Exhibit
99.1 REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 
 Board of
Directors of ONEOK Partners GP, L.L.C.:
 
 In our
opinion, the accompanying consolidated balance sheet presents fairly, in all
material respects, the financial position of ONEOK Partners GP, L.L.C. at
December 31, 2008 in conformity with accounting principles generally accepted in
the United States of America.  This financial statement is the
responsibility of the Company’s management; our responsibility is to express an
opinion on this financial statement based on our audit.  We conducted
our audit of this statement in accordance with the standards of the Public
Company Accounting Oversight Board (United States), which require that we plan
and perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement.  An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the balance
sheet, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall balance sheet
presentation.  We believe that our audit of the balance sheet provides
a reasonable basis for our opinion.
 
 
 
 /s/
PricewaterhouseCoopers LLP
 
 Tulsa,
Oklahoma
 February
24, 2009
  
 
 ONEOK
      Partners GP, L.L.C.CONSOLIDATED
      BALANCE SHEETDecember
      31, 2008Assets
                                          (Thousands
      of dollars)Current
      AssetsCash
      and cash equivalents
                                          $
                                          177,635Accounts
      receivable, net
                                          
                                          317,182Gas
      and natural gas liquids in storage
                                          
                                          190,616Commodity
      exchanges and imbalances
                                          
                                          55,086Derivative
      financial instruments (Notes D and E)
                                          
                                          63,780Other
      current assets
                                          
                                          28,176Total
      Current Assets
                                          
                                          832,475Property,
      Plant and EquipmentProperty,
      plant and equipment
                                          
                                          5,808,679Accumulated
      depreciation and amortization
                                          
                                          875,279Net
      Property, Plant and Equipment (Note B)
                                          
                                          4,933,400Investments
      and Other AssetsInvestments
      in unconsolidated affiliates (Note K)
                                          
                                          755,492Goodwill
      and intangible assets (Note F)
                                          
                                          868,918Other
      assets
                                          
                                          30,593Total
      Investments and Other Assets
                                          
                                          1,655,003Total
      Assets
                                          $
                                          7,420,878Liabilities
      and Member's EquityCurrent
      LiabilitiesCurrent
      maturities of long-term debt
                                          $
                                          11,931Notes
      payable
                                          
                                          870,000Accounts
      payable
                                          
                                          496,763Commodity
      exchanges and imbalances
                                          
                                          191,165Other
      current liabilities
                                          
                                          109,216Total
      Current Liabilities
                                          
                                          1,679,075Long-Term
      Debt, net of current maturities (Note H)
                                          
                                          2,589,509Due
      to Parent
                                          
                                          64,511Deferred
      Credits and Other LiabilitiesDeferred
      income taxes
                                          
                                          71,315Other
      deferred credits
                                          
                                          45,901Total
      Deferred Credits and Other Liabilities
                                          
                                          117,216Commitments
      and Contingencies (Note I)Minority
      Interests in Consolidated Subsidiaries
                                          
                                          2,853,197Member's
      EquityPaid
      in capital
                                          
                                          42,360Accumulated
      other comprehensive loss
                                          
                                          1,635Retained
      earnings
                                          
                                          73,375Total
      Member's Equity
                                          
                                          117,370Total
      Liabilities and Member's Equity
                                          $
                                          7,420,878See
      accompanying Notes to Consolidated Balance Sheet.
  - 2
-
  NOTES
TO CONSOLIDATED BALANCE SHEET
 
 
 A.         NATURE
OF OPERATIONS
 
 In this
report, references to “we,” “us,” and “our” refer to ONEOK Partners GP, L.L.C.
and its subsidiaries.
 
 ONEOK
Partners GP, L.L.C. (ONEOK Partners GP), a Delaware limited liability company,
is a wholly owned subsidiary of ONEOK, Inc. (ONEOK).  ONEOK Partners
GP owns 100 percent of ONEOK Partners, L.P.’s (ONEOK Partners) two percent
general partnership interest.  Additionally, ONEOK Partners GP owns
500,000 limited partner units of ONEOK Partners.  We consolidate ONEOK
Partners in accordance with Emerging Issues Task Force Issue No. 04-5 (EITF
04-5), “Determining Whether a General Partner, or the General Partners as a
Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights.”  EITF 04-5 presumes that a general
partner controls a limited partnership and therefore should consolidate the
partnership in the financial statements of the general partner.
 
 B.         SUMMARY
OF ACCOUNTING POLICIES
 
 Critical
Accounting Policies
 
 The
following is a summary of our most critical accounting policies, which are
defined as those policies most important to the portrayal of our 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.  We
have discussed the development and selection of our critical accounting policies
and estimates with the Audit Committee of our Board of Directors.
 
 Impairment of Long-Lived Assets,
Goodwill and Intangible Assets - We assess our long-lived assets for
impairment based on Statement of Financial Accounting Standards No. 144
(Statement 144), “Accounting for the Impairment or Disposal of Long-Lived
Assets.”  A long-lived asset is tested for impairment whenever events
or changes in circumstances indicate that its carrying amount may exceed its
fair value.  Fair values are based on the sum of the undiscounted
future cash flows expected to result from the use and eventual disposition of
the assets.
 
 We assess
our goodwill and indefinite-lived intangible assets for impairment at least
annually based on Statement of Financial Accounting Standards No. 142 (Statement
142), “Goodwill and Other Intangible Assets.”  There was no impairment
resulting from our July 1, 2008, impairment test.  As a result of
recent events in the financial markets and current economic conditions, we
performed a review and determined that interim testing of goodwill as of
December 31, 2008, was not necessary.  As part of our impairment test,
an initial assessment is made by comparing the fair value of a reporting unit
with its book value, including goodwill.  If the fair value is less
than the book value, an impairment is indicated, and we must perform a second
test to measure the amount of the impairment.  In the second test, we
calculate the implied fair value of the goodwill by deducting the fair value of
all tangible and intangible net assets of reporting unit from the fair value
determined in step one of the assessment.  If the carrying value of
the goodwill exceeds the implied fair value of the goodwill, we will record an
impairment charge.
 
 We use
two generally accepted valuation approaches, an income approach and a market
approach, to estimate the fair value of a reporting unit.  Under the
income approach, we use anticipated cash flows over a three-year period plus a
terminal value and discount these amounts to their present value using
appropriate rates of return.  Under the market approach, we apply
multiples to forecasted earnings before interest, taxes, depreciation and
amortization (EBITDA) amounts.  The multiples used are consistent with
historical asset transactions, and the EBITDA amounts are based on average
EBITDA for a reporting unit over a three-year forecasted period.  See
Note F for more discussion of goodwill.
 
 Intangible
assets with a finite useful life are amortized over their estimated useful life,
while intangible assets with an indefinite useful life are not
amortized.  All intangible assets are subject to impairment
testing.
 
 Our
impairment tests require the use of assumptions and estimates.  If
actual results are not consistent with our assumptions and estimates or our
assumptions and estimates change due to new information, we may be exposed to an
impairment charge.
 
