UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





XQuarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934


For the
quarterly period ended March 31, 2009


OR


___
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934


For the
transition period from __________ to __________.








Commission
file number   1-12202











ONEOK
PARTNERS, L.P.


(Exact
name of registrant as specified in its charter)








Delaware
            93-1120873(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer Identification No.)100
      West Fifth Street, Tulsa, OK
            74103(Address
      of principal executive offices)
            (Zip
      Code)








Registrant’s
telephone number, including area code   (918) 588-7000








Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes X  No
__





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every


Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes __No __





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.


Large
accelerated filer X             Accelerated
filer
__             Non-accelerated
filer
__             Smaller
reporting company__





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes __ No
X





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.




Class
                          
                          Outstanding
      at April 30, 2009Common
      units
                          
                          
                          54,426,087
      unitsClass
      B units
                          
                          
                          36,494,126
      units







ONEOKPARTNERS, L.P.


QUARTERLY
REPORT ON FORM 10-Q





Part
      I.
            Financial
      Information
            Page
      No.Item
      1.
            Financial Statements (Unaudited)Consolidated Statements of Income - Three Months Ended
      March 31, 2009 and 2008
            5Consolidated Balance Sheets - March 31, 2009 and December
      31, 2008
            6Consolidated Statements of Cash Flows - Three Months
      Ended March 31, 2009 and 2008
            7Consolidated Statement of Changes in Partners’ Equity
      -  Three Months Ended March 31, 2009
            8-9Consolidated Statements of Comprehensive Income -
      Three Months Ended March 31, 2009 and 2008
            10Notes to Consolidated Financial Statements
            11-21Item
      2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            22-39Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            39Item
      4.
            Controls and Procedures
            40Part
      II.
            Other
      InformationItem
      1.
            Legal Proceedings
            40Item
      1A.
            Risk Factors
            40Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            40Item
      3.
            Defaults Upon Senior Securities
            40Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            40Item
      5.
            Other Information
            40Item
      6.
            Exhibits
            41Signature
            
            42


As used
in this Quarterly Report on Form 10-Q, references to “we,” “our,” “us” or the
“Partnership” refer to ONEOK Partners, L.P., its subsidiary, ONEOK Partners
Intermediate Limited Partnership and its subsidiaries, unless the context
indicates otherwise.





The
statements in this Quarterly Report on Form 10-Q that are not historical
information, including statements concerning plans and objectives of management
for future operations, economic performance or related assumptions, are
forward-looking statements.  Forward-looking statements may include
words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”
“believe,” “should,” “goal,” “forecast,” “could,” “may,” “continue,” “might,”
“potential,” “scheduled” and other words and terms of similar
meaning.  Although we believe that our expectations regarding future
events are based on reasonable assumptions, we can give no assurance that such
expectations and assumptions will be achieved.  Important factors that
could cause actual results to differ materially from those in the
forward-looking statements are described under Part I, Item 2, Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
“Forward-Looking Statements” in this Quarterly Report on Form 10-Q and under
Part 1, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year
ended December 31, 2008.


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GLOSSARY


The
abbreviations, acronyms and industry terminology used in this Quarterly Report
on Form 10-Q are defined as follows:





AFUDC
            Allowance
      for funds used during construction


ARB
            Accounting
      Research Bulletin


Bbl
            Barrels,
      1 barrel is equivalent to 42 United States
  gallons


Bbl/d
            Barrels
      per day


BBtu/d
            Billion
      British thermal units per day


Bcf
            Billion
      cubic feet


Btu
            British
      thermal units, a measure of the amount of heat required to raise the
      temperature of one pound of water one degree
  Fahrenheit


Bushton
      Plant
            Bushton
      Gas Processing Plant


EBITDA
            Earnings
      before interest, taxes, depreciation and
  amortization


EITF
            Emerging
      Issues Task Force


Exchange
      Act
            Securities
      Exchange Act of 1934, as amended


FASB
            Financial
      Accounting Standards Board


FERC
            Federal
      Energy Regulatory Commission


FIN
            FASB
      Interpretation


Fort
      Union Gas Gathering
            Fort
      Union Gas Gathering, L.L.C.


FSP
            FASB
      Staff Position


GAAP
            Accounting
      principles generally accepted in the United States of
    America


Guardian
      Pipeline
            Guardian
      Pipeline, L.L.C.


KCC
            Kansas
      Corporation Commission


KDHE
            Kansas
      Department of Health and
Environment


LIBOR
            London
      Interbank Offered Rate


MBbl
            Thousand
      barrels


MBbl/d
            Thousand
      barrels per day


Midwestern
      Gas Transmission
            Midwestern
      Gas Transmission Company


MMBtu
            Million
      British thermal units


MMBtu/d
            Million
      British thermal units per day


MMcf/d
            Million
      cubic feet per day


Moody’s
            Moody’s
      Investors Service, Inc.


NBP
      Services
            NBP
      Services, LLC, a wholly owned subsidiary of
  ONEOK


NGL
      products
            Marketable
      natural gas liquid purity products, such as ethane, ethane/propane mix,
      propane, iso-butane, normal butane and natural  
      gasoline


NGL(s)
            Natural
      gas liquid(s)


Northern
      Border Pipeline
            Northern
      Border Pipeline Company


NYMEX
            New
      York Mercantile Exchange


OBPI
            ONEOK
      Bushton Processing Inc.


OCC
            Oklahoma
      Corporation Commission


OkTex
      Pipeline
            OkTex
      Pipeline Company, L.L.C.


ONEOK
            ONEOK,
      Inc.


ONEOK
      Partners GP
            ONEOK
      Partners GP, L.L.C., a wholly owned subsidiary of ONEOK and our sole
      general partner


OPIS
            Oil
      Price Information Service





Overland
      Pass Pipeline Company
              Overland
      Pass Pipeline Company LLCPartnership
      Agreement
              Third
      Amended and Restated Agreement of Limited Partnership of ONEOK Partners,
      L.P., as amendedPOP
              Percent
      of Proceeds


S&P
            Standard
      & Poor’s Rating Group


SEC
            Securities
      and Exchange Commission


Statement
            Statement
      of Financial Accounting Standards





AVAILABLE
INFORMATION





We make
available on our Web site copies of our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports
filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange
Act and reports of holdings of our securities filed by our officers and
directors under Section 16 of the Exchange Act as soon as reasonably practicable
after filing such material electronically or otherwise furnishing it to the
SEC.  Our Web site and any contents thereof are not incorporated by
reference into this report.


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intentionally left blank.











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PART
      I - FINANCIAL INFORMATIONITEM1.  FINANCIAL
      INFORMATIONONEOK
      Partners, L.P. and SubsidiariesCONSOLIDATEDSTATEMENTS OF INCOMEThree
      Months EndedMarch
      31,(Unaudited)
                          
                          2009
                          
                          
                          2008(Thousands
      of dollars, except per unit amounts)Revenues
                          
                          $
                          1,250,865
                          
                          
                          $
                          2,059,035Cost
      of sales and fuel
                          
                          
                          997,324
                          
                          
                          
                          1,790,510Net
      Margin
                          
                          
                          253,541
                          
                          
                          
                          268,525Operating
      ExpensesOperations
      and maintenance
                          
                          
                          77,679
                          
                          
                          
                          76,941Depreciation
      and amortization
                          
                          
                          39,940
                          
                          
                          
                          29,942General
      taxes
                          
                          
                          11,767
                          
                          
                          
                          11,141Total
      Operating Expenses
                          
                          
                          129,386
                          
                          
                          
                          118,024Gain
      (Loss) on Sale of Assets
                          
                          
                          664
                          
                          
                          
                          31Operating
      Income
                          
                          
                          124,819
                          
                          
                          
                          150,532Equity
      earnings from investments (Note J)
                          
                          
                          21,222
                          
                          
                          
                          27,783Allowance
      for equity funds used during construction
                          
                          
                          9,003
                          
                          
                          
                          8,496Other
      income
                          
                          
                          391
                          
                          
                          
                          2,058Other
      expense
                          
                          
                          (2,046
                          )
                          
                          
                          (2,131
                          )Interest
      expense
                          
                          
                          (50,908
                          )
                          
                          
                          (38,529
                          )Income
      before Income Taxes
                          
                          
                          102,481
                          
                          
                          
                          148,209Income
      taxes
                          
                          
                          (2,871
                          )
                          
                          
                          (3,068
                          )Net
      Income
                          
                          
                          99,610
                          
                          
                          
                          145,141Net
      income attributable to noncontrolling interests
                          
                          
                          (19
                          )
                          
                          
                          (123
                          )Net
      Income Attributable to ONEOK Partners, L.P.
                          
                          $
                          99,591
                          
                          
                          $
                          145,018Limited
      partners’ interest in net income:Net
      income attributable to ONEOK Partners, L.P.
                          
                          $
                          99,591
                          
                          
                          $
                          145,018General
      partner’s interest in net income
                          
                          
                          (22,312
                          )
                          
                          
                          (19,705
                          )Limited
      Partners’ Interest in Net Income
                          
                          $
                          77,279
                          
                          
                          $
                          125,313Limited
      partners’ net income per unit (Note K)
                          
                          $
                          0.85
                          
                          
                          $
                          1.48Number
      of Units Used in Computation (Thousands)
                          
                          
                          90,920
                          
                          
                          
                          84,454See
      accompanying Notes to Consolidated Financial Statements.


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ONEOK
      Partners, L.P. and SubsidiariesCONSOLIDATEDBALANCE SHEETSMarch
      31,
                                
                                
                                December
      31,(Unaudited)
                                
                                2009
                                
                                
                                2008Assets
                                
                                (Thousands
      of dollars)Current
      AssetsCash
      and cash equivalents
                                
                                $
                                1,129
                                
                                
                                $
                                177,635Accounts
      receivable, net
                                
                                
                                305,958
                                
                                
                                
                                317,182Affiliate
      receivables
                                
                                
                                20,896
                                
                                
                                
                                25,776Gas
      and natural gas liquids in storage
                                
                                
                                145,975
                                
                                
                                
                                190,616Commodity
      exchanges and imbalances
                                
                                
                                51,604
                                
                                
                                
                                55,086Derivative
      financial instruments (Notes B and C)
                                
                                
                                45,619
                                
                                
                                
                                63,780Materials
      and supplies
                                
                                
                                31,221
                                
                                
                                
                                22,956Other
      current assets
                                
                                
                                3,470
                                
                                
                                
                                5,220Total
      Current Assets
                                
                                
                                605,872
                                
                                
                                
                                858,251Property,
      Plant and EquipmentProperty,
      plant and equipment
                                
                                
                                5,981,885
                                
                                
                                
                                5,808,679Accumulated
      depreciation and amortization
                                
                                
                                903,282
                                
                                
                                
                                875,279Net
      Property, Plant and Equipment (Note H)
                                
                                
                                5,078,603
                                
                                
                                
                                4,933,400Investments
      and Other AssetsInvestments
      in unconsolidated affiliates
                                
                                
                                747,990
                                
                                
                                
                                755,492Goodwill
      and intangible assets
                                
                                
                                674,620
                                
                                
                                
                                676,536Other
      assets
                                
                                
                                37,819
                                
                                
                                
                                30,593Total
      Investments and Other Assets
                                
                                
                                1,460,429
                                
                                
                                
                                1,462,621Total
      Assets
                                
                                $
                                7,144,904
                                
                                
                                $
                                7,254,272Liabilities
      and Partners’ EquityCurrent
      LiabilitiesCurrent
      maturities of long-term debt
                                
                                $
                                11,931
                                
                                
                                $
                                11,931Notes
      payable (Note E)
                                
                                
                                436,700
                                
                                
                                
                                870,000Accounts
      payable
                                
                                
                                418,814
                                
                                
                                
                                496,763Affiliate
      payables
                                
                                
                                18,372
                                
                                
                                
                                23,333Commodity
      exchanges and imbalances
                                
                                
                                128,605
                                
                                
                                
                                191,165Accrued
      interest
                                
                                
                                77,659
                                
                                
                                
                                44,104Other
      current liabilities
                                
                                
                                36,249
                                
                                
                                
                                56,728Total
      Current Liabilities
                                
                                
                                1,128,330
                                
                                
                                
                                1,694,024Long-term
      Debt, excluding current maturities (Note F)
                                
                                
                                3,083,876
                                
                                
                                
                                2,589,509Deferred
      Credits and Other Liabilities
                                
                                
                                57,596
                                
                                
                                
                                54,773Commitments
      and Contingencies (Note G)Partners’
      EquityGeneral
      partner
                                
                                
                                77,119
                                
                                
                                
                                77,546Common
      units: 54,426,087 units issued and
                                  outstanding
      at March 31, 2009 and December 31, 2008
                                
                                
                                1,348,538
                                
                                
                                
                                1,361,058Class
      B units: 36,494,126 units issued and outstanding at
                                  March
      31, 2009 and December 31, 2008
                                
                                
                                1,398,622
                                
                                
                                
                                1,407,016Accumulated
      other comprehensive income (Note D)
                                
                                
                                45,206
                                
                                
                                
                                64,405Total
      ONEOK Partners, L.P. Partners’ Equity
                                
                                
                                2,869,485
                                
                                
                                
                                2,910,025Noncontrolling
      Interests in Consolidated Subsidiaries
                                
                                
                                5,617
                                
                                
                                
                                5,941Total
      Partners’ Equity
                                
                                
                                2,875,102
                                
                                
                                
                                2,915,966Total
      Liabilities and Partners’ Equity
                                
                                $
                                7,144,904
                                
                                
                                $
                                7,254,272See
      accompanying Notes to Consolidated Financial Statements.


