets and liabilities		(34,659	)		16,246			8,943			15,892			(26,628	)
Cash Provided by Operating Activities		209,139			59,645			80,265			102,666			92,044
Investing Activities
Changes in other investments, net		2,307			—			(1,743	)		1,664			(1,609	)
Acquisitions		—			—			(1,327,566	)		(1,000	)		(16,986	)
Capital expenditures		(9,868	)		(9,695	)		(49,786	)		(38,651	)		(32,539	)
Proceeds from sale of assets		—			57			1,751			—			3,084
Other investing activities		1,607			(147	)		(424	)		(898	)		(1,512	)
Cash Used in Investing Activities		(5,954	)		(9,785	)		(1,377,768	)		(38,885	)		(49,562	)
Financing Activities
Due to Parent		(204,010	)		(49,860	)		1,303,665			(63,781	)		(42,482	)
Other financing activities		(147	)		—			—			—			—
Cash Provided by (Used in) Financing Activities		(204,157	)		(49,860	)		1,303,665			(63,781	)		(42,482	)
Change in Cash		(972	)		—			6,162			—			—
Cash at Beginning of Period		6,162			—			—			—			—
Cash at End of Period	$	5,190		$	—		$	6,162		$	—		$	—

See accompanying Notes to Combined Financial Statements.

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ONEOK Energy Assets

COMBINED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

	Common Stock		Paid in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total
	(Thousands of Dollars)
December 31, 2002	$	462	$	446,354		$	—		$	35,426	$	482,242
Net income		—		—			—			23,362		23,362
Other comprehensive loss		—		—			—			—		—
Total comprehensive income												23,362
Recapitalization by Parent		—		(30,764	)		—			—		(30,764	)
December 31, 2003		462		415,590			—			58,788		474,840
Net income		—		—			—			55,665		55,665
Other comprehensive income		—		—			2,211			—		2,211
Total comprehensive income												57,876
Recapitalization by Parent		—		(170,261	)		—			—		(170,261	)
December 31, 2004		462		245,329			2,211			114,453		362,455
Net income		—		—			—			107,536		107,536
Other comprehensive loss		—		—			(1,489	)		—		(1,489	)
Total comprehensive income												106,047
Recapitalization by Parent		—		784,909			—			—		784,909
December 31, 2005		462		1,030,238			722			221,989		1,253,411
Net income		—		—			—			35,818		35,818
Other comprehensive loss		—		—			(760	)		—		(760	)
Total comprehensive income												35,058
Recapitalization by Parent		—		889			—			—		889
March 31, 2006 (Unaudited)	$	462	$	1,031,127		$	(38	)	$	257,807	$	1,289,358

See accompanying Notes to Combined Financial Statements.

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NOTES TO COMBINED FINANCIAL STATEMENTS

(Unaudited as to March 31, 2006 and March 31, 2005 data)

A. SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation

The combined financial statements include the accounts of the following companies and subsidiaries.

ONEOK Field Services Company

• ONEOK Gas Processing, LLC

• ONEOK VESCO Holdings, LLC

ONEOK Midstream Gas Supply, LLC

Mid Continent Market Center, Inc.

ONEOK Gas Storage Holdings, LLC

• ONEOK Texas Gas Storage, LP

• ONEOK WesTex Transmission, LP

• ONEOK NGL Pipeline, LP

ONEOK Gas Gathering, LLC

ONEOK Sayre Storage Company

ONEOK Gas Transportation, LLC

ONEOK Transmission Company

ONEOK Hydrocarbon, LLC

• ONEOK Hydrocarbon Holdings, LLC

• ONEOK Hydrocarbon GP, LLC

• ONEOK Hydrocarbon Southwest, LLC

• ONEOK Hydrocarbon, LP

• ONEOK MB I, LP

• ONEOK Underground Storage Company, LLC

• Chisholm Pipeline Holdings, LLC

OkTex Pipeline Company, LLC

In April 2006, the companies referred to above were sold and transferred to ONEOK Partners, L.P. (ONEOK Partners), formerly known as Northern Border Partners, L.P. Certain balances and transactions of the companies included in the combined financial statements have been eliminated from the presentation herein as they were not acquired by ONEOK Partners.

The companies included in the combined financial statements include the gathering and processing, pipelines and storage and natural gas liquids assets of ONEOK, Inc. (ONEOK or the Parent). These companies were subsidiaries of ONEOK and are collectively referred to herein as ONEOK Energy Assets. All significant intercompany accounts and transactions have been eliminated, except for the equity accounts of the companies combined as no parent-subsidiary relationship exists. ONEOK Energy Assets purchased, gathered, processed, transported, stored and distributed natural gas. ONEOK Energy Assets extracted, fractionated, stored, transported, sold and marketed natural gas liquids (NGLs).

The accompanying unaudited combined financial statements for the quarters ended March 31, 2006, and March 31, 2005, have been prepared in accordance with accounting principles generally accepted in the United States, including all adjustments of a normal and recurring nature which are, in the opinion of ONEOK Energy Assets’ management, necessary for the fair presentation of interim results. Not all information and notes required for complete financial statements are included. The results of operations presented for the quarterly periods are not necessarily indicative of the results for the full year.

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Critical Accounting Policies

The following is a summary of ONEOK Energy Assets’ most critical accounting policies, which are defined as those policies most important to the portrayal of its financial condition and results of operations and requiring management’s most difficult, subjective, or complex judgment, particularly because of the need to make estimates concerning the impact of inherently uncertain matters.