 For the
investments we account for under the equity method, the premium or excess cost
over underlying fair value of net assets is referred to as equity method
goodwill and under Statement 142, is not subject to amortization but rather to
impairment testing pursuant to Accounting Principles Board Opinion No. 18 (APB
Opinion No. 18), “The Equity Method of Accounting for Investments in Common
Stock.”  The impairment test under APB Opinion No. 18 considers
whether the fair value of the equity investment as a whole, not the underlying
net assets, has declined and whether that decline is other than
  - 3
-
  temporary.  Therefore,
we periodically reevaluate the amount at which we carry the excess of cost over
fair value of net assets accounted for under the equity method to determine
whether current events or circumstances warrant adjustments to our carrying
value in accordance with APB Opinion No. 18.
 
 Derivatives and Risk
Management -ONEOK Partners utilizes
financial instruments to reduce its market risk exposure to interest rate and
commodity price fluctuations and achieve more predictable cash
flows.  It accounts for derivative instruments utilized in connection
with these activities and services in accordance with Statement of Financial
Accounting Standards No. 133 (Statement 133), “Accounting for Derivative
Instruments and Hedging Activities,” as amended.
 
 Under
Statement 133, entities are required to record derivative instruments at fair
value, with the exception of normal purchases and normal sales that are expected
to result in physical delivery.  See Note D for additional fair value
discussion.  Market value changes result in a change in the fair value
of ONEOK Partners’ 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
nature of the risk being hedged and how ONEOK Partners will determine if the
hedging instrument is effective.  If the derivative instrument does
not qualify or is not designated as part of a hedging relationship, then ONEOK
Partners accounts for changes in fair value of the derivative in earnings as
they occur.
 
 To reduce
its exposure to fluctuations in natural gas, natural gas liquids and condensate
prices, ONEOK Partners periodically enters into futures, forwards, options or
swap transactions in order to hedge anticipated purchases and sales of natural
gas, natural gas liquids and condensate, and fuel
requirements.  Interest-rate swaps are also used to manage
interest-rate risk.  Under certain conditions, these derivative
instruments are designated as a hedge of exposure to changes in fair values or
cash flow.  For hedges of exposure to changes in cash flow, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (loss) and subsequently
recorded to earnings when the forecasted transaction affects
earnings.  Any ineffectiveness of designated hedges is reported in
earnings in the period the ineffectiveness occurs.  For hedges of
exposure to changes in fair value, the gain or loss on the derivative instrument
is recognized in earnings during the period of change together with the
offsetting gain or loss on the hedged item attributable to the risk being
hedged.
 
 Upon
election, many of ONEOK Partners’ purchase and sale agreements that otherwise
would be required to follow derivative accounting qualify as normal purchases
and normal sales under Statement 133 and are therefore exempt from fair value
accounting treatment.
 
 See Note
E for a discussion of derivatives and risk management activities.
 
 Contingencies - Our accounting
for contingencies covers a variety of business activities, including
contingencies for legal and environmental exposures.  We accrue these
contingencies when our assessments indicate that it is probable that a liability
has been incurred or an asset will not be recovered and an amount can be
reasonably estimated in accordance with Statement of Financial Accounting
Standards No. 5 (Statement 5), “Accounting for Contingencies.”  We
base our estimates on currently available facts and our estimates of the
ultimate outcome or resolution.  Accruals for estimated losses from
environmental remediation obligations generally are recognized no later than
completion of the remediation feasibility study.  Recoveries of
environmental remediation costs from other parties are recorded as assets when
their receipt is deemed probable.  Actual results may differ from our
estimates resulting in an impact, positive or negative, on earnings.See Note I for additional
discussion of contingencies.
 
 Significant
Accounting Policies
 
 Consolidation-The consolidated
financial statements include the accounts of ONEOK Partners GP and our
subsidiaries over which we have control.  All significant intercompany
balances and transactions have been eliminated in
consolidation.  Investments in affiliates are accounted for using the
equity method if we have the ability to exercise significant influence over
operating and financial policies of our investee; conversely, if we do not have
the ability to exercise significant influence, then we use the cost
method.  Impairment of equity and cost method investments is assessed
when the impairments are other than temporary.
 
 Use of Estimates -The preparation of our
balance sheet and related disclosures in accordance with generally accepted
accounting principles in the United States (GAAP) requires us to make estimates
and assumptions with respect to values or conditions that cannot be known with
certainty that affect the reported amount of assets and liabilities, and the
disclosure of contingent assets and liabilities at the date of the balance
sheet.
 
 We
evaluate these estimates on an ongoing basis using historical experience,
consultation with experts and other methods we consider reasonable based on the
particular circumstances.  Nevertheless, actual results may differ
significantly from the
  - 4
-
  estimates.  Any
effects on our financial position from revisions to these estimates are recorded
in the period when the facts that give rise to the revision become
known.
 
 Cash and Cash Equivalents -
Cash equivalents consist of highly liquid investments, which are readily
convertible into cash and have original maturities of three months or
less.
 
 Accounts Receivable, net -
Accounts receivable represent valid claims against non-affiliated customers for
products sold or services rendered, net of allowances for doubtful
accounts.  ONEOK Partners assesses the creditworthiness of its
counterparties on an on-going basis and requires security, including prepayments
and other forms of cash collateral, when appropriate.  Outstanding
customer receivables are regularly reviewed for possible non-payment indicators
and allowances for doubtful accounts are recorded based upon management’s
estimate of collectibility at each balance sheet date.
 
 Inventory, Natural Gas Imbalances and
Commodity Exchanges -Inventory is valued at
the lower of cost or market. The values of current
natural gas and natural gas liquids in storage are determined using the lower of
weighted-average cost or market method.  Noncurrent natural gas and
natural gas liquids in storage are classified as property and valued at
cost.  Materials and supplies are valued at average
cost.  Natural gas imbalances and natural gas liquids exchanges are
valued at market or their contractually stipulated rate.  Imbalances
and natural gas liquids exchanges are settled in cash or made up in-kind,
subject to the terms of the pipelines’ tariffs or by agreement.
 
 Property, Plant and Equipment- The following table sets forth property, by ONEOK Partners’ segments,
for the period indicated.
  December
      31, 2008(Thousands
      of dollars)Non-RegulatedNatural
      Gas Gathering and Processing
                    $
                    1,368,223Natural
      Gas Pipelines
                    
                    167,625Natural
      Gas Liquids Gathering and Fractionation
                    
                    879,047Other
                    
                    50,474RegulatedNatural
      Gas Pipelines
                    
                    1,460,764Natural
      Gas Liquids Pipelines
                    
                    1,882,546Property,
      plant and equipment
                    
                    5,808,679Accumulated
      depreciation and amortization
                    
                    875,279Net
      property, plant and equipment
                    $
                    4,933,400
 
 At
December 31, 2008, property, plant and equipment on our Consolidated Balance
Sheet included construction work in progress of $810.0 million.
 