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ONEOK
      Partners, L.P. and SubsidiariesCONSOLIDATEDSTATEMENTS OF CASH FLOWS
                      
                      Three
      Months EndedMarch
      31,(Unaudited)
                      
                      2009
                      
                      
                      2008(Thousands
      of dollars)Operating
      ActivitiesNet
      income
                      
                      $
                      99,610
                      
                      
                      $
                      145,141Depreciation
      and amortization
                      
                      
                      39,940
                      
                      
                      
                      29,942Allowance
      for equity funds used during construction
                      
                      
                      (9,003
                      )
                      
                      
                      (8,496
                      )Gain
      on sale of assets
                      
                      
                      (664
                      )
                      
                      
                      (31
                      )Equity
      earnings from investments
                      
                      
                      (21,222
                      )
                      
                      
                      (27,783
                      )Distributions
      received from unconsolidated affiliates
                      
                      
                      25,187
                      
                      
                      
                      24,040Changes
      in assets and liabilities (net of acquisition and disposition
      effects):Accounts
      receivable
                      
                      
                      11,224
                      
                      
                      
                      81,852Affiliate
      receivables
                      
                      
                      4,880
                      
                      
                      
                      (11,277
                      )Gas
      and natural gas liquids in storage
                      
                      
                      44,641
                      
                      
                      
                      43,696Derivative
      financial instruments
                      
                      
                      (1,038
                      )
                      
                      
                      (5,709
                      )Materials
      and supplies
                      
                      
                      (8,265
                      )
                      
                      
                      (458
                      )Accounts
      payable
                      
                      
                      (65,065
                      )
                      
                      
                      (34,232
                      )Affiliate
      payables
                      
                      
                      (4,961
                      )
                      
                      
                      11,855Commodity
      exchanges and imbalances, net
                      
                      
                      (59,078
                      )
                      
                      
                      (27,038
                      )Accrued
      interest
                      
                      
                      33,555
                      
                      
                      
                      34,317Other
      assets and liabilities
                      
                      
                      (14,965
                      )
                      
                      
                      (13,746
                      )Cash
      Provided by Operating Activities
                      
                      
                      74,776
                      
                      
                      
                      242,073Investing
      ActivitiesChanges
      in investments in unconsolidated affiliates
                      
                      
                      3,362
                      
                      
                      
                      3,311Acquisitions
                      
                      
                      -
                      
                      
                      
                      2,450Capital
      expenditures (less allowance for equity funds used during
      construction)
                      
                      
                      (192,494
                      )
                      
                      
                      (267,058
                      )Proceeds
      from sale of assets
                      
                      
                      1,083
                      
                      
                      
                      72Cash
      Used in Investing Activities
                      
                      
                      (188,049
                      )
                      
                      
                      (261,225
                      )Financing
      ActivitiesCash
      distributions:General
      and limited partners
                      
                      
                      (120,932
                      )
                      
                      
                      (101,135
                      )Noncontrolling
      interests
                      
                      
                      (343
                      )
                      
                      
                      (74
                      )Borrowing
      (repayment) of notes payable, net
                      
                      
                      36,700
                      
                      
                      
                      (100,000
                      )Repayment
      of notes payable with maturities over 90 days
                      
                      
                      (470,000
                      )
                      
                      
                      -Issuance
      of long-term debt, net of discounts
                      
                      
                      498,325
                      
                      
                      
                      -Long-term
      debt financing costs
                      
                      
                      (4,000
                      )
                      
                      
                      -Issuance
      of common units, net of discounts
                      
                      
                      -
                      
                      
                      
                      443,579Contributions
      from general partner
                      
                      
                      -
                      
                      
                      
                      9,355Payment
      of long-term debt
                      
                      
                      (2,983
                      )
                      
                      
                      (2,981
                      )Cash
      Provided by (Used in) Financing Activities
                      
                      
                      (63,233
                      )
                      
                      
                      248,744Change
      in Cash and Cash Equivalents
                      
                      
                      (176,506
                      )
                      
                      
                      229,592Cash
      and Cash Equivalents at Beginning of Period
                      
                      
                      177,635
                      
                      
                      
                      3,213Cash
      and Cash Equivalents at End of Period
                      
                      $
                      1,129
                      
                      
                      $
                      232,805See
      accompanying Notes to Consolidated Financial Statements.


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ONEOK
      Partners, L.P. and SubsidiariesCONSOLIDATEDSTATEMENT OF CHANGES IN PARTNERS’
      EQUITYONEOK
      Partners, L.P. Partners’ EquityCommon
                                  Units
                                
                                
                                Class
      B
                                  Units
                                
                                
                                General
                                  Partner
                                
                                
                                Common
                                  Units(Unaudited)(Units)
                                
                                
                                (Thousands
      of dollars)December
      31, 2008
                                
                                
                                54,426,087
                                
                                
                                
                                36,494,126
                                
                                
                                $
                                77,546
                                
                                
                                $
                                1,361,058Net
      income
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                22,312
                                
                                
                                
                                46,260Other
      comprehensive income (loss) (Note D)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Distributions
      paid (Note K)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (22,739
                                )
                                
                                
                                (58,780
                                )March
      31, 2009
                                
                                
                                54,426,087
                                
                                
                                
                                36,494,126
                                
                                
                                $
                                77,119
                                
                                
                                $
                                1,348,538See
      accompanying Notes to Consolidated Financial Statements.


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ONEOK
      Partners, L.P. and SubsidiariesCONSOLIDATED
      STATEMENT OF CHANGES IN PARTNERS’ EQUITY(Continued)ONEOK
      Partners, L.P. Partners’ EquityNoncontrolling
      Interests in Consolidated SubsidiariesAccumulated
      Other Comprehensive Income (Loss)Total
      Partners’ EquityClass
      B
                              Units(Thousands
      of dollars)December
      31, 2008
                            
                            $
                            1,407,016
                            
                            
                            $
                            64,405
                            
                            
                            $
                            5,941
                            
                            
                            $
                            2,915,966Net
      income
                            
                            
                            31,019
                            
                            
                            
                            -
                            
                            
                            
                            19
                            
                            
                            
                            99,610Other
      comprehensive income (loss) (Note D)
                            
                            
                            -
                            
                            
                            
                            (19,199
                            )
                            
                            
                            -
                            
                            
                            
                            (19,199
                            )Distributions
      paid (Note K)
                            
                            
                            (39,413
                            )
                            
                            
                            -
                            
                            
                            
                            (343
                            )
                            
                            
                            (121,275
                            )March
      31, 2009
                            
                            $
                            1,398,622
                            
                            
                            $
                            45,206
                            
                            
                            $
                            5,617
                            
                            
                            $
                            2,875,102


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ONEOK
      Partners, L.P. and SubsidiariesCONSOLIDATEDSTATEMENTS OF COMPREHENSIVE
      INCOMEThree
      Months EndedMarch
      31,(Unaudited)
                      
                      2009
                      
                      
                      2008(Thousands
      of dollars)Net
      income
                      
                      $
                      99,610
                      
                      
                      $
                      145,141Other
      comprehensive income (loss) (Note D)
                      
                      
                      (19,199
                      )
                      
                      
                      1,749Comprehensive
      Income
                      
                      
                      80,411
                      
                      
                      
                      146,890Comprehensive
      income attributable to noncontrolling interests
                      
                      
                      19
                      
                      
                      
                      123Comprehensive
      Income Attributable to ONEOK Partners, L.P.
                      
                      $
                      80,392
                      
                      
                      $
                      146,767See
      accompanying Notes to Consolidated Financial Statements.




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ONEOK
Partners, L.P. and Subsidiaries


NOTESTO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





A.           SUMMARY
OF ACCOUNTING POLICIES





Our
accompanying unaudited consolidated financial statements have been prepared in
accordance with GAAP and reflect all adjustments that, in our opinion, are
necessary for a fair presentation of the results for the interim periods
presented.  All such adjustments are of a normal recurring
nature.  The 2008 year-end consolidated balance sheet data was derived
from audited financial statements but does not include all disclosures required
by GAAP.  These unaudited consolidated financial statements should be
read in conjunction with our audited consolidated financial statements in our
Annual Report on Form 10-K for the year ended December 31, 2008.





Our
accounting policies are consistent with those disclosed in Note A of the Notes
to Consolidated Financial Statements in our Annual Report on Form 10-K for the
year ended December 31, 2008.  The following recently issued
accounting pronouncements will affect our consolidated financial statements
during 2009.





Fair Value Measurements - As
of January 1, 2009, we have applied the provisions of Statement 157, “Fair Value
Measurements,” to assets and liabilities that are measured at fair value on a
nonrecurring basis subsequent to initial recognition, and the impact was not
material.  See Note B for disclosures of our fair value
measurements.





Noncontrolling Interests - In
December 2007, the FASB issued Statement 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51,” which requires
noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity.  Statement 160 was effective for
our year beginning January 1, 2009, and required retroactive adoption of the
presentation and disclosure requirements for existing minority
interests.





Derivative Instruments and Hedging
Activities- In March 2008, the FASB issued 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, financial performance and cash
flows.  Statement 161 was effective for our year beginning January 1,
2009, and has been applied prospectively.  See Note C for disclosures
of our derivative instruments and hedging activities.





Limited Partners’ Net Income Per
Unit - EITF 07-4, “Application of the Two-Class Method under FASB
Statement No. 128 to Master Limited Partnerships,” was effective for our year
beginning January 1, 2009, and required retrospective application. 
Application of EITF 07-4 had no impact on our limited partners’ net income per
unit for the three months ended March 31, 2009 and 2008.  See Note K
for a discussion of our calculation of limited partners’ net income per
unit.





Interim Disclosures about Fair
Value - In April 2009, the FASB issued FSP 107-1 and Accounting
Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value
of Financial Instruments,” which amends Statement 107, “Disclosures about Fair
Value of Financial Instruments,” and also amends APB Opinion No. 28, “Interim
Financial Reporting.”  FSP 107-1 and APB 28-1 require disclosures of
fair value of financial instruments for interim reporting periods and will be
effective for our June 30, 2009, Quarterly Report on Form 10-Q.





Reclassifications





Certain
amounts in our consolidated financial statements have been reclassified to
conform to the 2009 presentation.  These reclassifications did not
impact previously reported net income.




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B.           FAIR
VALUE MEASUREMENTS





Refer to
Notes A and C of the Notes to Consolidated Financial Statements in our Annual
Report on Form 10-K for the year ended December 31, 2008, for a discussion of
our fair value measurements and the fair value hierarchy.





Recurring Fair Value
Measurements - The following tables set forth our recurring fair value
measurements for the periods indicated.





March
      31, 2009Level
      1
                            
                            
                            Level
      2
                            
                            
                            Level
      3
                            
                            
                            Total(Thousands
      of dollars)DerivativesAssets
      (a)
                            
                            $
                            -
                            
                            
                            $
                            19,793
                            
                            
                            $
                            25,995
                            
                            
                            $
                            45,788(a)
      - Included in derivative financial instruments and other assets on our
      Consolidated Balance Sheet.December
      31, 2008Level
      1
                            
                            
                            Level
      2
                            
                            
                            Level
      3
                            
                            
                            Total(Thousands
      of dollars)DerivativesAssets
      (a)
                            
                            $
                            -
                            
                            
                            $
                            26,131
                            
                            
                            $
                            37,649
                            
                            
                            $
                            63,780(a)
      - Included in derivative financial instruments on our Consolidated Balance
      Sheet.




At March
31, 2009, and December 31, 2008, we had no cash collateral held or posted under
our master netting arrangements.





In
accordance with Statement 157, we categorize derivatives for which fair value is
determined based on multiple inputs within a single level, based on the lowest
level input that is significant to the fair value measurement in its
entirety.





When our
fair value measurements that are based on NYMEX-settled prices are associated
with exchange-traded instruments, we classify 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.  Our 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 our Level 3 inputs, we utilize modeling techniques
using NYMEX-settled pricing data and historical correlations of NGL product
prices to crude oil.





The
following table sets forth a reconciliation of our Level 3 fair value
measurements for the periods indicated.




Three
      Months EndedMarch
      31,Derivatives
                        
                        2009
                        
                        
                        2008(Thousands
      of dollars)Net
      assets (liabilities) at beginning of period
                        
                        $
                        37,649
                        
                        
                        $
                        (16,400
                        )Total
      realized/unrealized gains (losses):Included
      in earnings (a)
                        
                        
                        1,104
                        
                        
                        
                        980Included
      in other comprehensive income (loss)
                        
                        
                        (12,758
                        )
                        
                        
                        5,034Net
      assets (liabilities) at end of period
                        
                        $
                        25,995
                        
                        
                        $
                        (10,386
                        )(a)
      - Included in revenues in our Consolidated Statements of
      Income.




There
were no material gains (losses) for the three months ended March 31, 2009 and
2008, included in earnings attributable to the change in unrealized gains
(losses) relating to assets and liabilities classified as Level 3 fair value
measurements still held as of the end of the period.





C.           RISK
MANAGEMENT AND HEDGING ACTIVITIES USING DERIVATIVES





Risk Management Activities-
We are sensitive to changes in natural gas, condensate and NGL prices,
principally as a result of contractual terms under which these commodities are
processed, purchased and sold.  We use physical forward sales and
financial derivatives to secure a certain price for a portion of our natural
gas, condensate and NGL products.  We follow established policies and
procedures to assess risk and approve, monitor and report our risk management
activities.  We have not used these instruments for trading
purposes.  We are also subject to the risk of interest rate
fluctuation in the normal course of business.


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Commodity price risk
- Commodity price risk refers to the risk of loss in cash flows and future
earnings arising from adverse changes in the price of natural gas, NGLs and
condensate.  We use the following commodity derivative instruments to
mitigate the commodity price risk associated with a portion of the forecasted
sales of these commodities.


·
            Futures
      contracts - Standardized exchange-traded contracts to purchase
      or sell natural gas and crude oil at a specified price, requiring delivery
      on or settlement through the sale or purchase of an offsetting contract by
      a specified future date under the provisions of exchange
      regulations.


·
            Forward
      contracts - Commitments to purchase or sell natural gas,
      crude oil or NGLs for delivery at some specified time in the future. 
      Forward contracts are different from futures in that forwards are
      customized and non-exchange traded.


·
            Swaps -
      Financial trades involving the exchange of payments based on two different
      pricing structures for a commodity.  In a typical commodity swap,
      parties exchange payments based on changes in the price of a commodity or
      a market index, while fixing the price they effectively pay or receive for
      the physical commodity.  As a result, one party assumes the
      risks and benefits of the movements in market prices while the other party
      assumes the risks and benefits of a fixed price for the
      commodity.


·
            Options
      - Contractual agreements that give the holder the right, but not the
      obligation, to buy or sell a fixed quantity of a commodity, at a fixed
      price, within a specified period of time.  Options may either be
      standardized, exchange-traded or customized and non-exchange
      traded.





In our
Natural Gas Gathering and Processing segment, we are exposed to commodity price
risk, primarily in regard to NGLs, as a result of receiving commodities in
exchange for our services.  To a lesser extent, exposures arise from
the relative price differential between NGLs and natural gas, or the gross
processing spread, with respect to our keep-whole processing
contracts.  We are also exposed to basis risk between the various
production and market locations where we buy and sell commodities.  As
part of our hedging strategy, we use the aforementioned commodity derivative
instruments to minimize earnings volatility related to natural gas, NGL and
condensate price fluctuations.  We reduce our gross processing spread
exposure through a combination of physical and financial hedges.  We
utilize a portion of our POP equity natural gas as an offset, or natural hedge,
to an equivalent portion of our keep-whole shrink requirements.  This
has the effect of converting our gross processing spread risk to NGL commodity
price risk.  We hedge a portion of the forecasted sales of the commodities
we retain, including NGLs, natural gas and condensate.