Impairment of Goodwill and Long-Lived Assets– ONEOK Energy Assets assessed goodwill for impairment at least annually based on Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (Statement 142). An initial assessment was made by comparing the fair value of the operations with goodwill, as determined in accordance with Statement 142, to the book value of each reporting unit. If the fair value was less than the book value, an impairment was indicated, and ONEOK Energy Assets would perform a second test to measure the amount of the impairment. In the second test, ONEOK Energy Assets would calculate the implied fair value of the goodwill by deducting the fair value of all tangible and intangible net assets of the operations with goodwill from the fair value determined in step one of the assessment. If the carrying value of the goodwill exceeded this calculated implied fair value of the goodwill, ONEOK Energy Assets would record an impairment charge. See Note D for more discussion of goodwill.

ONEOK Energy Assets assessed its long-lived assets for impairment based on FASB Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (Statement 144). A long-lived asset was tested for impairment whenever events or changes in circumstances indicated that its carrying amount may have exceed its fair value. Fair values were based on the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the assets.

Examples of long-lived asset impairment indicators included:

• a significant decrease in the market price of a long-lived asset or asset group;

• a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition;

• a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator that would exclude allowable costs from the rate-making process;

• an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group;

• a current-period operating cash flow loss, combined with a history of operating cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; and

• a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Contingencies – ONEOK Energy Assets’ accounting for contingencies covered a variety of business activities including contingencies for legal exposures and environmental exposures. ONEOK Energy Assets accrued these contingencies when its assessments indicated that it was probable that a liability had been incurred or an asset would not be recovered and an amount could be reasonably estimated in accordance with FASB Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies.” ONEOK Energy Assets based its estimates on currently available facts and its estimates of the ultimate outcome or resolution. Actual results may differ from its estimates resulting in an impact, either positive or negative, on earnings. See Note F for more discussion of contingencies.

Significant Accounting Policies

Inventories –Inventories were valued at the lower of cost or market.Current natural gas and NGLs in storage were determined using the weighted average cost method. Noncurrent natural gas in storage was classified as property and was valued at cost. Materials and supplies were valued at average cost.

Derivatives and Risk Management Activities – ONEOK Energy Assets accounted for derivative instruments under the fair value basis of accounting in accordance with the FASB Statement of Financial Accounting Standards No.

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133, “Accounting for Derivative Instruments and Hedging Activities” (Statement 133), as amended. Many of the purchase and sale agreements that otherwise would have been required to follow derivative accounting qualified as normal purchases and normal sales under Statement 133 and were therefore exempt from fair value accounting treatment.

Under Statement 133, entities are required to record derivative instruments at fair value. The fair value of derivative instruments is determined by commodity exchange prices and over-the-counter quotes. Market value changes result in a change in the fair value of its derivative instruments. 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. If the derivative instrument did not qualify or was not designated as part of a hedging relationship, ONEOK Energy Assets accounted for changes in fair value of the derivative in earnings as they occurred. Commodity price volatility may have a significant impact on the gain or loss in any given period.

To minimize the risk of fluctuations in natural gas and NGL prices, ONEOK Energy Assets periodically entered into futures transactions and swaps in order to hedge anticipated purchases and sales of natural gas and crude oil, and NGL inventories. Under certain conditions, ONEOK Energy Assets designated these derivative instruments as a hedge of exposure to changes in cash flow. For hedges of exposure to changes in cash flow, the effective portion of the gain or loss on the derivative instrument was reported initially as a component of other comprehensive income and was subsequently reclassified into earnings when the forecasted transaction affected earnings. Any ineffectiveness of designated hedges was reported in earnings in the period the ineffectiveness occurred.

Property –The following table sets forth property, by segment, for the periods presented.

	March 31,		December 31,
	2006		2005		2004
	(Thousands of dollars)
Gathering and Processing	$	781,344	$	778,022	$	756,928
Natural Gas Liquids		500,790		497,835		32,268
Pipelines and Storage		1,152,620		1,136,821		705,115
OkTex		7,685		7,669		7,526
Property, plant and equipment		2,442,439		2,420,347		1,501,837
Accumulated depreciation, depletion and amortization		433,123		414,032		363,110
Net property, plant and equipment	$	2,009,316	$	2,006,315	$	1,138,727

Gas processing plants, natural gas liquids fractionation plants and all other properties were stated at cost. All property and equipment were depreciated at various rates using the straight-line method over the estimated useful lives.

Environmental Expenditures – ONEOK Energy Assets accrued for losses associated with environmental remediation obligations when such losses were probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally were recognized no later than completion of the remedial feasibility study. Such accruals were adjusted as further information became available or circumstances changed. Recoveries of environmental remediation costs from other parties were recorded as assets when their receipt was deemed probable.

Revenue Recognition – ONEOK Energy Assets recognized revenue when services were rendered or product was delivered. The Gathering and Processing segment recorded operating revenue when gas was processed in or transported through company facilities. Operating revenue of the natural gas gathering and processing segment was derived from percentage-of-proceeds, keep whole and fee-based contracts.

Income Taxes –Income taxes were accounted for using the liability method under which deferred income taxes were recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred taxes of a change in tax rates was recognized in income in the period that included

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the enactment date. ONEOK Energy Assets was included in the consolidated state and federal income tax returns of ONEOK and, accordingly, current taxes payable were allocated based on ONEOK’s effective rate. ONEOK Energy Assets’ income tax liabilities and provisions have been calculated on a stand-alone basis. All taxes payable or receivable are due to or from ONEOK and have been included in Due to Parent in the accompanying combined balance sheets.