 We
capitalize interest expense during the construction or upgrade of qualifying
assets.  Interest expense capitalized in 2008 was $36.1
million.
 
 Gas
processing plants, natural gas liquids fractionation plants and all other
properties are stated at cost.
 
 Regulated
properties are stated at cost, which includes the equity portion of allowance
for funds used during construction (AFUDC).  The equity portion of
AFUDC represents the capitalization of the estimated average cost of equity used
during the construction of major projects.  Generally, the cost of
property retired or sold, plus removal costs, less salvage, is charged to
accumulated depreciation.
 
 Income Taxes- We are a
single-member limited liability company (LLC) and are taxed as a disregarded
entity.  Accordingly, we are included in the consolidated tax return
of ONEOK.  ONEOK Partners is not a taxable entity for federal income
tax purposes.  As such, it does not directly pay federal income tax,
although ONEOK Partners has corporate subsidiaries that are required to pay
federal and state income taxes.  ONEOK Partners’ taxable income or
loss is included in the federal income tax returns of each partner, including
us.  Deferred income tax assets and liabilities are provided for the
differences between the financial statement and income tax basis of assets and
liabilities and carryforward items based on income tax laws and rates existing
at the time the temporary differences are expected to reverse.  Except
for the companies whose accounting policies conform to Statement 71, the effect
of a change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date of the rate
change.  For the companies whose accounting
  - 5
-
  policies
conform to Statement 71, the effect on deferred tax assets and liabilities of a
change in tax rates is recorded as regulatory assets and regulatory liabilities
in the period that includes the enactment date.
 
 We
account for uncertainty in income taxes recognized in the financial statements
by prescribing a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return.  As required by Financial
Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), “Accounting
for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109,”
we record penalties and interest on any unrecognized tax
benefits.  During 2008, we had no tax positions that would require
establishment of a reserve under FIN 48.
 
 ONEOK
files numerous consolidated and separate income tax returns in the United States
federal jurisdiction and in many state jurisdictions.  ONEOK also
files returns in Canada.  ONEOK’s 2007 and 2006 United States federal
income tax returns are currently under audit.
 
 Regulation-ONEOK Partners’
intrastate natural gas transmission pipelines are subject to the rate regulation
and accounting requirements of the Oklahoma Corporation Commission (OCC), Kansas
Corporation Commission (KCC) and Texas Railroad Commission
(RRC).  ONEOK Partners’ interstate natural gas and natural gas liquids
pipelines are subject to regulation by the Federal Energy Regulatory Commission
(FERC).  Portions of ONEOK Partners’ Natural Gas Pipelines segment and
its Natural Gas Liquids Pipelines segment follow the accounting and reporting
guidance contained in Statement of Financial Accounting Standards No. 71
(Statement 71), “Accounting for the Effects of Certain Types of
Regulation.”  During the rate-making process, regulatory authorities
may allow ONEOK Partners to defer recognition of certain costs and permit
recovery of the amounts through rates over time as opposed to expensing such
costs as incurred.  This allows ONEOK Partners to stabilize rates over
time rather than passing such costs on to the customer for immediate
recovery.  Actions by regulatory authorities could have an effect on
the amount recovered from rate payers.  Any difference in the amount
recoverable and the amount deferred is recorded as income or expense at the time
of the regulatory action.  If all or a portion of the regulated
operations are no longer subject to the provisions of Statement 71, a write-off
of regulatory assets and costs not recovered may be required.
 
 At
December 31, 2008, ONEOK Partners recorded regulatory assets, which are
currently being recovered or are expected to be recovered from its customers, of
approximately $12.8 million.  Regulatory assets are being recovered as
a result of approved rate proceedings over varying time periods up to 40
years.  These assets are reflected in other assets on our Consolidated
Balance Sheet.
 
 Asset Retirement Obligations -
Statement of Financial Accounting Standards No. 143 (Statement 143), “Accounting
for Asset Retirement Obligations” 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 requires that we recognize the fair value of a liability for an asset
retirement obligation in the period when it is incurred if a reasonable estimate
of the fair value can be made.  The fair value of the liability is
added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset.  The
liability is accreted at the end of each period.
 
 In
accordance with long-standing regulatory treatment, ONEOK Partners collects
through rates the estimated costs of removal on certain regulated properties
through depreciation expense, with a corresponding credit to accumulated
depreciation and amortization.  These removal costs are non-legal
obligations as defined by Statement 143.  However, these non-legal
asset removal obligations are accounted for as a regulatory liability under
Statement 71.  Historically, the regulatory authorities which have
jurisdiction over its regulated operations have not required ONEOK Partners to
track this amount; rather, these costs are addressed prospectively as
depreciation rates are set in each general rate order.  ONEOK Partners
has made an estimate of its removal cost liability using current rates since the
last general rate order in each of its jurisdictions.  However,
significant uncertainty exists regarding the ultimate determination of this
liability pending, among other issues, clarification of regulatory
intent.  ONEOK Partners continues to monitor the regulatory
authorities and the liability may be adjusted as more information is
obtained.
 
 Other
 
 Fair Value Measurements - In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157 (Statement 157), “Fair Value Measurements,” which establishes a framework
for measuring fair value and requires additional disclosures about fair value
measurements.  Beginning January 1, 2008, we partially applied
Statement 157 as allowed by FASB Staff Position 157-2 (FSP 157-2), which delayed
the effective date of Statement 157 for nonfinancial assets and
liabilities.  As of January 1, 2008, we have applied the provisions of
Statement 157 to our financial instruments, and the impact was not
material.  See Note D for disclosures of fair value measurements for
our financial instruments.  As of January 1, 2009, we have applied the
provisions of Statement 157 to our nonrecurring fair value measurements
associated with our nonfinancial assets and liabilities, and the impact was not
material.  FASB Staff Position 157-3 (FSP 157-3),
“Determining
  - 6
-
  the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active,” which
clarified the application of Statement 157 in inactive markets, was issued in
October 2008 and was effective for our September 30, 2008, Consolidated Balance
Sheet.  FSP 157-3 did not have a material impact on our Consolidated
Balance Sheet.
 
 In February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159 (Statement 159), “The Fair
Value Option for Financial Assets and Financial Liabilities,” which allows
companies to elect to measure specified financial assets and liabilities, firm
commitments, and nonfinancial warranty and insurance contracts at fair value on
a contract-by-contract basis.  At January 1, 2008, we did not elect
the fair value option under Statement 159 and therefore there was no impact on
our Consolidated Balance Sheet.
 
 Master Netting Arrangement -
In April 2007, the FASB issued FASB Staff Position FASB Interpretation 39-1 (FSP
FIN 39-1), “Amendment of FASB Interpretation No. 39,” which requires entities
that offset the fair value amounts recognized for derivative receivables and
payables to also offset the fair value amounts recognized for the right to
reclaim cash collateral with the same counterparty under a master netting
arrangement.  We applied the provisions of FIN 39-1 to our
Consolidated Balance Sheet beginning January 1, 2008, and the impact was not
material.  At December 31, 2008, ONEOK Partners had no cash collateral
held or posted under our master netting arrangement.
 