In our
Natural Gas Liquids Gathering and Fractionation segment, we are exposed to basis
risk primarily as a result of the relative value of NGL purchases at one
location and sales at another location.  To a lesser extent, we are
exposed to commodity price risk resulting from the relative values of the
various NGL products to each other, NGLs in storage and the relative value of
NGLs to natural gas.  We utilize fixed-price physical forward contracts to
reduce earnings volatility related to NGL price fluctuations.  At March 31,
2009, we were not using any financial derivative instruments with respect to our
NGL gathering and fractionation activities.





In our
Natural Gas Pipelines segment, we are exposed to commodity price risk because
our intrastate and interstate natural gas pipelines collect natural gas from our
customers for operations or as part of our fee for services provided.  When
the amount of natural gas consumed in operations by these pipelines differs from
the amount provided by our customers, our pipelines must buy or sell natural
gas, or store or use natural gas from inventory, which can expose us to
commodity price risk depending on the regulatory treatment for this
activity.  We use physical forward sales to reduce earnings volatility
related to natural gas price fluctuations.  At March 31, 2009, we were not
using any financial derivative instruments with respect to our intrastate and
interstate pipeline operations.





Interest rate risk -
We manage interest rate risk through the use of fixed-rate debt, floating-rate
debt and, at times, interest-rate swaps.  Interest-rate swaps are
agreements to exchange an interest payment at some future point based on the
differential between two interest rates.  Fixed-rate swaps are
designed to reduce the risk of increased interest costs during periods of rising
interest rates.  Floating-rate swaps may be used to convert the fixed
rates of long-term borrowings into short-term variable rates.




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Accounting Treatment- We
account for derivative instruments and hedging activities in accordance with
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.  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 cash flow hedging
relationship and, if so, the reason for holding it.





The table
below summarizes the various ways in which we account for our derivative
instruments and the impact on our consolidated financial
statements.




Recognition
      and MeasurementAccounting
      Treatment
            Balance
      Sheet
            
            Income
      StatementNormal
      purchases and normal sales exceptions
            
            -
      Fair value not recorded
            
            -
      Change in fair value not recognized in
              earningsMark-to-market
            
            -
      Recorded at fair value
            
            -
      Change in fair value recognized in earningsCash
      flow hedge
            
            -
      Recorded at fair value
            
            -
      Ineffective portion of the gain or loss on
              the
      derivative instrument is recognized in
              earnings-
      Effective portion of the gain or loss on the
              derivative
      instrument is reported initially
              as
      a component of accumulated other
              comprehensive
      income (loss)
            
            -
      Effective portion of the gain or loss on the
              derivative
      instrument is reclassified out of
              accumulated
      other comprehensive income
              (loss)
      into earnings when the forecasted
              transaction
      affects earningsFair
      value hedge
            
            -
      Recorded at fair value
            
            -
      The gain or loss on the derivative
              instrument
      is recognized in earnings-
      Change in fair value of the hedged item is
              recorded
      as an adjustment to its book value
            
            -
      Change in fair value of the hedged item is
              recognized
      in earnings





As
required by Statement 133, we formally document 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.  We specifically
identify the forecasted transaction that has been designated as the hedged
item.  We assess the effectiveness of hedging relationships quarterly
by performing a regression analysis on our cash flow hedging relationships to
determine whether the hedge relationships are highly effective on a
retrospective and prospective basis.  We also document our normal
purchases and normal sales transactions that we expect to result in physical
delivery and that we elect to exempt from derivative accounting
treatment.





Cash
flows from futures, forwards, options and swaps that are accounted for as hedges
are included in the same cash flow statement category as the cash flows from the
related hedged items.





Fair Values of Derivative Instruments-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.  See Note B for a discussion of the inputs
associated with our fair value measurements and our fair value hierarchy
disclosures.





As of
March 31, 2009, we had $45.8 million of derivative assets, all of which related
to commodity contracts.





As of
March 31, 2009, we had fixed-price natural gas swaps with a notional quantity of
5.1 Bcf and natural gas basis swaps with a notional quantity of 5.1
Bcf.  Additionally, we had fixed-price crude oil and NGL swaps with a
notional quantity of 1.8 MMBbl.





Cash Flow Hedges - At March
31, 2009, our Consolidated Balance Sheet reflected an unrealized gain of $49.8
million in accumulated other comprehensive income (loss), with a corresponding
offset in derivative financial instrument assets and liabilities that will be
realized within the next 21 months as the forecasted transactions affect
earnings.  If prices remain at current levels, we will recognize $49.6
million in gains over the next 12 months, and we will recognize gains of $0.2
million thereafter.




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The
following table sets forth the effect of cash flow hedges recognized in other
comprehensive income (loss) for the period indicated.




Derivatives
      in Cash Flow
                                Hedging
      Relationships
                              
                              Three
      Months Ended
                                March
      31, 2009(Thousands
      of dollars)Commodity
      contracts
                              
                              $
                              (331
                              )Interest
      rate contracts
                              
                              
                              121Total
      gain (loss) recognized in other comprehensive
                                income
      (loss) (effective portion)
                              
                              $
                              (210
                              )





The
following table sets forth the effect of cash flow hedges on our Consolidated
Statements of Income for the period indicated.


Location
      of Gain (Loss) Reclassified fromDerivatives
      in Cash Flow
                          Accumulated
      Other Comprehensive Income
                          
                          Three
      Months EndedHedging
      Relationships
                          (Loss)
      into Net Income (Effective Portion)
                          
                          March
      31, 2009(Thousands
      of dollars)Commodity
      contracts
                          Revenues
                          
                          $
                          18,765Interest
      rate contracts
                          Interest
      expense
                          
                          
                          436Total
      gain (loss) reclassified from accumulated other comprehensive
                            income
      (loss) into net income (effective portion)
                          
                          $
                          19,201




Ineffectiveness
related to our cash flow hedges was not material for the three months ended
March 31, 2009 and 2008.  In the event that it becomes probable that a
forecasted transaction will not occur, we would discontinue cash flow hedge
treatment, which will affect earnings.  There were no gains or losses
due to the discontinuance of cash flow hedge treatment during the three months
ended March 31, 2009 and 2008, respectively.





Fair Value Hedges - In prior
years, we terminated various interest-rate swap agreements.  The net
savings from the termination of these swaps is being recognized in interest
expense over the terms of the debt instruments originally
hedged.  Interest expense savings for the three months ended March 31,
2009, from amortization of terminated swaps was $0.9 million, and the remaining
amortization of terminated swaps will be recognized over the following
periods.


(Millions
      of dollars)Remainder
      of 2009
                          
                          $
                          2.82010
                          
                          $
                          3.72011
                          
                          $
                          0.9





At March
31, 2009, none of the interest on our fixed-rate debt was swapped to floating
using interest-rate swaps.





Risk Policy and Oversight -
Commodity Price
Risk-We control the scope of
risk management and marketing operations through a comprehensive set of policies
and procedures involving senior levels of management.  The Audit
Committee of our general partner’s Board of Directors has oversight
responsibilities for our risk management policies.  Our Risk Oversight
and Strategy Committee (ROSC), comprised of executive and business segment
senior officers, is responsible for ensuring commodity price risk is monitored
within the comprehensive risk management framework and that marketing and
hedging strategies are developed and implemented to mitigate and manage this
exposure.





We have a
risk control organization that is assigned responsibility for establishing and
enforcing the policies and procedures and monitoring certain risk
metrics.  Key risk control activities include validation of
transactions, portfolio valuation, collateral and liquidity stress testing, and
monitoring of various risk metrics.  Certain thresholds related to
these activities have been established by the ROSC that reflect our risk
tolerance.  These thresholds are reviewed periodically and are set
based on a number of factors, including market environment, price volatility and
liquidity, and our business strategy.  Our risk control organization
monitors and reports on our positions and risk metrics, including timely
notification to the ROSC of any thresholds that have been exceeded.





Derivative
Contracts-All
the commodity derivative contracts we enter into are withONEOK Energy Services
Company, L.P. (OES), a subsidiary of ONEOK.  OES enters into similar
commodity derivative contracts with third parties at our direction and on our
behalf.  We have an indemnification agreement with OES that
indemnifies and holds OES harmless from any liability they may incur solely as a
result of entering into commodity derivative contracts on our
behalf.


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D.           OTHER
COMPREHENSIVE INCOME (LOSS)





The
following table sets forth other comprehensive income (loss) for the periods
indicated.





Three
      Months EndedMarch
      31,2009
                          
                          
                          2008(Thousands
      of dollars)Unrealized
      gains (losses) on derivatives
                          $
                          (210)
                          
                          $
                          (5,543)Less:  Realized
      gains (losses) recognized in net income
                          
                          19,201
                          
                          
                          (7,292)Other
                          
                          212
                          
                          
                          -Other
      comprehensive income (loss)
                          $
                          (19,199)
                          
                          $
                          1,749





The
following table sets forth the balance in accumulated other comprehensive income
(loss) for the period indicated.





Unrealized
      Gains
                      (Losses)
      on Derivatives(Thousands
      of dollars)December
      31, 2008
                    
                    
                    $
                    64,405Other
      comprehensive income (loss)
                    (19,199)March
      31, 2009
                    
                    
                    $
                    45,206





E.           CREDIT
FACILITIES





Our $1.0
billion amended and restated revolving credit agreement dated March 30, 2007,
(Partnership Credit Agreement), which expires in March 2012, contains certain
financial and other typical covenants as discussed in Note H of the Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the year
ended December 31, 2008.  At March 31, 2009, our ratio of indebtedness
to adjusted EBITDA (EBITDA, as adjusted for all non-cash charges and increased
for projected EBITDA from certain lender-approved capital expansion projects)
was 4.2 to 1, and we were in compliance with all covenants under our Partnership
Credit Agreement.





At March
31, 2009, we had $436.7 million of borrowings outstanding and $563.3 million of
credit available under our Partnership Credit Agreement.  We have a
total of $49.2 million issued in letters of credit outside of the Partnership
Credit Agreement.





Borrowings
under our Partnership Credit Agreement are short-term in nature, ranging
from one day to six months.  Accordingly, these borrowings are
classified as short-term notes payable.




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F.           LONG-TERM
DEBT





Debt Issuance - In March 2009,
we completed an underwritten public offering of $500 million aggregate principal
amount of 8.625 percent Senior Notes due 2019 (2019 Notes).  The 2019
Notes were issued under our existing shelf registration statement filed with the
SEC.





We may
redeem the 2019 Notes, in whole or in part, at any time prior to their maturity
at a redemption price equal to the principal amount, 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 2019 Notes plus accrued and
unpaid interest to the redemption date.  The 2019 Notes are senior
unsecured obligations, ranking equally in right of payment with all of our
existing and future unsecured senior indebtedness, and effectively junior to all
of the existing and future debt and other liabilities of our non-guarantor
subsidiaries.  The 2019 Notes are nonrecourse to our general
partner.





The net
proceeds from the 2019 Notes, after deducting underwriting discounts and
commissions and expenses, of approximately $494.3 million were used to repay
indebtedness outstanding under our Partnership Credit Agreement.





The 2019
Notes are fully and unconditionally guaranteed on a senior unsecured basis by
ONEOK Partners Intermediate Limited Partnership (Intermediate
Partnership).  The guarantee ranks equally in right of payment to all
of the Intermediate Partnership’s existing and future unsecured senior
indebtedness.





The terms
of the 2019 Notes are governed by an indenture, dated as of September 25, 2006,
between us and Wells Fargo Bank, N.A., as trustee, as supplemented by the Fifth
Supplemental Indenture, dated March 3, 2009 (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 our ability to place liens on
our property or assets and to sell and lease back our property.





The 2019
Notes will mature on March 1, 2019.  We will pay interest on the 2019
Notes on March 1 and September 1 of each year.  The first payment of
interest on the 2019 Notes will be made on September 1,
2009.  Interest on the 2019 Notes accrues from March 3, 2009, which
was the issuance date.





G.           COMMITMENTS
AND CONTINGENCIES





Investment in Northern Border
Pipeline - In March 2009, we made an equity contribution of $4.3
million to Northern Border Pipeline.  Northern Border Pipeline
anticipates requiring an additional equity contribution of approximately $76
million from its partners in the third quarter of 2009, of which our share will
be approximately $38 million based on our 50 percent equity
interest.





Environmental Liabilities-We are
subject to multiple environmental, historical and wildlife preservation laws and
regulations affecting many aspects of our present and future
operations.  Regulated activities include those involving air
emissions, stormwater and wastewater discharges, handling and disposal of solid
and hazardous wastes, hazardous materials transportation, and pipeline and
facility construction.  These laws and regulations require us to
obtain and 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 us to
fines, penalties and/or interruptions in our operations that could be material
to our results of operations.  If a leak or spill of hazardous
substances or petroleum products occurs from lines or facilities that we own,
operate or otherwise use, we could be held jointly and severally liable for all
resulting liabilities, including response, investigation and clean-up costs,
which could materially affect our 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 our facilities.  We cannot assure that
existing environmental regulations will not be revised or that new regulations
will not be adopted or become applicable to us.  Revised or additional
regulations that result in increased compliance costs or additional operating
restrictions could have a material adverse effect on our business, financial
condition and results of operations.





Our
expenditures for environmental evaluation, mitigation and remediation to date
have not been significant in relation to our results of operations, and there
were no material effects upon earnings during the three months ended March 31,
2009 or 2008 related to compliance with environmental regulations.




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H.           PROPERTY,
PLANT AND EQUIPMENT





The
following table sets forth our property, plant and equipment, by segment, for
the periods indicated.