Regulation –ONEOK Energy Assets’ intrastate natural gas transmission pipelines were subject to the rate regulation and accounting requirements of the Oklahoma Corporation Commission, Kansas Corporation Commission and Texas Railroad Commission (RRC). Other transportation activities were subject to regulation by the Federal Energy Regulatory Commission (FERC). Portions of the Pipelines and Storage segment follow the accounting and reporting guidance contained in Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation” (Statement 71). During the rate-making process, regulatory authorities may have required ONEOK Energy Assets to defer recognition of certain costs to be recovered through rates over time as opposed to expensing such costs as incurred. This allowed ONEOK Energy Assets to stabilize rates over time rather than passing such costs on to the customer for immediate recovery. Accordingly, actions of the regulatory authorities could have had an affect on the amount recovered from rate payers. Any difference in the amount recoverable and the amount deferred would be recorded as income or expense at the time of the regulatory action. If all or a portion of the regulated operations becomes no longer subject to the provisions of Statement 71, a write-off of regulatory assets and stranded costs may be required.

At March 31, 2006, we had regulatory assets in the amount of $3.2 million, included in investments and other in the Combined Balance Sheets. Regulatory assets were being recovered through various rate cases.

Asset Retirement Obligations –In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN 47), that required an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value could be reasonably estimated. FIN 47 was effective for ONEOK Energy Assets’ year ended December 31, 2005. ONEOK Energy Asset completed the review of the applicability of FIN 47 to their operations and determined that the impact was immaterial to the combined financial statements.

On January 1, 2003, ONEOK Energy Assets adopted FASB Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (Statement 143). Statement 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset.

Statement 143 required that ONEOK Energy Assets recognize the fair value of a liability for an asset retirement obligation in the period when it was incurred if a reasonable estimate of the fair value could be made. The fair value of the liability was added to the carrying amount of the associated asset and this additional carrying amount was depreciated over the life of the asset. The liability was accreted at the end of each period through charges to operating expense. If the obligation was settled for an amount other than the carrying amount of the liability, ONEOK Energy Assets recognized a gain or loss on settlement.

All legal obligations for asset retirement obligations were identified and the fair value of these obligations was determined as of January 1, 2003. The obligations primarily related to various processing plants and storage facilities. As a result of the adoption of Statement 143, ONEOK Energy Assets recorded a long-term liability of approximately $9.3 million, an increase to property, plant and equipment, net of accumulated depreciation, of approximately $6.9 million, and a cumulative effect loss of approximately $1.8 million, net of tax, in the first quarter of 2003. The related depreciation and amortization expense was immaterial to ONEOK Energy Assets’ combined financial statements.

B. ACQUISITIONS AND DIVESTITURES

In July 2005, ONEOK Energy Assets completed the acquisition of the natural gas liquids businesses owned by several affiliates and a subsidiary of Koch Industries, Inc. (Koch) for approximately $1.33 billion, net of working capital and cash received. This transaction included Koch Hydrocarbon, LP’s entire mid-continent natural gas liquids fractionation business; Koch Pipeline Company, LP’s natural gas liquids pipeline distribution systems;

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Chisholm Pipeline Holdings, Inc., which has a 50 percent ownership interest in Chisholm Pipeline Company; MBFF, LP, which owns an 80 percent interest in a 160,000 barrel per day fractionator at Mont Belvieu, Texas; and Koch Vesco Holdings, LLC, an entity that owns a 10.2 percent interest in Venice Energy Services Company, LLC (VESCO). These assets and their related operations are included in ONEOK Energy Assets’ financial statements beginning on July 1, 2005.

The unaudited pro forma information in the table below presents a summary of ONEOK Energy Assets’ results of operations as if the acquisition of the Koch natural gas liquids businesses had occurred at the beginning of the periods presented. The results do not necessarily reflect the results that would have been obtained if the acquisition had actually occurred on the dates indicated or results that may be expected in the future.

	Pro Forma Quarter Ended March 31,		Pro Forma Years Ended December 31,
	2005		2005		2004
	(Thousand of Dollars)
Revenues	$	127,243	$	537,936	$	476,488
Net income	$	24,783	$	114,767	$	71,881

The acquisition increased ONEOK Energy Assets’ mid-continent operating focus through a downstream extension of its natural gas gathering and processing operation. The assets acquired provide commercial, operational and administrative synergies as these assets enhanced its existing mid-stream operating areas. As a result of the purchase price allocation, ONEOK Energy Assets assigned $1.2 billion to identifiable assets consisting of approximately $928.9 million to tangible assets based on the fair value of the net assets and approximately $306.7 million to identifiable intangible assets, primarily contracts acquired, that will be amortized on a straight-line basis over an aggregated weighted average period of 40 years. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed was $173.9 million, which was recorded as goodwill. This entire amount of goodwill was deductible for tax purposes.

The purchase price and related allocation are preliminary and may be revised as a result of adjustments made to the purchase price, additional information regarding liabilities assumed, including contingent liabilities, and revisions of preliminary estimates of fair values made at the date of purchase. The pro forma balance sheet as of the acquisition date is shown below.

	July 1, 2005
	(Thousands of dollars)
Assets
Current assets	$	106,634
Property, plant and equipment, net		879,943
Goodwill and intangibles		480,595
Investments and other		49,000
Total Assets	$	1,516,172
Liabilities
Accounts payable	$	172,941
Other current liabilities		15,665
Total Liabilities	$	188,606
Net Assets Acquired	$	1,327,566

ONEOK Energy Assets also acquired other assets during 2003, including NGL storage and pipeline facilities and a gas transmission system, totaling approximately $17.0 million.

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In October 2003, ONEOK Energy Assets sold certain Texas transmission assets for approximately $3.1 million. ONEOK Energy Assets recorded a charge against accumulated depreciation of approximately $7.8 million in accordance with Statement 71 and the regulatory accounting requirements of the FERC and the RRC.