 Business Combinations - In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (Revised 2007) (Statement 141R), “Business Combinations,” which will require
most identifiable assets, liabilities, noncontrolling interest (previously
referred to as minority interest) and goodwill acquired in a business
combination to be recorded at fair value.  Statement 141R is effective
for our year beginning January 1, 2009.  Because the provisions of
Statement 141R are applied prospectively, our 2009 and subsequent Consolidated
Balance Sheet will not be impacted unless we complete a business
combination.
 
 Noncontrolling Interests - In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160 (Statement 160), “Noncontrolling Interest in Consolidated Financial
Statements - an amendment to ARB No. 51,” which requires noncontrolling interest
(previously referred to as minority interest) to be reported as a component of
equity.  Statement 160 was effective for our year beginning January 1,
2009, and requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests.  Statement 160 did not
have a material impact on our Consolidated Balance Sheet; however, certain
financial statement presentation changes and additional required disclosures
will be made.
 
 Equity Method Investments - In
November 2008, the FASB ratified Emerging Issues Task Force Issue No.08-6 (EITF
08-6), “Equity Method Investment Accounting Considerations,” which clarified
certain issues that arose following the issuance of Statements 141R and 160
related to the accounting for equity method investments.  EITF 08-6
was effective for our year beginning January 1, 2009, and did not have a
material impact on our Consolidated Balance Sheet.
 
 Derivative Instruments and Hedging
Activities Disclosure - In March 2008, the FASB issued Statement of
Financial Accounting Standards No. 161 (Statement 161), “Disclosures about
Derivative Instruments and Hedging Activities - an amendment to FASB Statement
No. 133,” which required enhanced disclosures about how derivative and hedging
activities affect our financial position.  Statement 161 was effective
for our year beginning January 1, 2009, and will be applied
prospectively.
 
 C.         ACQUISITIONS
AND DIVESTITURES
 
 Acquisition of NGL Pipeline -
In October 2007, ONEOK Partners completed the acquisition of an interstate
natural gas liquids and refined petroleum products pipeline system and related
assets from a subsidiary of Kinder Morgan Energy Partners, L.P. for
approximately $300 million, before working capital adjustments.  The
system extends from Bushton and Conway, Kansas, to Chicago, Illinois, and
transports, stores and delivers a full range of natural gas liquid products and
refined petroleum products.  The FERC-regulated system spans 1,624
miles and has a capacity to transport up to 134,000 barrels per
day.  The transaction also included approximately 978,000 barrels of
owned storage capacity, eight natural gas liquid terminals and a 50 percent
ownership of Heartland Pipeline Company (Heartland).  ConocoPhillips
owns the other 50 percent of Heartland and is the managing partner of Heartland,
which consists primarily of a refined petroleum products terminal and pipelines
with access to two other refined petroleum product terminals.  ONEOK
Partners’ investment in Heartland is accounted for under the equity method of
accounting.  Financing for this transaction came from a portion of the
proceeds of ONEOK Partners’ September 2007 issuance of $600 million 6.85 percent
Senior Notes due 2037 (the 2037 Notes).  See Note H for a discussion
of the 2037 Notes.  The working capital settlement was finalized in
April 2008, with no material adjustments.
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-
  Overland Pass Pipeline Company
- In May 2006, a subsidiary of ONEOK Partners entered into an agreement with a
subsidiary of The Williams Companies, Inc. (Williams) to form a joint venture
called Overland Pass Pipeline Company.  In November 2008, Overland
Pass Pipeline Company completed construction of a 760-mile natural gas liquids
pipeline from Opal, Wyoming, to the Mid-Continent natural gas liquids market
center in Conway, Kansas.  The Overland Pass Pipeline is designed to
transport approximately 110,000 barrels per day of unfractionated natural gas
liquids and can be increased to approximately 255,000 barrels per day with
additional pump facilities.  During 2006, ONEOK Partners paid $11.6
million to Williams for the acquisition of its interest in the joint venture and
for reimbursement of initial capital expenditures.  A subsidiary of
ONEOK Partners owns 99 percent of the joint venture, managed the construction
project, advanced all costs associated with construction and is currently
operating the pipeline.  On or before November 17, 2010, Williams will
have the option to increase its ownership up to 50 percent, with the purchase price
being determined in accordance with the joint venture’s operating
agreement.  If Williams exercises its option to increase its
ownership to the full 50 percent, Williams would have the option to become
operator.  The pipeline project cost was approximately $575 million,
excluding AFUDC.
 
 As part
of a long-term agreement, Williams dedicated its natural gas liquid production
from two of its natural gas processing plants in Wyoming to the Overland Pass
Pipeline.  Subsidiaries of ONEOK Partners will provide downstream
fractionation, storage and transportation services to Williams.
 
 D.         FAIR
VALUE MEASUREMENTS
 
 As
discussed in Note B, we applied the provisions of Statement 157 as of January 1,
2008, to our recurring fair value measurements.
 
 Determining Fair Value -
Statement 157 defines fair value as the price that would be received to sell an
asset or transfer a liability in an orderly transaction between market
participants at the measurement date.  ONEOK Partners uses the income
approach to determine the fair value of its derivative assets and liabilities
and considers the markets in which the transactions are executed.  While
many of the contracts in ONEOK Partners’ portfolio are executed in liquid
markets where price transparency exists, some contracts are executed in markets
for which market prices may exist but the market may be relatively
inactive.  This results in limited price transparency that requires
management’s judgment and assumptions to estimate fair values.  For certain
transactions, ONEOK Partners utilizes modeling techniques using New York
Mercantile Exchange (NYMEX)-settled pricing data and historical correlations of
natural gas liquid product prices to crude oil.  ONEOK Partners
validates its valuation inputs with third-party information and settlement
prices from other sources, where available.  In addition, as prescribed by
the income approach, it computes the fair value of its derivative portfolio by
discounting the projected future cash flows from its derivative assets and
liabilities to present value.  The interest rate yields used to
calculate the present-value discount factors are derived from the London
Interbank Offered Rate, Eurodollar futures and Treasury swaps.  The
projected cash flows are then multiplied by the appropriate discount factors to
determine the present value or fair value of its derivative instruments. 
Finally, ONEOK Partners considers the credit risk of its counterparties with
whom its derivative assets and liabilities are executed.  Although ONEOK
Partners uses its best estimates to determine the fair value of the derivative
contracts it has executed, the ultimate market prices realized could differ from
its estimates, and the differences could be significant.
  Fair Value Hierarchy -
Statement 157 establishes the fair value hierarchy that prioritizes inputs to
valuation techniques based on observable and unobservable data and categorizes
the inputs into three levels, with the highest priority given to Level 1 and the
lowest priority given to Level 3.  The levels are described
below.
 ·
              Level
      1 - Unadjusted quoted prices in active markets for identical assets or
      liabilities.
 ·
              Level
      2 - Significant observable pricing inputs other than quoted prices
      included within Level 1 that are either directly or indirectly observable
      as of the reporting date.  Essentially, this represents inputs
      that are derived principally from or corroborated by observable market
      data.
 ·
              Level
      3 - Generally unobservable inputs, which are developed based on the best
      information available and may include ONEOK Partners’ own internal
      data.
 