March
      31,
                    
                    
                    December31,2009
                    
                    
                    2008(Thousands
      of dollars)Non-RegulatedNatural
      Gas Gathering and Processing
                    $
                    
                    1,391,526
                    
                    
                    $
                    1,368,223Natural
      Gas Pipelines
                    
                    
                    168,016
                    
                    
                    
                    167,625Natural
      Gas Liquids Gathering and Fractionation
                    
                    
                    889,130
                    
                    
                    
                    879,047Other
                    
                    
                    45,939
                    
                    
                    
                    50,474RegulatedNatural
      Gas Pipelines
                    
                    
                    1,473,506
                    
                    
                    
                    1,460,764Natural
      Gas Liquids Pipelines
                    
                    
                    2,013,768
                    
                    
                    
                    1,882,546Property,
      plant and equipment
                    
                    
                    5,981,885
                    
                    
                    
                    5,808,679Accumulated
      depreciation and amortization
                    
                    
                    903,282
                    
                    
                    
                    875,279Net
      property, plant and equipment
                    $
                    
                    5,078,603
                    
                    
                    $
                    4,933,400





Property,
plant and equipment on our Consolidated Balance Sheets includes construction
work in process for capital projects that have not yet been put in service and
therefore are not being depreciated.  The following table sets forth
our construction work in process, by segment, for the periods
indicated.





March
      31,
                                                      
                                                      December
      31,2009
                                                      
                                                      2008(Millions of
      dollars)Natural
      Gas Gathering and Processing
                                                      
                                                      $
                                                      85.4
                                                      
                                                      $
                                                      135.3Natural
      Gas Pipelines
                                                      
                                                      30.8
                                                      
                                                      107.7Natural
      Gas Liquids Gathering and Fractionation
                                                      
                                                      114.8
                                                      
                                                      121.0Natural
      Gas Liquids Pipelines
                                                      
                                                      496.2
                                                      
                                                      445.8Other
                                                      
                                                      0.1
                                                      
                                                      0.2Total
      construction work in process
                                                      
                                                      $
                                                      727.3
                                                      
                                                      $
                                                      810.0





I.           SEGMENTS





Segment Descriptions - Our
operations are divided into four business segments based on similarities in
economic characteristics, products and services, types of customers, methods of
distribution and regulatory environment, as follows:


·
            our
      Natural Gas Gathering and Processing segment primarily gathers and
      processes unprocessed natural gas;


·
            our
      Natural Gas Pipelines segment primarily operates regulated interstate and
      intrastate natural gas transmission pipelines and natural gas storage
      facilities;


·
            our
      Natural Gas Liquids Gathering and Fractionation segment primarily gathers,
      treats and fractionates NGLs and stores and markets NGL products;
      and


·
            our
      Natural Gas Liquids Pipelines segment primarily operates regulated
      interstate natural gas liquids gathering and distribution
      pipelines.





Accounting Policies - The
accounting policies of the segments are the same as those described in Note A
and Note L of the Notes to Consolidated Financial Statements in our Annual
Report on Form 10-K for the year ended December 31,
2008.  Intersegment and affiliate sales are recorded on the same basis
as sales to unaffiliated customers.





Customers - For the three
months ended March 31, 2009 and 2008, we had no single unaffiliated customer
from which we received 10 percent or more of our consolidated
revenues.  Sales to affiliated customers represent revenues from
subsidiaries of ONEOK and represented approximately 12 percent of our
consolidated revenues for the three months ended March 31, 2009.  For
the three months ended March 31, 2008, sales to affiliated customers were less
than 10 percent of our consolidated revenues.  See Note L for
additional information about our sales to affiliated customers.




- 18
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Operating Segment Information
- The following tables set forth certain selected financial information for our
operating segments for the periods indicated.




Three
      Months Ended
                        March
      31, 2009
                      
                      Natural
      Gas Gathering and Processing
                      
                      
                      Natural
      Gas Pipelines (a)
                      
                      
                      Natural
      Gas
                        Liquids
                        Gathering
      and Fractionation
                      
                      
                      Natural
      Gas Liquids
                        Pipelines
      (b)
                      
                      
                      Other
      and Eliminations
                      
                      
                      Total(Thousands
      of dollars)Sales
      to unaffiliated customers
                      
                      $
                      62,146
                      
                      
                      $
                      48,717
                      
                      
                      $
                      971,899
                      
                      
                      $
                      23,967
                      
                      
                      $
                      1
                      
                      
                      $
                      1,106,730Sales
      to affiliated customers
                      
                      
                      118,207
                      
                      
                      
                      25,928
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      144,135Intersegment
      sales
                      
                      
                      69,890
                      
                      
                      
                      147
                      
                      
                      
                      7,706
                      
                      
                      
                      33,680
                      
                      
                      
                      (111,423
                      )
                      
                      
                      -Total
      revenues
                      
                      $
                      250,243
                      
                      
                      $
                      74,792
                      
                      
                      $
                      979,605
                      
                      
                      $
                      57,647
                      
                      
                      $
                      (111,422
                      )
                      
                      $
                      1,250,865Net
      margin
                      
                      $
                      86,052
                      
                      
                      $
                      65,568
                      
                      
                      $
                      59,222
                      
                      
                      $
                      44,144
                      
                      
                      $
                      (1,445
                      )
                      
                      $
                      253,541Operating
      costs
                      
                      
                      31,828
                      
                      
                      
                      20,180
                      
                      
                      
                      22,837
                      
                      
                      
                      15,565
                      
                      
                      
                      (964
                      )
                      
                      
                      89,446Depreciation
      and amortization
                      
                      
                      14,448
                      
                      
                      
                      12,793
                      
                      
                      
                      6,413
                      
                      
                      
                      6,284
                      
                      
                      
                      2
                      
                      
                      
                      39,940Gain
      (loss) on sale of assets
                      
                      
                      (19
                      )
                      
                      
                      27
                      
                      
                      
                      3
                      
                      
                      
                      -
                      
                      
                      
                      653
                      
                      
                      
                      664Operating
      income
                      
                      $
                      39,757
                      
                      
                      $
                      32,622
                      
                      
                      $
                      29,975
                      
                      
                      $
                      22,295
                      
                      
                      $
                      170
                      
                      
                      $
                      124,819Equity
      earnings from investments
                      
                      $
                      4,466
                      
                      
                      $
                      16,208
                      
                      
                      $
                      -
                      
                      
                      $
                      548
                      
                      
                      $
                      -
                      
                      
                      $
                      21,222Investments
      in unconsolidated
                        affiliates
                      
                      $
                      321,111
                      
                      
                      $
                      396,972
                      
                      
                      $
                      -
                      
                      
                      $
                      29,907
                      
                      
                      $
                      -
                      
                      
                      $
                      747,990Total
      assets
                      
                      $
                      1,597,894
                      
                      
                      $
                      1,477,567
                      
                      
                      $
                      1,680,098
                      
                      
                      $
                      2,036,428
                      
                      
                      $
                      352,917
                      
                      
                      $
                      7,144,904Noncontrolling
      interests in
                        consolidated
      subsidiaries
                      
                      $
                      -
                      
                      
                      $
                      5,413
                      
                      
                      $
                      -
                      
                      
                      $
                      189
                      
                      
                      $
                      15
                      
                      
                      $
                      5,617Capital
      expenditures
                      
                      $
                      28,818
                      
                      
                      $
                      17,428
                      
                      
                      $
                      13,005
                      
                      
                      $
                      133,243
                      
                      
                      $
                      -
                      
                      
                      $
                      192,494(a)
      - Our Natural Gas Pipelines segment has regulated and non-regulated
      operations. Our Natural Gas Pipelines segment’s regulated operations
      had revenues of $61.6 million, net margin of $51.7 million and operating
      income of $23.3 million.(b)
      - Our Natural Gas Liquids Pipelines segment’s operations are primarily
      regulated. Our Natural Gas Liquids Pipelines segment’s non-regulated
      operations were not material.








Three
      Months Ended
                    March
      31, 2008
                  
                  Natural
      Gas Gathering and Processing
                  
                  
                  Natural
      Gas Pipelines (a)
                  
                  
                  Natural
      Gas Liquids
                    Gathering
      and Fractionation
                  
                  
                  Natural
      Gas Liquids
                    Pipelines
      (b)
                  
                  
                  Other
      and Eliminations
                  
                  
                  Total(Thousands
      of dollars)Sales
      to unaffiliated customers
                  
                  $
                  96,581
                  
                  
                  $
                  61,864
                  
                  
                  $
                  1,700,070
                  
                  
                  $
                  17,183
                  
                  
                  $
                  2
                  
                  
                  $
                  1,875,700Sales
      to affiliated customers
                  
                  
                  155,294
                  
                  
                  
                  28,041
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  183,335Intersegment
      revenues
                  
                  
                  184,695
                  
                  
                  
                  267
                  
                  
                  
                  6,450
                  
                  
                  
                  21,500
                  
                  
                  
                  (212,912
                  )
                  
                  
                  -Total
      revenues
                  
                  $
                  436,570
                  
                  
                  $
                  90,172
                  
                  
                  $
                  1,706,520
                  
                  
                  $
                  38,683
                  
                  
                  $
                  (212,910
                  )
                  
                  $
                  2,059,035Net
      margin
                  
                  $
                  103,906
                  
                  
                  $
                  63,695
                  
                  
                  $
                  69,525
                  
                  
                  $
                  31,357
                  
                  
                  $
                  42
                  
                  
                  $
                  268,525Operating
      costs
                  
                  
                  33,097
                  
                  
                  
                  23,580
                  
                  
                  
                  18,631
                  
                  
                  
                  13,403
                  
                  
                  
                  (629
                  )
                  
                  
                  88,082Depreciation
      and amortization
                  
                  
                  11,757
                  
                  
                  
                  8,418
                  
                  
                  
                  5,619
                  
                  
                  
                  4,142
                  
                  
                  
                  6
                  
                  
                  
                  29,942Gain
      (loss) on sale of assets
                  
                  
                  1
                  
                  
                  
                  17
                  
                  
                  
                  12
                  
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  31Operating
      income
                  
                  $
                  59,053
                  
                  
                  $
                  31,714
                  
                  
                  $
                  45,287
                  
                  
                  $
                  13,813
                  
                  
                  $
                  665
                  
                  
                  $
                  150,532Equity
      earnings from investments
                  
                  $
                  7,044
                  
                  
                  $
                  20,061
                  
                  
                  $
                  -
                  
                  
                  $
                  678
                  
                  
                  $
                  -
                  
                  
                  $
                  27,783Investments
      in unconsolidated
                    affiliates
                  
                  $
                  300,788
                  
                  
                  $
                  422,169
                  
                  
                  $
                  -
                  
                  
                  $
                  31,347
                  
                  
                  $
                  -
                  
                  
                  $
                  754,304Total
      assets
                  
                  $
                  1,504,864
                  
                  
                  $
                  1,263,696
                  
                  
                  $
                  1,807,466
                  
                  
                  $
                  1,396,940
                  
                  
                  $
                  522,989
                  
                  
                  $
                  6,495,955Noncontrolling
      interests in
                    consolidated
      subsidiaries
                  
                  $
                  -
                  
                  
                  $
                  5,781
                  
                  
                  $
                  -
                  
                  
                  $
                  55
                  
                  
                  $
                  15
                  
                  
                  $
                  5,851Capital
      expenditures
                  
                  $
                  26,487
                  
                  
                  $
                  22,222
                  
                  
                  $
                  29,571
                  
                  
                  $
                  188,726
                  
                  
                  $
                  52
                  
                  
                  $
                  267,058(a)
      - Our Natural Gas Pipelines segment has regulated and non-regulated
      operations. Our Natural Gas Pipelines segment’s regulated operations
      had revenues of $77.1 million, net margin of $50.5 million and operating
      income of $23.8 million.(b)
      - Our Natural Gas Liquids Pipelines segment’s operations are primarily
      regulated. Our Natural Gas Liquids Pipelines segment’s non-regulated
      operations were not material.




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J.           UNCONSOLIDATED
AFFILIATES





Equity Earnings from
Investments - The following table sets forth our equity earnings from
investments for the periods indicated.





Three
      Months EndedMarch
      31,2009
                    
                    
                    2008(Thousands
      of dollars)Northern
      Border Pipeline
                    
                    $
                    16,038
                    
                    
                    $
                    19,782Fort
      Union Gas Gathering
                    
                    
                    2,210
                    
                    
                    
                    2,295Bighorn
      Gas Gathering, L.L.C.
                    
                    
                    2,086
                    
                    
                    
                    2,318Lost
      Creek Gathering Company, L.L.C.
                    
                    
                    890
                    
                    
                    
                    1,285Other
                    
                    
                    (2
                    )
                    
                    
                    2,103Equity
      earnings from investments
                    
                    $
                    21,222
                    
                    
                    $
                    27,783





Unconsolidated Affiliates Financial
Information - The following table sets forth summarized combined
financial information of our unconsolidated affiliates for the periods
indicated.




Three
      Months EndedMarch
      31,2009
                    
                    
                    2008(Thousands
      of dollars)Income
      StatementOperating
      revenue
                    
                    $
                    106,066
                    
                    
                    $
                    111,395Operating
      expenses
                    
                    $
                    44,803
                    
                    
                    $
                    43,344Net
      income
                    
                    $
                    50,516
                    
                    
                    $
                    55,821Distributions
      paid to us
                    
                    $
                    33,331
                    
                    
                    $
                    27,413





K.           LIMITED
PARTNERS’ NET INCOME PER UNIT AND DISTRIBUTIONS TO PARTNERS





As
discussed in Note A, we adopted EITF 07-4 on January 1, 2009, which requires us
to utilize the two-class method of calculating net income per unit.





Limited
partners’ net income per unit is computed by dividing net income attributable to
ONEOK Partners, L.P., after deducting the general partner’s allocation, by the
weighted-average number of outstanding common units.  ONEOK Partners
GP owns the entire 2 percent general partnership interest in us, which entitles
it to incentive distribution rights that provide for an increasing proportion of
cash distributions from the partnership as the distributions made to limited
partners increase above specified levels.





For
purposes of our calculation of limited partners’ net income per unit, net income
attributable to ONEOK Partners, L.P. is generally allocated to the general
partner as follows: (i) an amount based upon the 2 percent general partner
interest in net income attributable to ONEOK Partners, L.P. and (ii) the amount
of the general partner’s incentive distribution rights based on the total cash
distributions declared for the period.  The amount of incentive
distribution allocated to our general partner totaled $20.3 million for the
three months ended March 31, 2009.





Distributions
are limited to available cash.  Gains resulting from interim capital
transactions, as defined in our Partnership Agreement, are generally not subject
to distribution; however, our Partnership Agreement provides that if such
distributions were made, the incentive distribution rights would not
apply.  For additional information regarding our general partner’s
incentive distribution rights, see “Cash Distribution Policy” under Part II,
Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities, in our Annual Report on Form 10-K for the
year ended December 31, 2008.