C. RISK MANAGEMENT ACTIVITIES AND FAIR VALUE OF FINANCIAL INSTRUMENTS

Risk Policy and Oversight

Market risks were monitored by ONEOK’s risk control group that operated independently from the operating segments that created or actively managed these risk exposures. The risk control group ensured compliance with ONEOK’s risk management policies. ONEOK Energy Assets entered into derivative contracts with a ONEOK affiliate; the affiliate in turn entered into an offsetting position with a third party under identical terms and conditions.

ONEOK controlled the scope of risk management operations through a comprehensive set of policies and procedures involving senior levels of ONEOK’s management. The audit committee of ONEOK’s Board of Directors had oversight responsibilities for ONEOK Energy Assets’ risk management limits and policies. ONEOK’s risk oversight committee, comprised of corporate officers, oversees all activities related to risk management activities. Key risk control activities include credit review and approval, credit and performance risk measurement and monitoring, validation of transactions, portfolio valuation, value-at-risk and other risk metrics.

To the extent open commodity positions existed, fluctuating commodity prices could impact ONEOK Energy Assets’ financial results and financial position, either favorably or unfavorably. As a result, ONEOK Energy Assets could not predict with precision the impact risk management decisions may have on its business, operating results or financial position.

Accounting Treatment

ONEOK Energy Assets accounted for derivative instruments and hedging activities in accordance with Statement 133. Under Statement 133, ONEOK Energy Assets was required to record all derivative instruments at fair value. The accounting for changes in the fair value of a derivative instrument depended on whether it had been designated and qualified as part of a hedging relationship and, if so, the reason for holding it. For hedges of exposure to changes in cash flow, the effective portion of the gain or loss on the derivative instrument was reported initially as a component of other comprehensive income and was subsequently reclassified into earnings when the forecasted transaction affected earnings.

As required by Statement 133, ONEOK Energy Assets formally documented all relationships between hedging instruments and hedged items, as well as risk management objectives, strategies for undertaking various hedge transactions and methods for assessing and testing correlation and hedge ineffectiveness. ONEOK Energy Assets specifically identified the asset, liability, firm commitment or forecasted transaction that had been designated as the hedged item. ONEOK Energy Assets assessed the effectiveness of hedging relationships, both at the inception of the hedge and on an ongoing basis. Gains and losses on derivatives were recorded in operating revenues in the accompanying statements of income.

Risk Management Activities

The Gathering and Processing and Natural Gas Liquids segments periodically entered into derivative instruments to hedge the cash flows associated with their exposure to changes in the price of natural gas, NGLs and condensate. At March 31, 2006, these segments did not have material amounts in accumulated other comprehensive loss for derivative instruments in place to hedge natural gas, NGLs and condensate purchases and sales. All gains and losses related to these hedges will be realized in the income statement within the next 12 months.

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Fair Value of Financial Instruments

The following table represents the fair value of ONEOK Energy Assets’ derivatives for the periods indicated.

	March 31, 2006				December 31,
					2005				2004
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
	(Thousands of dollars)
Gathering and processing - cash flow hedges	$	2,157	$	4,641	$	975	$	5,635	$	7,662	$	4,353
Natural gas liquids - cash flow hedges		—		—		—		192		—		—
Pipelines and storage - cash flow hedges		176		—		—		—		—		—
Total fair value	$	2,333	$	4,641	$	975	$	5,827	$	7,662	$	4,353

Fair value estimates consider the market in which the transactions are executed. ONEOK Energy Assets utilized third party references for pricing points from New York Mercantile Exchange (NYMEX) and third-party over-the-counter brokers to establish commodity pricing and volatility curves. ONEOK Energy Assets believed the reported transactions from these sources were the most reflective of current market prices. Fair values are subject to change based on valuation factors. The estimate of fair value included an adjustment for the liquidation of the position in an orderly manner over a reasonable period of time under current market conditions. The fair value estimate also considered the risk of nonperformance based on credit considerations of the counterparty.

The fair value of accounts receivable and accounts payable approximated the book value due to the short-term nature of these instruments.

D. GOODWILL AND INTANGIBLES

In July 2005, ONEOK Energy Assets acquired the natural gas liquids businesses owned by Koch for approximately $1.33 billion, net of working capital and cash received. See Note B for additional information regarding this acquisition.

ONEOK Energy Assets performed its annual test of goodwill as of January 1, 2006, and there was no impairment indicated. The following table reflects the changes in the carrying amount of goodwill for the periods indicated.

	Balance December 31, 2003		Goodwill Adjustments		Balance December 31, 2004		Goodwill Acquired		Goodwill Adjustments		Balance December 31, 2005
	(Thousands of dollars)
Gathering and Processing	$	15,604	$	—	$	15,604	$	—	$	—	$	15,604
Natural Gas Liquids		—		—		—		173,945		—		173,945
Pipelines and Storage		22,036		—		22,036		—				22,036
OkTex		601		—		601		—		—		601
Total Goodwill	$	38,241	$	—	$	38,241	$	173,945	$	—	$	212,186

	Balance December 31, 2005		Goodwill Acquired		Balance March 31, 2006
	(Thousands of dollars)
Gathering and Processing	$	15,604	$	—	$	15,604
Natural Gas Liquids		173,945		—		173,945
Pipelines and Storage		22,036		2,105		24,141
OkTex		601		—		601
Total Goodwill	$	212,186	$	2,105	$	214,291

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The goodwill addition to the Pipelines and Storage segment resulted from an incremental one percent acquisition in an affiliate that was previously accounted for under the equity method. Following the acquisition, ONEOK Energy Assets began consolidating the entity.