 Determining
the appropriate classification of ONEOK Partners’ fair value measurements within
the fair value hierarchy requires management’s judgment regarding the degree to
which market data is observable or corroborated by observable market
data.
  - 8
-
  Recurring Fair Value
Measurements - The following table sets forth ONEOK Partners’ recurring
fair value measurements for the period indicated.
 
 December
      31, 2008Level
      1
                    
                    
                    Level
      2
                    
                    
                    Level
      3
                    
                    
                    Total(Thousands
      of dollars)DerivativesAssets
                    
                    $
                    -
                    
                    
                    $
                    26,131
                    
                    
                    $
                    37,649
                    
                    
                    $
                    63,780
 
 For
derivatives for which fair value is determined based on multiple inputs,
Statement 157 requires that the measurement for an individual derivative be
categorized within a single level based on the lowest level input that is
significant to the fair value measurement in its entirety.
 
 When
ONEOK Partners’ fair value measurements based on NYMEX-settled prices are
associated with exchange-traded instruments, it classifies those derivatives as
Level 1.  These measurements may include futures for natural gas and
crude oil that are valued based on unadjusted quoted prices in active
markets.  ONEOK Partners’ Level 2 fair value measurements are based on
NYMEX-settled prices that are utilized to determine the fair value of certain
non-exchange traded financial instruments, including natural gas and crude oil
swaps.  For its Level 3 inputs, it utilizes modeling techniques using
NYMEX-settled pricing data and historical correlations of natural gas liquids
product prices to crude oil.
 
 The
following table sets forth a reconciliation of its Level 3 fair value
measurements for the period indicated.
  Derivative
      Assets
                      (Liabilities)(Thousands
      of dollars)Net
      liabilities at January 1, 2008
                    
                    $
                    (16,400)Total
      realized/unrealized gains (losses):Included
      in earnings
                    
                    
                    980Included
      in other comprehensive income (loss)
                    
                    58,143Terminations
      prior to maturity
                    
                    
                    (5,074)Transfers
      in and/or out of Level 3
                    
                    -Net
      assets at December 31, 2008
                    
                    $
                    37,649
 
 ONEOK
Partners’ Level 3 fair value measurements changed from a net liability position
at January 1, 2008, to a net asset position at December 31, 2008, due to new
hedges being put in place during the period as well as changes in commodity
prices.  Realized/unrealized gains (losses) include the realization of
its fair value derivative contracts through maturity.  Terminations
prior to maturity represent swap contracts terminated prior to maturity
that will remain in accumulated other comprehensive income
(loss) until the underlying forecasted transaction occurs.
 
 Fair Value of Debt- The following
estimated fair value represents the amount at which debt could be exchanged in a
current transaction between willing parties.  Based on quoted market
prices for similar issues with similar terms and remaining maturities, the
estimated fair value of the aggregate of all the senior notes outstanding was
approximately $2.4 billion at December 31, 2008.  ONEOK Partners
presently intends to maintain the current schedule of maturities for the senior
notes, which will result in no gains or losses on their respective
repayment.  The fair value of ONEOK Partners’ borrowings under its
amended and restated revolving credit agreement dated March 30, 2007
(Partnership Credit Agreement) approximates the carrying value since the
interest rates are periodically adjusted to reflect current market
conditions.
 
 E.
              DERIVATIVE
      INSTRUMENTS AND HEDGING ACTIVITIES
 
 ONEOK
Partners utilizes financial instruments to reduce its market risk exposure to
interest rate and commodity price fluctuations, and to achieve more predictable
cash flows.  ONEOK Partners follows established policies and
procedures to assess risk and approve, monitor and report its financial
instrument activities.  ONEOK Partners does not use these instruments
for trading purposes. See Note B for discussion of our accounting policies for
derivatives and risk management.
 
 Cash Flow Hedges - ONEOK
Partners’ Natural Gas Gathering and Processing segment primarily utilizes
NYMEX-based futures, collars and over-the-counter swaps, which are designated as
cash flow hedges, to hedge its exposure to volatility in the price of natural
gas, natural gas liquids and condensate.  At December 31, 2008, the
accompanying Consolidated Balance Sheet reflected an unrealized gain of $1.7
million in accumulated other comprehensive income (loss), with a corresponding
offset in derivative financial instrument assets and
liabilities.
  - 9
-
  Fair Value Hedges - At
December 31, 2008, none of the interest on our fixed rate debt was swapped to
floating using interest-rate swaps.  See Note H for additional
discussion of long-term debt.
 
 F.         GOODWILL
AND INTANGIBLE ASSETS
 
 Goodwill - At December 31, 2008, goodwill
includes $396.7 million related to ONEOK Partners and $36.8 million related to
our investment in ONEOK Partners.
 
 Equity Method Goodwill - For
the investments we account for under the equity method, the premium or excess
cost over underlying fair value of net assets is referred to as equity method
goodwill.  Investment in unconsolidated affiliates on our accompanying
Consolidated Balance Sheet includes equity method goodwill of $185.6 million as
of December 31, 2008.
 
 Intangible Assets- Intangible
assets primarily relate to contracts acquired through the acquisition of the
natural gas liquids businesses by ONEOK Partners from ONEOK, which are being
amortized over an aggregate weighted-average period of 40 years.
 
 At
December 31, 2008, total intangible assets of $435.4 million
include:
 ·
              gross
      intangible assets related to ONEOK Partners of $306.6 million less $26.8
      million of accumulated amortization
and
 ·
              $155.6
      million related to our investment in ONEOK
  Partners.
 
 G.         CREDIT
FACILITIES
 
 ONEOK
Partners is required to comply with certain financial, operational and legal
covenants under its Partnership Credit Agreement.  Among other things,
these requirements include maintaining a ratio of indebtedness to adjusted
EBITDA (EBITDA plus minority interest in income of consolidated subsidiaries,
distributions received from investments and EBITDA related to any approved
capital projects, less equity earnings from investments and allowance for equity
funds used during construction ) of no more than 5 to 1.  If ONEOK
Partners consummates one or more acquisitions in which the aggregate purchase
price is $25 million or more, the allowable ratio of indebtedness to adjusted
EBITDA will be increased to 5.5 to 1 for the three calendar quarters following
the acquisition.
 