In
January 2009, we declared a cash distribution of $1.08 per unit ($4.32 on an
annualized basis) for the fourth quarter of 2008.  The distribution
was paid in February 2009, and included a distribution to our general partner of
$22.7 million, of which $20.3 million related to incentive
distributions.


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In April
2009, we declared a cash distribution of $1.08 per unit ($4.32 per unit on an
annualized basis) for the first quarter of 2009.  The distribution
will be paid on May 15, 2009, to unitholders of record as of April 30,
2009.





L.           RELATED-PARTY
TRANSACTIONS





Intersegment
and affiliate sales are recorded on the same basis as sales to unaffiliated
customers.  Our Natural Gas Gathering and Processing segment sells
natural gas to ONEOK and its subsidiaries.  A portion of our Natural
Gas Pipelines segment’s revenues are from ONEOK and its
subsidiaries.  Additionally, our Natural Gas Gathering and Processing
segment and Natural Gas Liquids Gathering and Fractionation segment purchase a
portion of the natural gas used in their operations from ONEOK and its
subsidiaries.





We have
certain contractual rights to the Bushton Plant that is leased by
OBPI.  Our Processing and Services Agreement with ONEOK and OBPI sets
out the terms by which OBPI provides services at the Bushton Plant through
2012.  We have contracted for all of the capacity of the Bushton Plant
from OBPI.  In exchange, we pay 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.





Under the
Services Agreement with ONEOK, ONEOK Partners GP and NBP Services (Services
Agreement), our operations and the operations of ONEOK and its affiliates can
combine or share certain common services in order to operate more efficiently
and cost-effectively.  Under the Services Agreement, ONEOK provides to
us similar services that it provides to its affiliates, including those
services required to be provided pursuant to our Partnership
Agreement.  ONEOK Partners GP operates our interstate natural gas
pipeline assets according to each pipeline’s operating
agreement.  ONEOK Partners GP may purchase services from ONEOK and its
affiliates pursuant to the terms of the Services Agreement.  ONEOK
Partners GP has no employees and utilizes the services of ONEOK and ONEOK
Services Company to fulfill its responsibilities.





ONEOK and
its affiliates provide a variety of services to us under the Services Agreement,
including cash management and financial 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.  Where costs are specifically incurred on behalf of one of
our affiliates, the costs are billed directly to us by ONEOK.  In
other situations, the costs may be allocated to us through a variety of methods,
depending upon the nature of the expense and activities.  For example,
a service that applies equally to all employees is allocated based upon the
number of employees.  However, an expense benefiting the consolidated
company but having no direct basis for allocation is allocated by the modified
Distrigas method, a method using a combination of ratios that includes gross
plant and investment, earnings before interest and taxes and payroll
expense.  All costs directly charged or allocated to us are included
in our Consolidated Statements of Income.





See Note
C for a discussion of our derivative contracts with OES.





The
following table sets forth the transactions with related parties for the periods
indicated.




Three
      Months EndedMarch
      31,2009
                    
                    2008(Thousands
      of dollars)Revenues
                    
                    $
                    144,135
                    
                    
                    $
                    183,335ExpensesCost
      of sales and fuel
                    
                    $
                    16,638
                    
                    
                    $
                    35,329Administrative
      and general expenses
                    
                    
                    48,623
                    
                    
                    
                    46,901Total
      expenses
                    
                    $
                    65,261
                    
                    
                    $
                    82,230




- 21
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ITEM2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 The
following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and the Notes to Consolidated
Financial Statements in this Quarterly Report on Form 10-Q, as well as our
Annual Report on Form 10-K for the year ended December 31, 2008.
  EXECUTIVE
SUMMARY
  The
following discussion highlights some of our achievements and significant issues
affecting us for the periods presented.  Please refer to the “Capital
Projects,” “Financial Results and Operating Information,” and “Liquidity and
Capital Resources” sections of Management’s Discussion and Analysis of Financial
Condition and Results of Operations and our Consolidated Financial Statements
for additional information.
 
 Outlook- We expect
challenging economic conditions for the remainder of 2009, relative to 2008,
when we experienced unprecedented drilling activity, supply growth and commodity
price levels for natural gas, NGLs and crude oil.  We anticipate that
lower commodity prices will result in reduced drilling activity, and current
economic conditions will result in reduced demand for NGL products from the
petrochemical industry.  We also expect continued volatility and
disruption in the financial markets that could result in an increased cost of
capital.  We expect depressed commodity prices and tighter capital markets
to also result in the sale or consolidation of underperforming assets in the
industry, which may present opportunities for us.
 
 Operating Results - Limited
partners’ net income per unit decreased to $0.85 for the three months ended
March 31, 2009, compared with $1.48 for the same period in 2008.  The
decrease in limited partners’ net income per unit for the three-month period is
primarily due to the following:
 ·
              a
      decrease in net margin primarily due
to:
 -
              lower
      realized commodity prices in our Natural Gas Gathering and Processing
      segment;
 -
              narrower
      NGL product price differentials in our Natural Gas Liquids Gathering and
      Fractionation segment;
 partially
offset by
 -
              increased
      throughput primarily associated with the completion of the Overland Pass
      Pipeline and related expansion projects, as well as new supply connections
      in our natural gas liquids
businesses;
 -
              higher
      volumes processed and sold in our Natural Gas Gathering and Processing
      segment; and
 -
              higher
      natural gas transportation net margin primarily as a result of the
      Guardian Pipeline expansion and extension being placed into service in
      February 2009 in our Natural Gas Pipelines
  segment;
 ·
              an
      increase in depreciation expense associated with our completed capital
      projects; and
  ·
              an
      increase in interest expense primarily due to increased borrowings to fund
      our capital projects.
  Debt Issuance - In March 2009,
we completed an underwritten public offering of $500 million aggregate principal
amount of 8.625 percent Senior Notes due 2019.
 
 Cash Distributions - In April
2009, we declared a cash distribution of $1.08 per unit ($4.32 per unit on an
annualized basis), an increase of approximately 4 percent over the $1.04 per
unit declared in April 2008.
 
 Capital Projects - The
following projects were placed in service during the first quarter of
2009:
 ·
              Guardian
      Pipeline’s expansion and extension
project;
 ·
              D-J
      Basin lateral pipeline; and
 ·
              Williston
      Basin gas processing plant
expansion.
 
 Capital
expenditures in 2009 are expected to be significantly lower than in 2008, when
we spent approximately $1.3 billion.  We plan to spend approximately
$439 million on capital expenditures in 2009, of which approximately $378
million is for growth projects.
  - 22
-
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  CAPITAL
PROJECTS
 
 Overland Pass Pipeline-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 MBbl/d of unfractionated NGLs and can be
increased to approximately 255 MBbl/d with additional pump
facilities.  Overland Pass Pipeline Company is a joint venture between
us and a subsidiary of The Williams Companies, Inc. (Williams).  We
own 99 percent of the joint venture and are currently operating the
pipeline.  On or before November 17, 2010, Williams has 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.  If Williams does not elect to increase its ownership to at
least 10 percent, we will have the right, but not the obligation, to purchase
Williams’ entire ownership interest, with the purchase price being determined in
accordance with the joint venture’s operating agreement.  The pipeline
project cost approximately $575 million, excluding AFUDC.
 
 As part
of a long-term agreement, Williams dedicated its NGL production from two of its
natural gas processing plants in Wyoming, estimated to be approximately 60
MBbl/d, to the Overland Pass Pipeline.  We provide downstream
fractionation, storage and transportation services to Williams.  We
have also reached agreements with certain producers for supply commitments from
the D-J Basin and Piceance lateral pipelines for up to an additional 80 MBbl/d,
and we are negotiating agreements with other producers for supply commitments
that could add an additional 60 MBbl/d of supply to this pipeline within the
next three to five years.
 
 We also
invested approximately $239 million, excluding AFUDC, to expand our existing
fractionation and storage capabilities and to increase the capacity of our
natural gas liquids distribution pipelines.  Part of this expansion
included adding new fractionation facilities at our Bushton location, which
increased the total fractionation capacity at the Bushton facility to 150 MBbl/d
from 80 MBbl/d.  The addition of the new facilities and the upgrade to
the existing fractionator was completed in October
2008.  Additionally, portions of our natural gas liquids distribution
pipeline upgrades were completed in the second and third quarters of
2008.  Overland Pass Pipeline Company is included in our Natural Gas
Liquids Pipelines segment, while the associated expansions are included in our
Natural Gas Liquids Gathering and Fractionation segment and Natural Gas Liquids
Pipelines segment.
 
 Piceance Lateral Pipeline - In
October 2008, Overland Pass Pipeline Company began construction of a 150-mile
lateral pipeline with capacity to transport as much as 100 MBbl/d of
unfractionated NGLs from the Piceance Basin in Colorado to the Overland Pass
Pipeline.  Williams will dedicate its NGL production from an existing
natural gas processing plant and a new natural gas processing plant, with
estimated volumes totaling approximately 30 MBbl/d, to be transported by the
lateral pipeline.  We continue to negotiate with other producers for
supply commitments.  Construction is expected to be completed during
the third quarter of 2009, assuming we have the necessary regulatory approvals
to access the right-of-way during critical construction times.  The
project is currently estimated to cost in the range of $110 million to $140
million, excluding AFUDC.  This project is in our Natural Gas Liquids
Pipelines segment.
 
 D-J Basin Lateral Pipeline -
In March 2009, Overland Pass Pipeline Company placed in service the 125-mile
natural gas liquids lateral pipeline from the Denver-Julesburg Basin in
northeastern Colorado to the Overland Pass Pipeline.  The pipeline has
capacity to transport as much as 55 MBbl/d of unfractionated
NGLs.  The project is currently estimated to cost approximately $70
million, excluding AFUDC.  We have supply commitments for up to 33
MBbl/d of unfractionated NGLs with potential for an additional 10 MBbl/d of
supply from new drilling and plant upgrades in the next two
years.  This project is in our Natural Gas Liquids Pipelines
segment.
 
 Arbuckle Natural Gas Liquids Pipeline- Construction continues on the 440-mile Arbuckle Pipeline, a natural gas
liquids pipeline from southern Oklahoma through northern Texas and continuing on
to the Texas Gulf Coast.  The Arbuckle Pipeline will have the capacity
to transport 160 MBbl/d of unfractionated NGLs, expandable to 210 MBbl/d with
additional pump facilities, and will connect our existing Mid-Continent
infrastructure with our fractionation facility in Mont Belvieu, Texas, and other
Gulf Coast region fractionators.  We have supply commitments from
producers that we expect will be sufficient to fill the 210 MBbl/d capacity
level over the next three to five years.  Much of the Oklahoma and
north Texas portions of the pipeline are either complete or nearing
completion.  However, right-of-way acquisition has been challenging,
time consuming and expensive, which could affect the completion schedule and
final cost of the project.  Many of Arbuckle Pipeline’s remaining
right-of-way tracts are being acquired through a condemnation process, which
adds to the cost and time to construct the pipeline.
  - 23
-
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  The
demand for surface easements has increased dramatically in Texas and Oklahoma in
the last two years because of increased oil and natural gas exploration and
production activities, as well as pipeline construction.  As
previously reported, we anticipate project costs will be more expensive than
originally estimated due to delays associated with right-of-way acquisition and
weather impacts from anticipated spring rains in wet low-lying
areas.  We currently estimate project costs will be in the range of
$395 million to $415 million, excluding AFUDC.We expect the project to
be operational in the second quarter of 2009.  This project is in our
Natural Gas Liquids Pipelines segment.
 
 Williston Basin Gas Processing Plant
Expansion - The expansion of our Grasslands natural gas processing
facility in North Dakota has been placed in service.  The expansion
increases processing capacity to approximately 100 MMcf/d from its current
capacity of 63 MMcf/d and increases fractionation capacity to approximately 12
MBbl/d from 8 MBbl/d.  The estimated cost of the project is approximately
$46 million, excluding AFUDC.  This project is in our Natural Gas Gathering
and Processing segment.
 
 Guardian Pipeline Expansion and
Extension- In February 2009, we placed the 119-mile extension of our
Guardian Pipeline in full service.  The pipeline has capacity to
transport 537 MMcf/d of natural gas north from Ixonia, Wisconsin, to the Green
Bay, Wisconsin area.  The project is supported by 15-year shipper
commitments with We Energies and Wisconsin Public Service Corporation, and the
capacity is close to fully subscribed.  The project cost approximately
$325 million, excluding AFUDC, increasing from our previous estimate due to
higher costs associated with delays related to weather and equipment
delivery.  This project is in our Natural Gas Pipelines
segment.
 
 IMPACT
OF NEW ACCOUNTING STANDARDS
 
 Information
about the impact of the following new accounting standards is included in Note A
of the Notes to Consolidated Financial Statements in this Quarterly Report on
Form 10-Q:
 ·
              Statement
      157, “Fair Value Measurements;”
 ·
              Statement
      160, “Noncontrolling Interests in Consolidated Financial Statements - an
      amendment of ARB No. 51;”
 ·
              Statement
      161, “Disclosures about Derivative Instruments and Hedging Activities - an
      amendment to FASB Statement No.
133;”
 ·
              EITF
      07-4, “Application of the Two-Class Method under FASB Statement No. 128 to
      Master Limited Partnerships;” and
 ·
              FSP
      107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial
      Instruments.”
 
 CRITICAL
ACCOUNTING ESTIMATES
 
 The
preparation of our consolidated financial statements and related disclosures in
accordance with 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 consolidated financial
statements.  These estimates and assumptions also affect the reported
amounts of revenues and expenses during the reporting
period.  Although we believe these estimates and assumptions are
reasonable, actual results could differ from our estimates.
 
 Information
about our critical accounting estimates is included under Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, “Critical Accounting Estimates,” in our Annual Report on Form 10-K
for the year ended December 31, 2008.
  - 24
-
 Table of Contents
  FINANCIAL
RESULTS AND OPERATING INFORMATION
 
 Consolidated
Operations
 
 Selected Financial Results -
The following table sets forth certain selected consolidated financial results
for the periods indicated.
 