Intangible assets primarily relate to contracts acquired through the acquisition of the natural gas liquids businesses from Koch and, based on the purchase price allocation, are being amortized over an aggregate weighted-average period of 40 years. The aggregate amortization expense for each of the next five years is estimated to be approximately $7.7 million. The following tables reflect the gross carrying amount and accumulated amortization of intangibles at March 31, 2006 and December 31, 2005.

	December 31, 2005
	Intangibles, gross		Accumulated Amortization			Intangibles, net
	(Thousands of dollars)
Natural Gas Liquids	$	292,000	$	(3,649	)	$	288,351
Pipelines and Storage		14,650		(184	)		14,466
Total Intangibles	$	306,650	$	(3,833	)	$	302,817

	March 31, 2006
	Intangibles, gross		Accumulated Amortization			Intangibles, net
	(Thousands of dollars)
Natural Gas Liquids	$	292,000	$	(5,474	)	$	286,526
Pipelines and Storage		14,650		(275	)		14,375
Total Intangibles	$	306,650	$	(5,749	)	$	300,901

	Balance December 31, 2004		Amortization			Balance December 31, 2005			Amortization			Balance March 31, 2006
	(Thousands of dollars)
Natural Gas Liquids	$	—	$	(3,649	)	$	(3,649	)	$	(1,825	)	$	(5,474	)
Pipelines and Storage		—		(184	)		(184	)		(91	)		(275	)
Accumulated amortization	$	—	$	(3,833	)	$	(3,833	)	$	(1,916	)	$	(5,749	)

E. COMPREHENSIVE INCOME

The table below gives an overview of comprehensive income for the periods indicated.

	Quarter Ended March 31,						Years Ended December 31,
	2006						2005						2004
	(Thousands of dollars)
Net income				$	35,818					$	107,536					$	55,665
Unrealized losses on derivative instruments	$	(1,239	)				$	(2,428	)				$	3,605
Income tax (expense) benefit on other comprehensive income (loss)		479						939						(1,394	)
Other comprehensive income (loss)				$	(760	)				$	(1,489	)				$	2,211
Comprehensive income				$	35,058					$	106,047					$	57,876

Accumulated other comprehensive loss at March 31, 2006, December 31, 2005 and December 31, 2004, included unrealized gains and losses on derivative instruments.

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F. COMMITMENTS AND CONTINGENCIES

Operating Leases and Agreements

Future minimum payments under non-cancelable operating leases and agreements as of December 31, 2005, were $11.3 million in 2006, $13.4 million in 2007, $12.8 million in 2008, $12.3 million in 2009 and $12.2 million in 2010.

Environmental

ONEOK Energy Assets was subject to multiple environmental laws and regulations affecting many aspects of present and future operations, including air emissions, water quality, wastewater discharges, solid wastes and hazardous material and substance management. These laws and regulations generally required ONEOK Energy Assets to obtain and comply with a wide variety of environmental registrations, licenses, permits, inspections and other approvals. Failure to comply with these laws, regulations, permits and licenses may have exposed ONEOK Energy Assets to fines, penalties and/or interruptions in its operations that could have been material to the results of operations. If an accidental leak or spill of hazardous materials occurred from its lines or facilities, in the process of transporting natural gas or NGLs, or at any facility that it owned, operated or otherwise used, ONEOK Energy Assets could have been held jointly and severally liable for all resulting liabilities, including investigation and clean up costs, which could have materially affected its results of operations and cash flows. In addition, emission controls required under the Federal Clean Air Act and other similar federal and state laws could have required unexpected capital expenditures at its facilities. ONEOK Energy Assets cannot assure that existing environmental regulations will not be revised or that new regulations will not be adopted or become applicable. Revised or additional regulations that result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from customers, could have had a material adverse effect on its business, financial condition and results of operations.

ONEOK Energy Assets’ expenditures for environmental evaluation and remediation to date have not been significant in relation to the results of operations and there were no material effects upon earnings during the three months ended March 31, 2006 or 2005 or the years ended December 31, 2005, 2004 or 2003 related to compliance with environmental regulations.

Yaggy Facility

In January 2001, the Yaggy gas storage facility’s operating parameters were changed as mandated by the Kansas Department of Health and Environment (KDHE) following natural gas explosions and eruptions of natural gas geysers in or near Hutchison, Kansas. In July 2002, the KDHE issued an administrative order that assessed a civil penalty against ONEOK Energy Assets, based on alleged violations of several KDHE regulations. On April 5, 2004, ONEOK Energy Assets entered into a Consent Order with the KDHE in which it paid a civil penalty in the amount of $180,000 and reimbursed the KDHE for its costs related to the investigation of the incident in the amount of approximately $79,000. In addition, the Consent Order required ONEOK Energy Assets to conduct an environmental remediation and a geoengineering study. Based on information currently available, ONEOK Energy Assets does not believe there are any material adverse effects resulting from the Consent Order.

In February 2004, a jury awarded $1.7 million in actual damages to the plaintiffs in a lawsuit involving property damage alleged to relate to the natural gas explosions and eruptions. In April 2004, the judge in this case awarded punitive damages in the amount of $5.25 million. ONEOK Energy Assets filed an appeal of the jury verdict and the punitive damage award. On June 16, 2006, the Kansas Supreme Court affirmed the punitive damages award and reversed the denial of the setoff ruling, holding that the defendants are entitled to a setoff against the actual damages awarded in the amount the defendants paid to insurance companies in settlement. In addition the Kansas Supreme Court reversed the denial of attorney fees, holding that the plaintiffs are entitled to recover attorney fees. ONEOK has indemnified ONEOK Partners with respect to these liabilities. Based on information currently available to ONEOK, it believes its legal reserves and insurance coverage are adequate and that this matter will not have a material adverse effect.