 Upon
breach of any covenant in the Partnership Credit Agreement, amounts outstanding
under such agreement may become immediately due and payable.  At
December 31, 2008, ONEOK Partners’ ratio of indebtedness to adjusted EBITDA was
4.1 to 1, and ONEOK Partners was in compliance with all covenants under its
Partnership Credit Agreement.
 
 The
average interest rate of borrowings under this agreement was 4.22 percent at
December 31, 2008.  ONEOK Partners had $870 million of borrowings
outstanding and $130 million available under its Partnership Credit Agreement at
December 31, 2008.
  The
Partnership Credit Agreement expires March 2012 and includes $870 million in
borrowings classified as short-term in nature at December 31, 2008, due to our
intention to repay such amounts during 2009.  We anticipate that our
cash flow generated from operations and ability to obtain financing will enable
us to repay these borrowings.
 ONEOK
Partners has an outstanding $25 million letter of credit issued by Royal Bank of
Canada, which is used for counterparty credit support.
 
 ONEOK
Partners also has a $15 million Senior Unsecured Letter of Credit Facility and
Reimbursement Agreement with Wells Fargo Bank, N.A., of which $12 million is
being used, and an agreement with Royal Bank of Canada, pursuant to which a $12
million letter of credit was issued.  Both agreements are used to
support various permits required by the Kansas Department of Health and
Environment for ONEOK Partners’ ongoing business in Kansas.
  - 10
-
  H.         LONG-TERM
DEBT
 
 The
following table sets forth our long-term debt for the period
indicated.  All notes are senior unsecured obligations, ranking
equally in right of payment with all of our existing and future unsecured senior
indebtedness.
 
 December
      31, 2008(Thousands
      of dollars)ONEOK
      Partners:$250,000
      at 8.875% due 2010
                                                      
                                                      
                                                      $
                                                      250,000$225,000
      at 7.10% due 2011
                                                      
                                                      
                                                      225,000$350,000
      at 5.90% due 2012
                                                      
                                                      
                                                      350,000$450,000
      at 6.15% due 2016
                                                      
                                                      
                                                      450,000$600,000
      at 6.65% due 2036
                                                      
                                                      
                                                      600,000$600,000
      at 6.85% due 2037
                                                      
                                                      
                                                      600,0002,475,000Guardian
      Pipeline, L.L.C.:Average
      7.85% due 2022
                                                      
                                                      
                                                      121,711Total
      long-term notes payable
                                                      
                                                      
                                                      2,596,711Unamortized
      portion of terminated swaps
                                                      
                                                      
                                                      8,414Unamortized
      debt premium
                                                      
                                                      
                                                      (3,685
                                                      )Current
      maturities
                                                      
                                                      
                                                      (11,931
                                                      )Long-term
      debt
                                                      
                                                      
                                                      $
                                                      2,589,509
 
 ONEOK
Partners may redeem the 2037 Notes, in whole or in part, at any time prior to
their maturity at a redemption price equal to the principal amount of the 2037
Notes, plus accrued and unpaid interest and a make-whole premium.  The
redemption price will never be less than 100 percent of the principal amount of
the 2037 Notes plus accrued and unpaid interest.  The 2037 Notes are
senior unsecured obligations, ranking equally in right of payment with all of
ONEOK Partners’ existing and future unsecured senior indebtedness, and
effectively junior to all of the existing debt and other liabilities of ONEOK
Partners’ non-guarantor subsidiaries.  The 2037 Notes are non-recourse
to us.
 
 The
aggregate maturities of long-term debt outstanding for years 2009 through 2013
are shown below.
  ONEOK
                                  Partners
                                
                                Guardian
                                  Pipeline,
      L.L.C.
                                
                                Total(Millions
      of dollars)2009
                                
                                $
                                -
                                
                                $
                                11.9
                                
                                $
                                11.92010
                                
                                $
                                250.0
                                
                                $
                                11.9
                                
                                $
                                261.92011
                                
                                $
                                225.0
                                
                                $
                                11.9
                                
                                $
                                236.92012
                                
                                $
                                350.0
                                
                                $
                                11.1
                                
                                $
                                361.12013
                                
                                $
                                -
                                
                                $
                                7.7
                                
                                $
                                7.7
 
 Debt Covenants - The terms of
the 2037 Notes are governed by an indenture.  The indenture does not
limit the aggregate principal amount of debt securities that may be issued and
provides that debt securities may be issued from time to time in one or more
additional series.  The indenture contains covenants including, among
other provisions, limitations on ONEOK Partners’ ability to place liens on its
property or assets and sell and lease back its property.
 
 The $250
million and $225 million senior notes, due 2010 and 2011, respectively, contain
provisions that require ONEOK Partners to offer to repurchase the senior notes
at par value if its Moody’s Investor Service, Inc. (Moody’s) or Standard &
Poor’s Rating Group (S&P) credit rating falls below investment grade (Baa3
for Moody’s or BBB- for S&P) and the investment grade rating is not
reinstated within a period of 40 days.  Further, the indentures
governing the senior notes due 2010 and 2011 include an event of default upon
acceleration of other indebtedness of $25 million or more and the indentures
governing the senior notes due 2012, 2016, 2036 and 2037 include an event of
default upon the acceleration of other indebtedness of $100 million or more that
would be triggered by such an offer to repurchase.  Such an event of
default would entitle the trustee or the holders of 25 percent in aggregate
principal amount of the outstanding senior notes due 2010, 2011, 2012, 2016,
2036 and 2037 to declare those notes immediately due and payable in
full.
  - 11
-
  Debt Guarantee - The notes due
2012, 2016, 2036 and 2037 are fully and unconditionally guaranteed on a senior
unsecured basis by ONEOK Partners Intermediate Limited Partnership (Intermediate
Partnership), a wholly owned subsidiary of ONEOK Partners.  The
guarantee ranks equally in right of payment to all of the Intermediate
Partnership’s existing and future unsecured senior
indebtedness.  ONEOK Partners has no significant assets or operations
other than its investment in its wholly owned subsidiary, the Intermediate
Partnership, which is also consolidated.  The Intermediate Partnership
holds partnership interests and the equity in ONEOK Partners’ subsidiaries as
well as a 50 percent interest in Northern Border Pipeline Company (Northern
Border Pipeline).
 
 The
Northern Border Pipeline partnership agreement provides that distributions to
Northern Border Pipeline’s partners are to be made on a pro rata basis according
to each partner’s percentage interest.  The Northern Border Pipeline
Management Committee determines the amount and timing of such
distributions.  Any changes to, or suspension of, the cash
distribution policy of Northern Border Pipeline requires the unanimous approval
of the Northern Border Pipeline Management Committee.  Cash
distributions are equal to 100 percent of distributable cash flow as determined
from Northern Border Pipeline’s financial statements based upon earnings before
interest, taxes, depreciation and amortization less interest expense and
maintenance capital expenditures.  Loans or other advances from
Northern Border Pipeline to its partners or affiliates are prohibited under its
credit agreement.  The Northern Border Pipeline Management Committee
has adopted a cash distribution policy related to financial ratio targets and
capital contributions.  The cash distribution policy defines minimum
equity-to- total-capitalization ratios to be used by the Northern Border
Pipeline Management Committee to establish the timing and amount of required
capital contributions.  In addition, any shortfall due to the inability to
refinance maturing debt will be funded by capital contributions.  See
Notes I and K for discussion of ONEOK Partners’ investment in Northern Border
Pipeline.
 