 Three
      Months Ended
                                      
                                      
                                      VariancesMarch
      31,
                                      
                                      
                                      2009
      vs. 2008Financial
      Results
                                      
                                      2009
                                      
                                      
                                      2008
                                      
                                      
                                      Increase
      (Decrease)(Millions
      of dollars)Revenues
                                      
                                      $
                                      1,250.9
                                      
                                      
                                      $
                                      2,059.0
                                      
                                      
                                      $
                                      (808.1
                                      )
                                      
                                      
                                      (39
                                      %)Cost
      of sales and fuel
                                      
                                      
                                      997.4
                                      
                                      
                                      
                                      1,790.5
                                      
                                      
                                      
                                      (793.1
                                      )
                                      
                                      
                                      (44
                                      %)Net
      margin
                                      
                                      
                                      253.5
                                      
                                      
                                      
                                      268.5
                                      
                                      
                                      
                                      (15.0
                                      )
                                      
                                      
                                      (6
                                      %)Operating
      costs
                                      
                                      
                                      89.5
                                      
                                      
                                      
                                      88.1
                                      
                                      
                                      
                                      1.4
                                      
                                      
                                      
                                      2
                                      %Depreciation
      and amortization
                                      
                                      
                                      39.9
                                      
                                      
                                      
                                      29.9
                                      
                                      
                                      
                                      10.0
                                      
                                      
                                      
                                      33
                                      %Gain
      (loss) on sale of assets
                                      
                                      
                                      0.7
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      0.7
                                      
                                      
                                      
                                      100
                                      %Operating
      income
                                      
                                      $
                                      124.8
                                      
                                      
                                      $
                                      150.5
                                      
                                      
                                      $
                                      (25.7
                                      )
                                      
                                      
                                      (17
                                      %)Equity
      earnings from investments
                                      
                                      $
                                      21.2
                                      
                                      
                                      $
                                      27.8
                                      
                                      
                                      $
                                      (6.6
                                      )
                                      
                                      
                                      (24
                                      %)Allowance
      for equity funds used during construction
                                      
                                      $
                                      9.0
                                      
                                      
                                      $
                                      8.5
                                      
                                      
                                      $
                                      0.5
                                      
                                      
                                      
                                      6
                                      %Other
      income (expense)
                                      
                                      $
                                      (1.7
                                      )
                                      
                                      $
                                      (0.1
                                      )
                                      
                                      $
                                      (1.6
                                      )
                                      
                                      
                                      
                                      *Interest
      expense
                                      
                                      $
                                      (50.9
                                      )
                                      
                                      $
                                      (38.5
                                      )
                                      
                                      $
                                      12.4
                                      
                                      
                                      
                                      32
                                      %Net
      income attributable to noncontrolling interests
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (0.1
                                      )
                                      
                                      $
                                      (0.1
                                      )
                                      
                                      
                                      100
                                      %Capital
      expenditures
                                      
                                      $
                                      192.5
                                      
                                      
                                      $
                                      267.1
                                      
                                      
                                      $
                                      (74.6
                                      )
                                      
                                      
                                      (28
                                      %)*
      Percentage change is greater than 100 percent.
  2009 vs. 2008- Net margin
decreased primarily due to the following:
 ·
              lower
      realized commodity prices in our Natural Gas Gathering and Processing
      segment;
 ·
              narrower
      NGL product price differentials in our Natural Gas Liquids Gathering and
      Fractionation segment;
 partially
offset by
 ·
              increased
      throughput primarily associated with the completion of the Overland Pass
      Pipeline and related expansion projects, as well as new supply connections
      in our natural gas liquids
businesses;
 ·
              higher
      volumes processed and sold in our Natural Gas Gathering and Processing
      segment; and
 ·
              higher
      natural gas transportation net margin primarily as a result of the
      Guardian Pipeline expansion and extension being placed into service in
      February 2009 in our Natural Gas Pipelines
  segment.
 
 Operating
costs increased primarily due to higher operating costs at our fractionation
facilities, which included incremental operating expenses associated with the
recently expanded Bushton fractionator that began operations in the third
quarter of 2008.  These increases were partially offset by lower
general operating costs.
 
 Depreciation
and amortization increased primarily due to higher depreciation expense
associated with our completed capital projects.
 
 Equity
earnings from investments decreased primarily due to lower subscription rates on
Northern Border Pipeline and decreased earnings from investments in our Natural
Gas Gathering and Processing segment.
 
 Other
income (expense) decreased primarily due to lower interest income.
 
 Interest
expense increased primarily due to increased borrowings to fund our capital
projects.
 
 Capital
expenditures decreased primarily due to the completion of the Overland Pass
Pipeline and related projects, the Woodford Shale extension and the Guardian
Pipeline expansion and extension.
 
 Additional
information regarding our financial results and operating information is
provided in the following discussion for each of our segments.
  - 25
-
 Table of Contents
  Natural
Gas Gathering and Processing
 
 Overview - Our Natural Gas
Gathering and Processing segment’s operations include gathering of unprocessed
natural gas produced from crude oil and natural gas wells.  We gather
unprocessed natural gas in the Mid-Continent region, which includes the Anadarko
Basin of Oklahoma and the Hugoton and Central Kansas Uplift Basins of
Kansas.  We also gather unprocessed natural gas in two producing
basins in the Rocky Mountain region: the Williston Basin, which spans portions
of Montana, North Dakota and the Canadian province of Saskatchewan, and the
Powder River Basin of Wyoming.
 
 In the
Mid-Continent and Rocky Mountain regions, unprocessed natural gas is compressed
and transported through pipelines to processing facilities where volumes are
aggregated, treated and processed to remove water vapor, solids and other
contaminants, and to extract NGLs in order to provide marketable natural gas,
commonly referred to as residue gas.   The residue gas, which
consists primarily of methane, is compressed and delivered to natural gas
pipelines for transportation to end users.  When the NGLs are
separated from the unprocessed natural gas at the processing plants, the NGLs
are generally in the form of a mixed, unfractionated NGL stream.  This
unfractionated NGL stream is generally shipped to fractionators where, through
the application of heat and pressure, the unfractionated NGL stream is separated
into NGL products.  Revenues for this segment are primarily derived
from POP, fee and keep-whole contracts.  Under a POP contract, we
retain a portion of sales proceeds from the commodity sales for our
services.  With a fee-based contract, we charge a fee for our
services, and with the keep-whole contract, we retain the NGLs as our fee for
service and return to the producer an equivalent quantity of or payment for
residue gas containing the same amount of Btus as the unprocessed natural gas
that was delivered to us.  Our natural gas and NGL products are sold
to affiliates and a diverse customer base.
 
 Selected Financial Results and
Operating Information- The following tables set forth certain selected
financial results and operating information for our Natural Gas Gathering and
Processing segment for the periods indicated.
  Three
      Months Ended
                                      
                                      
                                      VariancesMarch
      31,
                                      
                                      
                                      2009
      vs. 2008Financial
      Results
                                      
                                      2009
                                      
                                      
                                      2008
                                      
                                      
                                      Increase
      (Decrease)(Millions
      of dollars)NGL
      and condensate sales
                                      
                                      $
                                      117.8
                                      
                                      
                                      $
                                      211.6
                                      
                                      
                                      $
                                      (93.8
                                      )
                                      
                                      
                                      (44
                                      %)Residue
      gas sales
                                      
                                      
                                      92.0
                                      
                                      
                                      
                                      186.7
                                      
                                      
                                      
                                      (94.7
                                      )
                                      
                                      
                                      (51
                                      %)Gathering,
      compression, dehydration
                                        and
      processing fees and other revenue
                                      
                                      
                                      40.5
                                      
                                      
                                      
                                      38.2
                                      
                                      
                                      
                                      2.3
                                      
                                      
                                      
                                      6
                                      %Cost
      of sales and fuel
                                      
                                      
                                      164.2
                                      
                                      
                                      
                                      332.6
                                      
                                      
                                      
                                      (168.4
                                      )
                                      
                                      
                                      (51
                                      %)Net
      margin
                                      
                                      
                                      86.1
                                      
                                      
                                      
                                      103.9
                                      
                                      
                                      
                                      (17.8
                                      )
                                      
                                      
                                      (17
                                      %)Operating
      costs
                                      
                                      
                                      31.8
                                      
                                      
                                      
                                      33.1
                                      
                                      
                                      
                                      (1.3
                                      )
                                      
                                      
                                      (4
                                      %)Depreciation
      and amortization
                                      
                                      
                                      14.5
                                      
                                      
                                      
                                      11.7
                                      
                                      
                                      
                                      2.8
                                      
                                      
                                      
                                      24
                                      %Operating
      income
                                      
                                      $
                                      39.8
                                      
                                      
                                      $
                                      59.1
                                      
                                      
                                      $
                                      (19.3
                                      )
                                      
                                      
                                      (33
                                      %)Equity
      earnings from investments
                                      
                                      $
                                      4.5
                                      
                                      
                                      $
                                      7.0
                                      
                                      
                                      $
                                      (2.5
                                      )
                                      
                                      
                                      (36
                                      %)Capital
      expenditures
                                      
                                      $
                                      28.8
                                      
                                      
                                      $
                                      26.5
                                      
                                      
                                      $
                                      2.3
                                      
                                      
                                      
                                      9
                                      %
 
 
 Three
      Months EndedMarch
      31,Operating Information(a)
                        
                        2009
                        
                        
                        2008Natural
      gas gathered (BBtu/d)
                        
                        
                        1,163
                        
                        
                        
                        1,192Natural
      gas processed(BBtu/d)
                        
                        
                        653
                        
                        
                        
                        624NGL
      sales (MBbl/d)
                        
                        
                        41
                        
                        
                        
                        38Residue
      gas sales (BBtu/d)
                        
                        
                        285
                        
                        
                        
                        277Realized
      composite NGL sales price ($/gallon)
                        
                        $
                        0.66
                        
                        
                        $
                        1.33Realized
      condensate sales price ($/Bbl)
                        
                        $
                        62.24
                        
                        
                        $
                        87.51Realized
      residue gas sales price ($/MMBtu)
                        
                        $
                        3.59
                        
                        
                        $
                        7.40Realized
      gross processing spread ($/MMBtu)
                        
                        $
                        6.59
                        
                        
                        $
                        7.43(a)
      - Includes volumes for consolidated entities only.
  - 26
-
 Table of Contents
 
 Three
      Months EndedMarch
      31,Operating Information(a)
                    
                    2009
                    
                    
                    2008Percent
      of proceedsWellhead
      purchases (MMBtu/d)
                    
                    
                    60,496
                    
                    
                    
                    70,594NGL
      sales (Bbl/d)
                    
                    
                    5,040
                    
                    
                    
                    4,809Residue
      gas sales (MMBtu/d)
                    
                    
                    34,819
                    
                    
                    
                    36,607Condensate
      sales(Bbl/d)
                    
                    
                    2,095
                    
                    
                    
                    1,823Percentage
      of total net margin
                    
                    
                    50%
                    
                    
                    
                    58%Fee-basedWellhead
      volumes (MMBtu/d)
                    
                    
                    1,163,376
                    
                    
                    
                    1,191,801Average
      rate ($/MMBtu)
                    
                    $
                    0.28
                    
                    
                    $
                    0.26Percentage
      of total net margin
                    
                    
                    35%
                    
                    
                    
                    24%Keep-wholeNGL
      shrink (MMBtu/d)
                    
                    
                    16,960
                    
                    
                    
                    23,515Plant
      fuel (MMBtu/d)
                    
                    
                    2,182
                    
                    
                    
                    2,488Condensate
      shrink (MMBtu/d)
                    
                    
                    1,755
                    
                    
                    
                    2,011Condensate
      sales (Bbl/d)
                    
                    
                    355
                    
                    
                    
                    407Percentage
      of total net margin
                    
                    
                    15%
                    
                    
                    
                    18%(a)
      - Includes volumes for consolidated entities only.
  2009 vs. 2008 - Net margin
decreased primarily as a result of the following:
 ·
              a
      decrease of $27.5 million due to lower realized commodity prices,
      partially offset by
 ·
              an
      increase of $8.3 million due to higher volumes processed and
      sold.
 
 Operating
costs decreased primarily due to lower employee-related costs and decreased
costs for chemicals.
 
 Depreciation
and amortization increased primarily as a result of higher depreciation expense
associated with our completed capital projects.
 
 Equity
earnings from investments decreased primarily as a result of decreased earnings
from our investments.
 
 Capital
expenditures increased due to our increased growth activities, primarily in the
Rocky Mountain region.
 
 Commodity Price Risk - The
following tables set forth our Natural Gas Gathering and Processing segment’s
hedging information for the nine months ending December 31, 2009, and for the
year ending December 31, 2010, as of April 29, 2009.
 
 Nine
      Months EndingDecember
      31, 2009Volumes
                        Hedged
                      
                      Average
      Price
                      Percentage
                        HedgedNGLs
      (Bbl/d)(a)
                      
                      5,981
                      
                      $1.07
                      /
      gallon
                      69%Condensate
      (Bbl/d)(a)
                      
                      1,410
                      
                      $2.23
                      /
      gallon
                      68%Total
      (Bbl/d)
                      
                      7,391
                      
                      $1.29
                      /
      gallon
                      69%Natural
      gas(MMBtu/d)
                      
                      8,159
                      
                      $4.20
                      /
      MMBtu
                      45%(a)
      - Hedged with fixed-price swaps.
 
 
 Year
      EndingDecember
      31, 2010Volumes
                        Hedged
                      
                      Average
      Price
                      Percentage
                        HedgedNGLs
      (Bbl/d)(a)
                      
                      150
                      
                      $1.54
                      /
      gallon
                      2%Condensate
      (Bbl/d)(a)
                      
                      520
                      
                      $1.54
                      /
      gallon
                      24%Total
      (Bbl/d)
                      
                      670
                      
                      $1.54
                      /
      gallon
                      6%Natural
      gas(MMBtu/d)
                      
                      7,828
                      
                      $5.71
                      /
      MMBtu
                      39%(a)
      - Hedged with fixed-price swaps.
  - 27
-
 Table of Contents
  Commodity
price risk related to estimated physical sales of commodities in
our Natural Gas Gathering and Processing segment is estimated as a
hypothetical change in the price of NGLs, crude oil and natural gas at March 31,
2009.  Our condensate sales are based on the price of crude
oil.  We estimate the following:
 ·
              a
      $0.01 per gallon decrease in the composite price of NGLs would decrease
      annual net margin by approximately $1.2
million;
 ·
              a
      $1.00 per barrel decrease in the price of crude oil would decrease annual
      net margin by approximately $1.0 million;
and
 ·
              a
      $0.10 per MMBtu decrease in the price of natural gas would decrease annual
      net margin by approximately $0.7
million.
 
 The above
estimates of commodity price risk exclude the effects of hedging and assume
normal operating conditions.  Further, these estimates do not include
any effects on demand for our services that might be caused by, or arise in
conjunction with, price changes.  For example, a change in the gross
processing spread may cause a change in the amount of ethane extracted from the
natural gas stream, impacting gathering and processing margins.
 