The two class action lawsuits filed against ONEOK Energy Assets in connection with the natural gas explosions and eruptions of natural gas geysers that occurred at, and in the vicinity of, the Yaggy facility in January 2001, resulted in jury verdicts in September 2004. The jury awarded the plaintiffs in the residential class $5.0 million in actual damages, and the judge ordered the payment of $2.0 million in attorney fees and $0.6 million in expenses, all of which are covered by insurance. In the other class action relating to business claims, the jury awarded no damages.

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The jury rejected claims for punitive damages in both cases. On April 11, 2005, the court denied the plaintiffs’ motion for a new trial and denied a post-trial motion filed by defendants. ONEOK Energy Assets filed its notice of appeal of the residential class verdict and the attorney fee award. The cases have now been transferred to the Kansas Supreme Court for appeal. With the exception of appeals, all litigation regarding the Yaggy facility has been resolved.

G. INCOME TAXES

The following table sets forth ONEOK Energy Assets’ provisions for income taxes for the periods indicated.

	Years Ended December 31,
	2005		2004		2003
	(Thousands of dollars)
Current income taxes
Federal	$	31,299	$	13,175	$	(5,111	)
State		4,237		2,816		(1,430	)
Total current income taxes		35,536		15,991		(6,541	)
Deferred income taxes
Federal		24,642		18,240		17,604
State		6,781		2,996		3,265
Total deferred income taxes		31,423		21,236		20,869
Total provision for income taxes before cumulative effect		66,959		37,227		14,328
Total provision for income taxes for the cumulative effect of a change in accounting principle		—		—		(1,135	)
Total provision for income taxes	$	66,959	$	37,227	$	13,193

The following table is a reconciliation of ONEOK Energy Assets’ provision for income taxes for the periods indicated.

	Years Ended December 31,
	2005			2004			2003
	(Thousands of dollars)
Pretax income	$	174,495		$	92,892		$	39,496
Federal statutory income tax rate		35	%		35	%		35	%
Provision for federal income taxes		61,073			32,512			13,824
Amortization of distribution property investment tax credit		(41	)		(46	)		(48	)
State income taxes, net of federal tax benefit		7,162			3,777			1,193
Other, net		(1,235	)		984			(641	)
Income tax expense	$	66,959		$	37,227		$	14,328

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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,
	2005		2004
	(Thousands of dollars)
Deferred tax assets
Other accrued liabilities	$	2,311	$	1,988
Other		4,082		2,187
Total deferred tax assets		6,393		4,175
Deferred tax liabilities
Excess of tax over book depreciation and depletion	$	353,621	$	317,331
Investment in joint ventures		4,725		7,641
Regulatory assets		670		786
Other comprehensive income		455		1,394
Other		3,238		1,916
Total deferred tax liabilities		362,709		329,068
Net deferred tax liabilities	$	356,316	$	324,893

H. SEGMENT INFORMATION

ONEOK Energy Assets divided its operations into four reportable segments based on similarities in economic characteristics, products and services, types of customers, methods of distribution and regulatory environment. These segments were as follows: (1) the Gathering and Processing segment gathered and processed natural gas and fractionated raw NGLs; (2) the Natural Gas Liquids segment gathered, treated and fractionated raw NGLs and stored NGLs produced; (3) the Pipelines and Storage segment gathered, transported and stored natural gas for others and provided NGL gathering and distribution services; (4) the OkTex segment transported natural gas and was regulated by the FERC. Portions of the Natural Gas Liquids segment and Pipelines and Storage segment were regulated.

The main customers for the Gathering and Processing segment were primarily major and independent oil and gas production companies. The Natural Gas Liquids segment’s customers were primarily gathering and processing companies and petrochemical and refining companies. Companies serviced by the Pipelines and Storage segment included local distribution companies (LDCs), power generators, irrigation, natural gas marketing companies, industrial and petrochemical companies. OkTex segment’s customers were primarily natural gas marketing companies, production companies and LDCs.

With the acquisition of assets from Koch on July 1, 2005, ONEOK Energy Assets formed a new operating segment called Natural Gas Liquids. This segment consisted of the existing natural gas liquids marketing business, which was previously part of the Gathering and Processing segment, and the assets acquired from Koch excluding those natural gas liquids gathering and pipeline distribution assets regulated by the FERC, which were transferred to the Pipelines and Storage segment. VESCO, also acquired as part of the asset acquisition, was added to the Gathering and Processing segment. Segment results for the Gathering and Processing segment for all prior periods were restated to reflect the transfer of its existing natural gas liquids marketing business to the Natural Gas Liquids segment.

The accounting policies of the segments are described in Note A. Intersegment gross sales were recorded on the same basis as sales to unaffiliated customers. Corporate overhead costs relating to a reportable segment were allocated for the purpose of calculating operating income. ONEOK Energy Assets’ equity method investments do not represent operating segments.

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The following tables set forth certain selected financial information for ONEOK Energy Assets’ four operating segments for the periods indicated.