 Guardian Pipeline, L.L.C. Senior
Notes - These notes were issued under a master shelf agreement with
certain financial institutions.  Principal payments are due annually
through 2022.  Interest rates on the $121.7 million in notes
outstanding at December 31, 2008, range from 7.61 percent to 8.27 percent, with
an average rate of 7.85 percent.  Guardian Pipeline, L.L.C.’s senior
notes contain financial covenants that require the maintenance of a ratio of (i)
EBITDAR (net income plus interest expense, income taxes, operating lease expense
and depreciation and amortization) to fixed charges (interest expense plus
operating lease expense) of not less than 1.5 to 1, and (ii) total indebtedness
to EBITDAR of not greater than 5.75 to 1.  Upon any breach of these
covenants, all amounts outstanding under the master shelf agreement may become
due and payable immediately.  At December 31, 2008, Guardian Pipeline,
L.L.C.’s EBITDAR to fixed charges ratio was 4.95 to 1, the ratio of indebtedness
to EBITDAR was 3.34 to 1, and Guardian Pipeline, L.L.C. was in compliance with
its financial covenants.
 
 I.         COMMITMENTS
AND CONTINGENCIES
 
 Operating Leases-ONEOK Partners’ future
minimum lease payments under non-cancelable operating leases on a gas processing
plant, storage contracts, office space, pipeline equipment, rights-of-way and
vehicles are shown in the table below.
 
 (Millions
      of dollars)2009
                              
                              $
                              18.42010
                              
                              $
                              16.02011
                              
                              $
                              15.52012
                              
                              $
                              8.82013
                              
                              $
                              2.1
 
 Firm Transportation Obligations and
Other Commitments- ONEOK Partners has firm transportation agreements
with Fort Union Gas Gathering, L.L.C. and Lost Creek Gathering Company,
L.L.C.  The Fort Union Gas Gathering, L.L.C. agreement expires in
November 2009, and the Lost Creek Gathering Company, L.L.C. agreement expires in
2010.  Under these agreements, ONEOK Partners must make specified
minimum payments to Fort Union Gas Gathering, L.L.C. and Lost Creek Gathering
Company, L.L.C. each month.  At December 31, 2008, the estimated
aggregate amounts of such required future payments were $11.1 million for 2009
and $3.7 million for 2010.
 
 Investment in Northern Border
Pipeline - Northern Border Pipeline anticipates an equity contribution of
approximately $85 million that will be required of its partners in 2009, of
which ONEOK Partners’ share will be approximately $43 million for its 50 percent
equity interest.
 
 Environmental Liabilities-ONEOK
Partners is subject to multiple environmental, historical and wildlife
preservation laws and regulations affecting many aspects of its present and
future operations.  Regulated activities include those involving air
emissions, stormwater, wastewater discharges, handling and disposal of solid and
hazardous wastes, hazardous materials transportation, and pipeline and facility
construction.  These laws and regulations require ONEOK Partners to
obtain and
  - 12
-
  comply
with a wide variety of environmental clearances, registrations, licenses,
permits and other approvals.  Failure to comply with these laws,
regulations, permits and licenses may expose ONEOK Partners to fines, penalties
and/or interruptions in its operations that could be material to its results of
operations.  If a leak or spill of hazardous substances or petroleum
products occurs from its lines or facilities, in the process of transporting
natural gas, natural gas liquids or refined products, or at any facility that it
owns, operates or otherwise uses, it could be held jointly and severally liable
for all resulting liabilities, including investigation and clean-up costs, which
could materially affect 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 require unexpected capital expenditures at
its facilities.  We cannot assure that existing environmental
regulations will not be revised or that new regulations will not be adopted or
become applicable to ONEOK Partners.  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 a material adverse effect on ONEOK Partners’ business and
financial condition.
 
 Legal Proceedings- ONEOK
Partners is a party to various litigation matters and claims that are in the
normal course of its operations.  While the results of litigation and
claims cannot be predicted with certainty, ONEOK Partners believes the final
outcome of such matters will not have a material adverse effect on its financial
position or liquidity.
 
 FERC Matter- As a result of a
transaction that was brought to the attention of one of our affiliates by a
third party, ONEOK Partners conducted an internal review of transactions that
may have violated FERC natural gas capacity release rules or related rules and
determined that there were transactions that should be disclosed to the
FERC.  ONEOK Partners notified the FERC of this review and filed a
report with the FERC regarding these transactions in March
2008.  ONEOK Partners cooperated fully with the FERC in its
investigation of this matter and have taken steps to better ensure that current
and future transactions comply with applicable FERC regulations by implementing
a compliance plan dealing with capacity release.  ONEOK Partners,
along with ONEOK, entered into a global settlement with the FERC to resolve this
matter and other FERC enforcement matters, which was approved by the FERC on
January 15, 2009.  The global settlement provides for a total civil
penalty of $4.5 million and approximately $2.2 million in disgorgement of
profits and interest.  ONEOK Partners was responsible for $1.7 million
in civil penalties, which was recorded as a liability on our Consolidated
Balance Sheet as of December 31, 2008, and the disgorgement of profits and
interests are the responsibility of ONEOK.  ONEOK Partners made the
required payments in January 2009.
 
 J.         INCOME
TAXES
 
 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
period indicated.
  December
      31, 2008(Thousands
      of dollars)Deferred
      tax assets:Net
      operating losses
                          
                          $
                          4,226Other
                          
                          
                          44Total
      deferred tax assets
                          
                          4,270Deferred
      tax liabilities:Excess
      of tax over book depreciation and depletion
                          
                          9,660Investment
      in partnerships
                          
                          60,579Employee
      benefits
                          
                          790Regulatory
      assets
                          
                          3,733Other
                          
                          
                          823Total
      deferred tax liabilities
                          
                          75,585Net
      deferred tax assets (liabilities)
                          
                          $
                          (71,315)
 
 At
December 31, 2008, we had approximately $4.2 million of tax benefits available
related to net operating loss carryforwards, which will expire between the years
2022 and 2027.  We believe that it is more likely than not that the
tax benefits of the net operating loss carryforwards will be utilized prior to
their expiration; therefore, no valuation allowance is necessary.
 
 ONEOK
Partners GP’s income tax liabilities have been calculated on a stand-alone
basis.
  - 13
-
  K.         UNCONSOLIDATED
AFFILIATES
 
 Investmentsin Unconsolidated Affiliates
- The following table sets forth our investments in unconsolidated affiliates
for the period indicated.
 