 Natural
Gas Pipelines
 
 Overview-Our Natural Gas
Pipelines segment primarily owns and operates regulated natural gas transmission
pipelines, natural gas storage facilities and non-processable natural gas
gathering facilities.  We also provide interstate natural gas
transportation and storage service in accordance with Section 311(a) of the
Natural Gas Policy Act.
 
 Our
interstate natural gas pipeline assets transport natural gas through
FERC-regulated interstate natural gas pipelines in Montana, North Dakota, South
Dakota, Minnesota, Wisconsin, Iowa, Illinois, Indiana, Kentucky,
Tennessee, Oklahoma, Texas and New Mexico.  Our interstate pipelines
include:
 ·
              Midwestern
      Gas Transmission, which is a bi-directional system that interconnects with
      Tennessee Gas Transmission Company near Portland, Tennessee, and with
      several interstate pipelines near Joliet,
  Illinois;
 ·
              Viking
      Gas Transmission, which transports natural gas from an interconnection
      with TransCanada near Emerson, Manitoba, to an interconnection with ANR
      Pipeline Company near Marshfield,
Wisconsin;
 ·
              Guardian
      Pipeline interconnects with several pipelines in Joliet, Illinois, and
      with local distribution companies in Wisconsin;
  and
 ·
              OkTex
      Pipeline, which has interconnects in Oklahoma, New Mexico and
      Texas.
 
 Our
intrastate natural gas pipeline assets in Oklahoma have access to the major
natural gas producing areas and transport natural gas throughout the
state.  We also have access to the major natural gas producing area in
south central Kansas.  In Texas, our intrastate natural gas pipelines
are connected to the major natural gas producing areas in the Texas panhandle
and the Permian Basin and transport natural gas to the Waha Hub, where other
pipelines may be accessed for transportation east to the Houston Ship Channel
market, north into the Mid-Continent market and west to the California
market.
 
 We own
storage capacity in underground natural gas storage facilities in Oklahoma,
Kansas and Texas.
 
 Our
transportation contracts for our regulated natural gas activities are based upon
rates stated in our tariffs.  Tariffs specify the maximum rates
customers can be charged, which can be discounted to meet competition if
necessary, and the general terms and conditions for pipeline transportation
service, which are established at FERC or appropriate state jurisdictional
agency proceedings known as rate cases.  In Texas and Kansas, natural
gas storage service is a fee business that may be regulated by the state in
which the facility operates and by the FERC for certain types of
services.  In Oklahoma, natural gas gathering and natural gas storage
operations are not subject to rate regulation and have market-based rate
authority from the FERC for certain types of services.
  - 28
-
 Table of Contents
  Selected Financial Results and
Operating Information-The following tables set
forth certain selected financial results and operating information for our
Natural Gas Pipelines segment for the periods indicated.
  Three
      Months Ended
                        
                        
                        VariancesMarch
      31,
                        
                        
                        2009
      vs. 2008Financial
      Results
                        
                        2009
                        
                        
                        2008
                        
                        
                        Increase
      (Decrease)(Millions
      of dollars)Transportation
      revenues
                        
                        $
                        56.6
                        
                        
                        $
                        62.6
                        
                        
                        $
                        (6.0
                        )
                        
                        
                        (10
                        %)Storage
      revenues
                        
                        
                        14.3
                        
                        
                        
                        14.4
                        
                        
                        
                        (0.1
                        )
                        
                        
                        (1
                        %)Gas
      sales and other revenues
                        
                        
                        3.9
                        
                        
                        
                        13.2
                        
                        
                        
                        (9.3
                        )
                        
                        
                        (70
                        %)Cost
      of sales
                        
                        
                        9.2
                        
                        
                        
                        26.5
                        
                        
                        
                        (17.3
                        )
                        
                        
                        (65
                        %)Net
      margin
                        
                        
                        65.6
                        
                        
                        
                        63.7
                        
                        
                        
                        1.9
                        
                        
                        
                        3
                        %Operating
      costs
                        
                        
                        20.2
                        
                        
                        
                        23.6
                        
                        
                        
                        (3.4
                        )
                        
                        
                        (14
                        %)Depreciation
      and amortization
                        
                        
                        12.8
                        
                        
                        
                        8.4
                        
                        
                        
                        4.4
                        
                        
                        
                        52
                        %Operating
      income
                        
                        $
                        32.6
                        
                        
                        $
                        31.7
                        
                        
                        $
                        0.9
                        
                        
                        
                        3
                        %Equity
      earnings from investments
                        
                        $
                        16.2
                        
                        
                        $
                        20.1
                        
                        
                        $
                        (3.9
                        )
                        
                        
                        (19
                        %)Allowance
      for equity funds used during construction
                        
                        $
                        1.2
                        
                        
                        $
                        2.1
                        
                        
                        $
                        (0.9
                        )
                        
                        
                        (43
                        %)Capital
      expenditures
                        
                        $
                        17.4
                        
                        
                        $
                        22.2
                        
                        
                        $
                        (4.8
                        )
                        
                        
                        (22
                        %)
   Three
      Months EndedMarch
      31,Operating Information
      (a)
                            
                            2009
                            
                            
                            2008Natural
      gas transported (MMcf/d)
                            
                            
                            4,200
                            
                            
                            
                            4,075Average
      natural gas priceMid-Continent
      region  ($/MMBtu)
                            
                            $
                            3.44
                            
                            
                            $
                            7.18(a)
      - Includes volumes for consolidated entities only.
  2009 vs. 2008-Net margin increased
primarily due to an increase of $1.8 million from higher natural gas
transportation margins, primarily as a result of the Guardian Pipeline expansion
and extension being placed into service in February 2009, and increased retained
fuel volumes, partially offset by the impact of lower natural gas prices on
retained fuel.
 
 Operating
costs decreased primarily due to decreased employee-related costs and lower
general operating costs.
 
 Depreciation
and amortization increased primarily as a result of higher depreciation expense
due to our completed capital projects.
 
 Equity
earnings from investments decreased primarily due to lower subscription rates on
Northern Border Pipeline.
 
 Allowance
for equity funds used during construction and capital expenditures decreased,
primarily due to the Guardian Pipeline expansion and extension that was
constructed during 2008 and has since been completed.  See discussion
of Guardian Pipeline beginning on page 24.
 
 Natural
Gas Liquids Gathering and Fractionation
 
 Overview - Our Natural Gas
Liquids Gathering and Fractionation assets consist of facilities that gather,
fractionate and treat NGLs and store NGL products primarily in Oklahoma, Kansas
and Texas, as well as store and fractionate NGLs and NGL products in Mont
Belvieu, Texas.  The majority of the pipeline-connected natural gas
processing plants in Oklahoma, Kansas and the Texas panhandle, which extract
NGLs from unprocessed natural gas, are connected to our NGL gathering
systems.
 
 Most
natural gas produced at the wellhead contains a mixture of NGL components, such
as ethane, propane, iso-butane, normal butane and natural
gasoline.  Natural gas processing plants remove the NGLs from the
natural gas stream to realize the higher economic value of the NGLs and to meet
natural gas pipeline quality specifications, which limit NGLs in the natural gas
stream due to liquid and Btu content.  The NGLs that are separated
from the natural gas stream at the natural gas processing plants remain in a
mixed, unfractionated form until they are gathered, primarily by pipeline, and
delivered to fractionators where the NGLs are separated into NGL
products.  These NGL products are then stored or distributed to our
customers, such as petrochemical manufacturers, heating fuel users, refineries
and propane distributors.
  - 29
-
 Table of Contents
  Revenues
for this segment are primarily derived from exchange services, optimization,
isomerization and storage.
 ·
              Our
      exchange services business collects fees to gather, fractionate and treat
      unfractionated NGLs, thereby converting them into NGL products that are
      stored and shipped to a market center or customer-designated
      location.
 ·
              Our
      optimization business utilizes our assets, contract portfolio and market
      knowledge to capture locational and seasonal price
      differentials.  We move NGL products between Conway, Kansas, and
      Mont Belvieu, Texas, in order to capture the locational price
      differentials between the two market centers.  Our NGL storage
      facilities are also utilized to capture seasonal price
      variances.
 ·
              Our
      isomerization business captures the price differential when normal butane
      is converted into the more valuable iso-butane at an isomerization unit in
      Conway, Kansas.  Iso-butane is used in the refining industry to
      increase the octane of motor
gasoline.
 ·
              Our
      storage business collects fees to store NGLs at our Mid-Continent and Mont
      Belvieu facilities.
 
 Selected Financial Results and
Operating Information - The following tables set forth certain selected
financial results and operating information for our Natural Gas Liquids
Gathering and Fractionation segment for the periods indicated.
  Three
      Months Ended
                        
                        
                        VariancesMarch
      31,
                        
                        
                        2009
      vs. 2008Financial
      Results
                        
                        2009
                        
                        
                        2008
                        
                        
                        Increase
      (Decrease)(Millions
      of dollars)NGL
      and condensate sales
                        
                        $
                        895.2
                        
                        
                        $
                        1,626.1
                        
                        
                        $
                        (730.9
                        )
                        
                        
                        (45
                        %)Storage
      and fractionation revenues
                        
                        
                        84.4
                        
                        
                        
                        80.4
                        
                        
                        
                        4.0
                        
                        
                        
                        5
                        %Cost
      of sales and fuel
                        
                        
                        920.4
                        
                        
                        
                        1,637.0
                        
                        
                        
                        (716.6
                        )
                        
                        
                        (44
                        %)Net
      margin
                        
                        
                        59.2
                        
                        
                        
                        69.5
                        
                        
                        
                        (10.3
                        )
                        
                        
                        (15
                        %)Operating
      costs
                        
                        
                        22.8
                        
                        
                        
                        18.6
                        
                        
                        
                        4.2
                        
                        
                        
                        23
                        %Depreciation
      and amortization
                        
                        
                        6.4
                        
                        
                        
                        5.6
                        
                        
                        
                        0.8
                        
                        
                        
                        14
                        %Operating
      income
                        
                        $
                        30.0
                        
                        
                        $
                        45.3
                        
                        
                        $
                        (15.3
                        )
                        
                        
                        (34
                        %)Capital
      expenditures
                        
                        $
                        13.0
                        
                        
                        $
                        29.6
                        
                        
                        $
                        (16.6
                        )
                        
                        
                        (56
                        %)
 
 
 Three
      Months EndedMarch
      31,Operating
      Information
                    
                    2009
                    
                    
                    2008NGLs
      gathered (MBbl/d)
                    
                    
                    264
                    
                    
                    
                    250NGL
      sales (MBbl/d)
                    
                    
                    380
                    
                    
                    
                    286NGLs
      fractionated (MBbl/d)
                    
                    
                    465
                    
                    
                    
                    391Conway-to-Mont
      Belvieu OPIS average price differentialEthane
      ($/gallon)
                    
                    $
                    0.08
                    
                    
                    $
                    0.09
 
 2009 vs. 2008 - Net margin
decreased primarily as a result of the following:
 ·
              a
      decrease of $16.5 million due to narrower product price differentials
      between Conway, Kansas, and Mont Belvieu, Texas, and lower marketing
      margins due to lower prices, partially offset
by
 ·
              an
      increase of $6.4 million due to higher exchange margins primarily related
      to increased gathering and fractionation volumes associated with new
      supply connections and Overland Pass Pipeline volumes, as well as
      increased rates.
 
 Operating
costs increased primarily due to incremental operating expenses associated with
the recently expanded Bushton fractionator that began operations in the third
quarter of 2008, increased outside services expenses at our other fractionators
and higher employee-related costs.
 
 Capital
expenditures decreased primarily due to the completion of the fractionation and
storage expansions related to the Overland Pass Pipeline, which are discussed
beginning on page 23.
  - 30
-
 Table of Contents
  Natural
Gas Liquids Pipelines
 
 Overview - Our Natural Gas
Liquids Pipelines segment primarily owns and operates regulated natural gas
liquids gathering and distribution pipelines and associated above- and
below-ground NGL storage facilities.  Our natural gas liquids gathering
pipelines deliver unfractionated NGLs gathered in Oklahoma, Kansas, the Texas
panhandle and the Rocky Mountain region to our Natural Gas Liquids Gathering and
Fractionation segment’s Mid-Continent fractionation facilities in Oklahoma and
Kansas.  Our natural gas liquids distribution pipelines deliver
unfractionated NGLs and NGL products to the natural gas liquids market hubs in
Conway, Kansas, and Mont Belvieu, Texas.  Our natural gas liquids
distribution and refined petroleum products pipelines connect our Mid-Continent
assets with Midwest markets, including Chicago, Illinois.  We operate
FERC-regulated natural gas liquids gathering and distribution pipelines in
Oklahoma, Kansas, Nebraska, Missouri, Iowa, Illinois, Indiana, Texas, Wyoming
and Colorado and terminal and storage facilities in Missouri, Nebraska, Iowa and
Illinois.
 
 Revenues
for this segment are primarily derived from transporting product under our
FERC-regulated tariffs.  Tariffs specify the rates we charge our
customers and the general terms and conditions for NGL transportation service on
our pipelines.  Our tariffs include specifications regarding the
receipt and delivery of NGLs at points along the pipeline systems.  We
generally charge tariff rates under a FERC-approved indexing methodology, which
allows charging rates up to a prescribed ceiling that changes annually based on
the year-to-year change in the Producer Price Index for finished
goods.  The FERC also permits interstate natural gas liquids pipelines
to support rates by using a cost-of-service methodology, competitive market
price or an agreement with a pipeline’s non-affiliated shipper.
 