Quarter Ended March 31, 2006	Gathering and Processing		Natural Gas Liquids		Pipelines and Storage		OkTex		Eliminations			Total
(Unaudited)	(Thousands of dollars)
Sales to unaffiliated customers	$	210,530	$	816,568	$	46,823	$	441	$	88,209		$	1,162,571
Intersegment sales		116,654		2,854		16,089		—		(135,597	)		—
Total Revenues	$	327,184	$	819,422	$	62,912	$	441	$	(47,388	)	$	1,162,571
Net margin	$	62,416	$	33,742	$	52,121	$	441	$	—		$	148,720
Operating costs		23,645		11,224	$	16,790	$	278		—			51,937
Depreciation, depletion and amortization		6,261		5,399	$	7,583	$	34		—			19,277
Operating income	$	32,510	$	17,119	$	27,748	$	129	$	—		$	77,506
Income from equity investments	$	—	$	—	$	243	$	—	$	—		$	243
Total assets	$	756,091	$	1,418,305	$	1,002,910	$	5,590	$	(70,503	)	$	3,112,393
Capital expenditures	$	3,322	$	2,954	$	3,576	$	16	$	—		$	9,868
Quarter Ended March 31, 2005	Gathering and Processing		Natural Gas Liquids		Pipelines and Storage		OkTex		Eliminations			Total
(Unaudited)	(Thousands of dollars)
Sales to unaffiliated customers	$	120,191	$	317,485	$	40,290	$	418	$	41,318		$	519,702
Intersegment sales		149,754		—		96		—		(149,850	)		—
Total Revenues	$	269,945	$	317,485	$	40,386	$	418	$	(108,532	)	$	519,702
Net margin	$	52,325	$	7,257	$	30,101	$	418	$	—		$	90,101
Operating costs		22,600		2,415		11,570		125		—			36,710
Depreciation, depletion and amortization		6,071		30		4,376		32		—			10,509
Operating income	$	23,654	$	4,812	$	14,155	$	261	$	—		$	42,882
Income from equity investments	$	—	$	—	$	298	$	—	$	—		$	298
Total assets	$	786,771	$	148,177	$	557,394	$	5,310	$	(55,462	)	$	1,442,190
Capital expenditures	$	6,329	$	1,696	$	1,670	$	—	$	—		$	9,695

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Year Ended December 31, 2005	Gathering and Processing		Natural Gas Liquids		Pipelines and Storage			OkTex			Eliminations			Total
	(Thousands of dollars)
Sales to unaffiliated customers	$	681,576	$	2,460,375	$	225,123		$	1,729		$	54,972		$	3,423,775
Intersegment sales		568,778		—		527			—			(569,305	)		—
Total Revenues	$	1,250,354	$	2,460,375	$	225,650		$	1,729		$	(514,333	)	$	3,423,775
Net margin	$	206,793	$	87,889	$	171,614		$	1,729		$	(1,167	)	$	466,858
Operating costs		95,385		33,460	$	63,326		$	(423	)		—			191,748
Depreciation, depletion and amortization		24,215		11,060	$	23,702		$	127			—			59,104
Operating income	$	87,193	$	43,369	$	84,586		$	2,025		$	(1,167	)	$	216,006
Loss from equity investments	$	—	$	—	$	(1,952	)	$	—		$	—		$	(1,952	)
Total assets	$	811,222	$	1,613,854	$	994,829		$	6,192		$	(62,988	)	$	3,363,109
Capital expenditures	$	21,703	$	12,220	$	15,719		$	144		$	—		$	49,786
Year Ended December 31, 2004	Gathering and Processing		Natural Gas Liquids		Pipelines and Storage			OkTex			Eliminations			Total
	(Thousands of dollars)
Sales to unaffiliated customers	$	431,398	$	1,250,101	$	166,851		$	1,664		$	157,550		$	2,007,564
Intersegment sales		575,621		—		564			—			(576,185	)		—
Total Revenues	$	1,007,019	$	1,250,101	$	167,415		$	1,664		$	(418,635	)	$	2,007,564
Net margin	$	199,911	$	18,019	$	126,348		$	1,664		$	—		$	345,942
Operating costs		88,549		9,463		49,361			1,581			—			148,954
Depreciation, depletion and amortization		23,999		119		17,323			133			—			41,574
Operating income	$	87,363	$	8,437	$	59,664		$	(50	)	$	—		$	155,414
Income from equity investments	$	—	$	—	$	1,123		$	—		$	—		$	1,123
Total assets	$	798,517	$	144,763	$	572,675		$	5,372		$	(49,496	)	$	1,471,831
Capital expenditures	$	17,179	$	9,264	$	12,196		$	12		$	—		$	38,651

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Year Ended December 31, 2003	Gathering and Processing			Natural Gas Liquids		Pipelines and Storage			OkTex		Eliminations			Total
	(Thousands of dollars)
Sales to unaffiliated customers	$	451,152		$	1,024,156	$	160,093		$	1,456	$	131,640		$	1,768,497
Intersegment sales		426,439			—		106			—		(426,545	)		—
Total Revenues	$	877,591		$	1,024,156	$	160,199		$	1,456	$	(294,905	)	$	1,768,497
Net margin	$	148,390		$	16,062	$	112,562		$	1,456	$	—		$	278,470
Operating costs		86,442			9,275		46,092			471		—			142,280
Depreciation, depletion and amortization		21,615			59		16,558			138		—			38,370
Operating income	$	40,333		$	6,728	$	49,912		$	847	$	—		$	97,820
Cumulative effect of changes in accounting principles, net of tax	$	(1,161	)	$	—	$	(645	)	$	—	$	—		$	(1,806	)
Income from equity investments	$	55		$	—	$	1,396		$	—	$	—		$	1,451
Total assets	$	766,446		$	108,998	$	557,384		$	5,519	$	(36,367	)	$	1,401,980
Capital expenditures	$	17,099		$	154	$	15,205		$	81	$	—		$	32,539

I. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental information relative to ONEOK Energy Assets’ cash flow for the periods indicated.