 Net
      Ownership
                                      
                                      
                                      December
      31,Interest
                                      
                                      
                                      2008(Thousands
      of dollars)Northern
      Border Pipeline Company
                                      
                                      
                                      50%
                                      
                                      
                                      $
                                      392,601Bighorn
      Gas Gathering, L.L.C.
                                      
                                      
                                      49%
                                      
                                      
                                      
                                      97,289Fort
      Union Gas Gathering, L.L.C.
                                      
                                      
                                      37%
                                      
                                      
                                      
                                      108,642Lost
      Creek Gathering Company, L.L.C. (a)
                                      
                                      
                                      35%
                                      
                                      
                                      
                                      77,773Other
                                      
                                      Various
                                      
                                      
                                      
                                      79,187Investments
      in unconsolidated affiliates
                                      
                                      
                                      
                                      
                                      
                                      $
                                      755,492
                                      
                                      (b)(a)
      - ONEOK Partners is entitled to receive an incentive allocation of
      earnings from third-party gathering services revenue recognized by Lost
      Creek Gathering Company, L.L.C. As a result of the incentive, ONEOK
      Partners' share of Lost Creek Gathering Company L.L.C.'s income exceeds
      its 35 percent ownership interest.(b)
      - Equity method goodwill (Note F) was $185.6 million at December 31,
      2008.
 
 Unconsolidated Affiliates Financial
Information- A summarized combined balance sheet for our
unconsolidated affiliates is presented below.
 
 December
      31, 2008(Thousands
      of dollars)Balance
      SheetCurrent
      assets
                      
                      $
                      106,833Property,
      plant and equipment, net
                      
                      
                      1,777,350Other
      noncurrent assets
                      
                      
                      27,547Current
      liabilities
                      
                      
                      279,996Long-term
      debt
                      
                      
                      543,894Other
      noncurrent liabilities
                      
                      
                      14,360Accumulated
      other comprehensive income (loss)
                      
                      
                      (5,708
                      )Owners'
      equity
                      
                      
                      1,079,188
 
 L.         RELATED-PARTY
TRANSACTIONS
 
 Accounts
receivable due to parent are recorded on the same basis as transactions with
unaffiliated customers.  A portion of ONEOK Partners’ receivables are
due from ONEOK and its subsidiaries, which utilize both transportation and
storage services.  In addition, ONEOK Partners has receivables
relating to the sale of natural gas to ONEOK and its subsidiaries.
 
 ONEOK
Partners has certain contractual rights to the Bushton, Kansas natural gas
processing plant (Bushton Plant) that is leased by a subsidiary of ONEOK, ONEOK
Bushton Processing, Inc. (OBPI).  ONEOK Partners’ Processing and
Services Agreement with ONEOK and OBPI sets out the terms by which OBPI provides
services at the Bushton Plant through 2012.  ONEOK Partners has
contracted for all of the capacity of the Bushton Plant from OBPI.  In
exchange, it pays OBPI for all direct costs and expenses of the Bushton Plant,
including reimbursement of a portion of OBPI’s obligations under equipment
leases covering the Bushton Plant.
 
 ONEOK and
its affiliates provide a variety of services to us, including cash management
and financing services, employee benefits provided through ONEOK’s benefit
plans, administrative services, insurance and office space leased in ONEOK’s
headquarters building and other field locations.
 
 Our cash
management function, including cash receipts and disbursements, was performed by
ONEOK and these amounts are included in due to parent in our Consolidated
Balance Sheet.  The net amount due to ONEOK was approximately $64.5
million at December 31, 2008, as reflected in our Consolidated Balance
Sheet.  Amounts payable to ONEOK have no stated maturity date or
interest rate.  As of December 31, 2008, ONEOK represented the balance
due to parent would not be called
  - 14
-
  within a
twelve-month period.  As a result, the amount classified as due to
parent has been classified as a non-current liability in our accompanying
Consolidated Balance Sheet.  The interest rate was calculated
periodically based upon ONEOK’s cost of capital.
 
 ONEOK
Energy Services Company, L.P. (OES), a subsidiary of ONEOK, enters into
commodity derivative contracts at the direction of and on behalf of ONEOK
Partners.  ONEOK Partners has an indemnification agreement with OES that
indemnifies and holds OES harmless from any liability OES may incur solely as a
result of entering into financial hedges on our behalf.  See Note E for a
discussion of our derivative instruments and hedging activities.
 
 Equity Issuance - In March
2008, ONEOK Partners completed a public offering of 2.5 million common units at
$58.10 per common unit, generating net proceeds of approximately $140.4 million
after deducting underwriting discounts but before offering
expenses.  In addition, ONEOK Partners sold 5.4 million common units
to ONEOK in a private placement, generating proceeds of approximately $303.2
million.  In conjunction with the public offering of common units and
the private placement, we contributed $9.4 million in order to maintain our 2
percent general partner interest in ONEOK Partners.
 
 In April
2008, ONEOK Partners sold an additional 128,873 common units at $58.10 per
common unit to the underwriters of the public offering upon the partial exercise
of their option to purchase additional common units to cover
over-allotments.  ONEOK Partners received net proceeds of
approximately $7.2 million from the sale of the common units after deducting
underwriting discounts but before offering expenses.  In conjunction
with the partial exercise by the underwriters, we contributed $0.2 million in
order to maintain our 2 percent general partner interest in ONEOK
Partners.
 
 ONEOK
Partners used a portion of the proceeds from the sale of common units and our
contributions to repay borrowings under its Partnership Credit
Agreement.
 
 M.         ONEOK
PARTNERS CASH DISTRIBUTION AND GENERAL PARTNER INTEREST
 
 Cash Distributions - Under the
ONEOK Partners’ partnership agreement, distributions are made to the partners
with respect to each calendar quarter in an amount equal to 100 percent of
available cash within 45 days following the end of each
quarter.  ONEOK Partners’ available cash generally consists of all
cash receipts adjusted for cash disbursements and net changes to cash
reserves.  ONEOK Partners’ available cash will generally be
distributed 98 percent to limited partners and 2 percent to us as the general
partner.  As an incentive, our percentage interest in quarterly
distributions is increased after certain specified target levels are
met.  Under the incentive distribution provisions, we as the general
partner receive:
 ·
              15
      percent of amounts distributed in excess of $0.605 per
    unit,
 ·
              25
      percent of amounts distributed in excess of $0.715 per unit,
      and
 ·
              50
      percent of amounts distributed in excess of $0.935 per
    unit.
 
 ONEOK
Partners’ income is allocated to the general and limited partners in accordance
with their respective partnership ownership percentages.  The effect
of any incremental income allocations for incentive distributions that are
allocated to us as the general partner is calculated after the income allocation
for our general partner partnership interest and before the income allocation to
the limited partners.
 
 General Partner Interest -
Under the ONEOK Partners’ partnership agreement, in conjunction with the
issuance of additional common units, we, as general partner, are required to
make equity contributions to ONEOK Partners in order to maintain a 2 percent
general partner interest.
  - 15
-