	Quarters Ended March 31,						Years Ended December 31,
	2006			2005			2005			2004			2003
	(Thousands of dollars)
Cash paid during the year
Interest (including amounts capitalized)	$	(5,333	)	$	(989	)	$	(3,602	)	$	(4,919	)	$	(2,224	)
Non-cash transactions
Cumulative effect of changes in accounting principles
Adoption of Statement 143	$	—		$	—		$	—		$	—		$	1,806
Recapitalization by Parent	$	889		$	173,699		$	784,909		$	(170,261	)	$	(30,764	)

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J. SHAREHOLDERS’ EQUITY

The following summarizes the equity accounts of ONEOK Energy Assets as of December 31, 2005.

	Common Stock		Paid in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
	(Thousands of dollars)
ONEOK Field Services Company	$	1	$	446,079		$	839		$	(25,336	)	$	421,583
ONEOK Midstream Gas Supply, LLC		—		—			—			8,379			8,379
Mid Continent Market Center, Inc.		1		37,345			—			(18,143	)		19,203
ONEOK Gas Storage Holdings, LLC		—		190,606			—			96,925			287,531
ONEOK Gas Gathering, LLC		171		(7,426	)		—			18,821			11,566
ONEOK Sayre Storage Company		275		(11,008	)		—			11,330			597
ONEOK Gas Transportation, LLC		13		(7,182	)		—			58,747			51,578
ONEOK Transmission Company		—		1,497			—			(276	)		1,221
ONEOK HydroCarbon, LLC		—		379,533			(117	)		70,202			449,618
OkTex Pipeline Company, LLC		1		794			—			1,340			2,135
	��
Shareholders’ Equity	$	462	$	1,030,238		$	722		$	221,989		$	1,253,411

K. RELATED PARTY TRANSACTIONS

The majority of the Gathering and Processing segment’s natural gas and NGLs were sold to ONEOK’s subsidiaries (affiliates). Natural gas and NGLS were delivered from the plants to an affiliate. The majority of the Pipeline and Storage segment’s sales were to affiliates which utilized both transportation and storage services.

As part of the transaction between ONEOK Partners and ONEOK, ONEOK Partners acquired contractual rights and obligations that require gas to be processed at a ONEOK processing plant (the Plant). The Plant is leased by a subsidiary of ONEOK. In order to meet the processing obligations to certain customers, ONEOK Partners entered into a Processing and Services Agreement with ONEOK, which sets out the terms on which ONEOK will provide processing and related services at the Plant. In exchange for such services, ONEOK Partners will pay ONEOK for all direct costs and expense of operating the Plant, including reimbursement of a portion of ONEOK’s obligations under equipment leases covering the Plant. The lease expense recorded in the combined statements of income was approximately $3.2 million for the three months ended March 31, 2006 and 2005, respectively, and approximately $13.0 million for the years end December 31, 2005, 2004 and 2003, respectively.

ONEOK and affiliates provided a variety of services to ONEOK Energy Assets, including cash management and financing services, employee benefits provided through ONEOK’s benefit plans, administrative services provided by ONEOK employees and management, insurance and office space leased in ONEOK’s headquarters building and other field locations. Where costs were specifically incurred on behalf of an affiliate, the costs were billed directly to the affiliate by ONEOK. In other situations, the costs were allocated to the affiliates through a variety of methods, depending upon the nature of the expense and the activities of the affiliates. For example, a benefit which applied equally to all employees was allocated based upon the number of employees in each affiliate. On the other hand, an expense benefiting the consolidated company but having no direct basis for allocation was allocated by the Distrigas method, a method using a combination of ratios of gross plant and investment, operating income and labor expense. All costs directly charged or allocated to the ONEOK Energy Assets by affiliates were included in the statements of income and all such operating costs have been allocated by ONEOK and its affiliates.

ONEOK Energy Assets’ cash management function, including cash receipts and disbursements, was performed by ONEOK. These cash receipts and disbursements were included in long-term debt due to parent in its balance sheets. The net amount due to ONEOK was approximately $864.1 million, $1,068.4 million and $547.7 million at March

20

31, 2006, December 31, 2005 and December 31, 2004, respectively, as reflected in its balance sheets. Amounts payable to ONEOK have no stated maturity date or interest rate. As of March 31, 2006, December 31, 2005 and December 31, 2004, ONEOK represented the balance due to parent would not be called within a twelve month period. As a result, the amount classified as due to parent has been classified as a non-current liability in the accompanying balance sheets. The interest rate was calculated periodically based upon ONEOK’s cost of capital.

The Parent recapitalized ONEOK Energy Assets’ debt and equity structure to more closely reflect the current ONEOK structure. As a result, various companies returned capital or paid down debt; while others borrowed additional funds or received capital contributions from the Parent.

ONEOK has a defined benefit pension plan and an other postretirement benefit plan covering most employees and all such costs have been allocated by ONEOK to its affiliates. The assets and liabilities related to these plans were not transferred to ONEOK Partners and, accordingly, are not reflected in the accompanying combined balance sheets. The pension and other postretirement benefit costs allocated to the ONEOK Energy Assets are included in the employee benefits amounts in the table below.

The following table sets forth the transaction with related parties for the periods shown.

	Quarters Ended March 31,				Years Ended December 31,
	2006		2005		2005		2004		2003
	(Thousands of dollars)
Revenue	$	229,688	$	29,455	$	971,525	$	33,271	$	133,477
Expense
Employee benefits	$	3,891	$	2,833	$	12,125	$	8,484	$	6,701
Administrative and general expenses		12,075		8,823		46,787		33,213		27,494
Interest expense		21,281		12,252		33,684		58,231		59,538
Total expense	$	37,247	$	23,908	$	92,596	$	99,928	$	93,733

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