 Selected Financial Results and
Operating Information-The following tables set
forth certain selected financial results and operating information for our
Natural Gas Liquids Pipelines segment for the periods indicated.
  Three
      Months Ended
                        
                        
                        VariancesMarch
      31,
                        
                        
                        2009
      vs. 2008Financial
      Results
                        
                        2009
                        
                        
                        2008
                        
                        
                        Increase
      (Decrease)(Millions
      of dollars)Transportation
      and gathering revenues
                        
                        $
                        53.8
                        
                        
                        $
                        34.1
                        
                        
                        $
                        19.7
                        
                        
                        
                        58
                        %Storage
      revenues
                        
                        
                        0.9
                        
                        
                        
                        2.6
                        
                        
                        
                        (1.7
                        )
                        
                        
                        (65
                        %)NGL
      sales and other revenues
                        
                        
                        3.0
                        
                        
                        
                        2.0
                        
                        
                        
                        1.0
                        
                        
                        
                        50
                        %Cost
      of sales and fuel
                        
                        
                        13.5
                        
                        
                        
                        7.4
                        
                        
                        
                        6.1
                        
                        
                        
                        82
                        %Net
      margin
                        
                        
                        44.2
                        
                        
                        
                        31.3
                        
                        
                        
                        12.9
                        
                        
                        
                        41
                        %Operating
      costs
                        
                        
                        15.6
                        
                        
                        
                        13.4
                        
                        
                        
                        2.2
                        
                        
                        
                        16
                        %Depreciation
      and amortization
                        
                        
                        6.3
                        
                        
                        
                        4.1
                        
                        
                        
                        2.2
                        
                        
                        
                        54
                        %Operating
      income
                        
                        $
                        22.3
                        
                        
                        $
                        13.8
                        
                        
                        $
                        8.5
                        
                        
                        
                        62
                        %Equity
      earnings from investments
                        
                        $
                        0.5
                        
                        
                        $
                        0.7
                        
                        
                        $
                        (0.2
                        )
                        
                        
                        (29
                        %)Allowance
      for equity funds used during construction
                        
                        $
                        7.8
                        
                        
                        $
                        6.4
                        
                        
                        $
                        1.4
                        
                        
                        
                        22
                        %Capital
      expenditures
                        
                        $
                        133.2
                        
                        
                        $
                        188.7
                        
                        
                        $
                        (55.5
                        )
                        
                        
                        (29
                        %)
 
 
 Three
      Months EndedMarch
      31,Operating
      Information
                    
                    2009
                    
                    
                    2008NGLs
      transported-gathering lines (MBbl/d)
                    
                    
                    163
                    
                    
                    
                    92NGLs
      transported-distribution lines (MBbl/d)
                    
                    
                    445
                    
                    
                    
                    303
 
 2009 vs. 2008- Net margin
increased primarily as a result of the following:
 ·
              an
      increase of $8.9 million in incremental margin from gathering and
      distribution volumes associated with the startup of the Overland Pass
      Pipeline, which began operating during the fourth quarter of 2008;
      and
 ·
              an
      increase of $5.1 million due to increased throughput on our natural gas
      liquids distribution pipelines, primarily due to favorable weather
      patterns increasing propane demand and increased shipments of natural
      gasoline to meet higher demand in the diluent
  market.
 
 Operating
costs and depreciation and amortization increased primarily due to the startup
of the Overland Pass Pipeline.
 
 Capital
expenditures decreased primarily due to the completion of the Overland Pass
Pipeline and related projects, which are discussed beginning on page
23.
  - 31
-
 Table of Contents
  Contingencies
 
 Legal Proceedings-We are a party to
various litigation matters and claims that are in the normal course of our
operations.  While the results of litigation and claims cannot be
predicted with certainty, we believe the final outcome of such matters will not
have a material adverse effect on our consolidated results of operations,
financial position or liquidity.
 
 Mont
Belvieu Emissions,Texas
Commission on Environmental Quality - As previously reported, we are in
discussions with the Texas Commission on Environmental Quality (TCEQ) staff
regarding air emissions at our Mont Belvieu fractionator, which may have
exceeded the emissions allowed under our air permit.  On March 13, 2009,
the TCEQ issued a Notice of Enforcement, alleging that we failed to isolate the
source of the emissions in a timely manner.  In a letter dated April 15,
2009, the TCEQ proposed settling the matter by entering into an Agreed Order
with an administrative penalty of $160,000 and requiring us to perform certain
preventative procedures.  We are evaluating this proposal and preparing a
response.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 General-Part of our strategy is
to grow through acquisitions and internally-generated growth projects that
strengthen and complement our existing assets.  We have relied
primarily on operating cash flow, bank credit facilities, debt issuances and the
sale of common units for our liquidity and capital resources
requirements.  We fund our operating expenses, debt service and cash
distributions to our limited partners and general partner primarily with
operating cash flow.  We expect to continue to use these sources for
liquidity and capital resource needs on both a short- and long-term
basis.  We have no guarantees of debt or other similar commitments to
unaffiliated parties.
 
 During
2008 and continuing into 2009, the capital markets experienced volatility and
disruption, which could limit our access to those markets or increase the cost
of issuing new securities in the future.  During this period, we have
continued to have access to our $1.0 billion Partnership Credit Agreement to
fund our short-term liquidity needs.
 
 We expect
challenging economic conditions in 2009, with downward pressures, relative to
2008, on commodity prices.  We also expect continued volatility and
disruption in the financial markets.  Our ability to continue to
access capital markets for debt and equity financing under reasonable terms
depends on our financial condition, credit ratings and market
conditions.  We anticipate that our cash flow generated from
operations, existing capital resources and ability to obtain financing will
enable us to maintain our current level of operations and our planned
operations, collateral requirements and capital expenditures.
 
 Capital Structure - The
following table sets forth our capitalization structure for the periods
indicated.
  March
      31,
                                
                                December
      31,2009
                                
                                2008Long-term
      debt
                                
                                
                                52
                                %
                                
                                
                                47
                                %Equity
                                
                                
                                48
                                %
                                
                                
                                53
                                %Debt
      (including notes payable)
                                
                                
                                55
                                %
                                
                                
                                54
                                %Equity
                                
                                
                                45
                                %
                                
                                
                                46
                                %
  Cash Management- We use a
centralized cash management program that concentrates the cash assets of our
operating subsidiaries in joint accounts for the purpose of providing financial
flexibility and lowering the cost of borrowing, transaction costs and bank
fees.  Our centralized cash management program provides that funds in
excess of the daily needs of our operating subsidiaries are concentrated,
consolidated or made available for use by other entities within our consolidated
group.  Our operating subsidiaries participate in this program to the
extent they are permitted under FERC regulations.  Under the cash
management program, depending on whether a participating subsidiary has
short-term cash surpluses or cash requirements, the Intermediate Partnership
provides cash to the subsidiary or the subsidiary provides cash to the
Intermediate Partnership.
  - 32
-
 Table of Contents
  Short-term Liquidity - Our
principal sources of short-term liquidity consist of cash generated from
operating activities and borrowings under our Partnership Credit
Agreement.
 
 The total
amount of short-term borrowings authorized by our general partner’s Board of
Directors is $1.5 billion.  At March 31, 2009, we had $436.7 million
of borrowings outstanding and $563.3 million available under our Partnership
Credit Agreement, which expires in March 2012, and available cash and cash
equivalents of approximately $1.1 million.  As of March 31, 2009, we
could have issued $706.4 million of additional short- and long-term debt under
the most restrictive provisions contained in our Partnership Credit
Agreement.  We have a total of $49.2 million issued in letters of
credit outside of the Partnership Credit Agreement.
 
 Our
Partnership Credit Agreement contains certain financial, operational and legal
covenants as discussed in Note H of the Notes to Consolidated Financial
Statements in our Annual Report on Form 10-K for the year ended December 31,
2008.  At March 31, 2009, our ratio of indebtedness to adjusted EBITDA
(EBITDA, as adjusted for all non-cash charges and increased for projected EBITDA
from certain lender-approved capital expansion projects) was 4.2 to 1, and we
were in compliance with all covenants under our Partnership Credit
Agreement.
 
 Long-term Financing - In
addition to our principal sources of short-term liquidity discussed above,
options available to us to meet our longer-term cash requirements include the
issuance of common units or long-term notes.  Other options to obtain
financing include, but are not limited to, issuance of convertible debt
securities and asset securitization, and the sale and leaseback of
facilities.
 
 We are
subject, however, to changes in the equity and debt markets, and there is no
assurance we will be able or willing to access the public or private markets in
the future.  We may choose to meet our cash requirements by utilizing
some combination of cash flows from operations, borrowing under existing credit
facilities, altering the timing of controllable expenditures, restricting future
acquisitions and capital projects, or pursuing other debt or equity financing
alternatives, which may include issuing common units to ONEOK in a private
placement transaction.  Some of these alternatives could involve
higher costs or negatively affect our credit ratings, among other
factors.  Based on our investment-grade credit ratings, general
financial condition and market expectations regarding our future earnings and
projected cash flows, we believe that we will be able to meet our cash
requirements and maintain our investment-grade credit ratings.
 
 Debt Issuance - In
March 2009, we completed an underwritten public offering of $500 million
aggregate principal amount of 8.625 percent Senior Notes due
2019.  The 2019 Notes were issued under our existing shelf
registration statement filed with the SEC.
 
 We may
redeem the 2019 Notes, in whole or in part, at any time prior to their maturity
at a redemption price equal to the principal amount, 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 2019 Notes plus accrued and
unpaid interest to the redemption date.  The 2019 Notes are senior
unsecured obligations, ranking equally in right of payment with all of our
existing and future unsecured senior indebtedness, and effectively junior to all
of the existing and future debt and other liabilities of our non-guarantor
subsidiaries.  The 2019 Notes are nonrecourse to our general
partner.  For more information regarding the 2019 Notes, refer to
discussion in Note F of the Notes to Consolidated Financial Statements in this
Quarterly Report on Form 10-Q.
 
 Debt Covenants - The
terms of the 2019 Notes are governed by an indenture, dated as of September 25,
2006, between us and Wells Fargo Bank, N.A., as trustee, as supplemented by the
Fifth Supplemental Indenture, dated March 3, 2009 (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 our ability to place liens on
our property or assets and to sell and lease back our property.
 
 Our $250
million and $225 million senior notes, due 2010 and 2011, respectively, contain
provisions that require us to offer to repurchase the senior notes at par value
if our Moody’s or 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 our
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 our
senior notes due 2012, 2016, 2019, 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 events 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, 2019, 2036
and 2037 to declare those notes immediately due and payable in
full.
  - 33
-
 Table of Contents
  Capital Expenditures-
Our capital expenditures are typically financed through operating cash flows,
short- and long-term debt and the issuance of equity.  Capital
expenditures were $192.5 million and $267.1 million for three months ended March
31, 2009 and 2008, respectively.  We classify expenditures that are
expected to generate additional revenue or significant operating efficiencies as
growth capital expenditures.  Maintenance capital expenditures are
those required to maintain existing operations and do not generate additional
revenues.  Projected 2009 capital expenditures are significantly less
than 2008 capital expenditures due to the completion of the Overland Pass
Pipeline and related projects, the Woodford Shale extension and the Guardian
Pipeline expansion and extension.  Additional information about our
growth capital expenditures is included under “Capital Projects” on page
23.
 
 The
following table summarizes our 2009 projected growth and maintenance capital
expenditures, excluding AFUDC.
  2009
      Projected Capital Expenditures
                            
                            Growth
                            
                            
                            Maintenance
                            
                            
                            Total(Millions
      of dollars)Natural
      Gas Gathering and Processing
                            
                            $
                            74
                            
                            
                            $
                            19
                            
                            
                            $
                            93Natural
      Gas Pipelines
                            
                            
                            63
                            
                            
                            
                            19
                            
                            
                            
                            82Natural
      Gas Liquids Gathering and Fractionation
                            
                            
                            36
                            
                            
                            
                            13
                            
                            
                            
                            49Natural
      Gas Liquids Pipelines
                            
                            
                            205
                            
                            
                            
                            10
                            
                            
                            
                            215Total
      projected capital expenditures
                            
                            $
                            378
                            
                            
                            $
                            61
                            
                            
                            $
                            439
 
 Investment in Northern Border
Pipeline - In March 2009, we made an equity contribution of $4.3
million to Northern Border Pipeline.  Northern Border Pipeline
anticipates requiring an additional equity contribution of approximately $76
million from its partners in the third quarter of 2009, of which our share will
be approximately $38 million based on our 50 percent equity
interest.
 
 Credit Ratings - Our credit
ratings as of March 31, 2009, are shown in the table below.
  Rating
      Agency
                      
                      Rating
                      
                      OutlookMoody’s
                      
                      Baa2
                      
                      StableS&P
                      
                      BBB
                      
                      Stable
 
 Our
credit ratings, which are currently investment grade, may be affected by a
material change in our financial ratios or a material event affecting our
business.  The most common criteria for assessment of our credit
ratings are the debt-to-EBITDA ratio, interest coverage, business risk profile
and liquidity.  We do not anticipate a downgrade in our credit
ratings.  However, if our credit ratings were downgraded, the interest
rates on borrowings under our Partnership Credit Agreement would increase,
resulting in an increase in our cost to borrow funds.  An adverse
rating change alone is not a default under our Partnership Credit
Agreement.  See additional discussion about our credit ratings under
“Debt Covenants.”
 
 In the
event of a default under our senior notes, we may not have sufficient cash on
hand to repurchase and repay any accelerated senior notes, which may cause us to
borrow money under our credit facilities or seek alternative financing sources
to finance the repurchases and repayment.  We could also face
difficulties accessing capital or our borrowing costs could increase, impacting
our ability to obtain financing for acquisitions or capital expenditures, to
refinance indebtedness and to fulfill our debt obligations.
 
 Other
than the note repurchase obligations described above under “Debt Covenants,” we
have determined that we do not have significant exposure to rating triggers in
various other contracts and equipment leases.  Rating triggers are
defined as provisions that would create an automatic default or acceleration of
indebtedness based on a change in our credit rating.
 
 In the
normal course of business, our counterparties provide us with secured and
unsecured credit.  In the event of a downgrade in our credit rating or
a significant change in our counterparties’ evaluation of our creditworthiness,
we could be asked to provide additional collateral in the form of cash, letters
of credit or other negotiable instruments.
  - 34
-
 Table of Contents
  Cash Distributions-We
distribute 100 percent of our available cash, which generally consists of all
cash receipts less adjustments for cash disbursements and net change to
reserves, to our general and limited partners.  Our income is
allocated to our general partner and limited partners according to their
partnership percentages of 2 percent and 98 percent, respectively.  The
effect of any incremental income allocations for incentive distributions to our
general partner is calculated after the income allocation for the general
partner’s partnership interest and before the income allocation to the limited
partners.
 
 The
following table sets forth cash distributions paid, including our general
partner’s incentive distribution interests, during the periods
indicated.
 
 Three
      Months EndedMarch
      31,2009
                            
                            2008(Millions
      of dollars)Common
      unitholders
                            
                            $
                            58.8
                            
                            $
                            47.6Class
      B unitholders
                            
                            39.4
                            
                            37.4General
      Partner
                            
                            22.7
                            
                            16.2Total
      cash distributions paid before noncontrolling interests
                            
                            $
                            120.9
                            
                            $
                            101.2
 
 The
following summarizes our quarterly cash distribution activity for
2009.
 ·
              In
      January 2009, we declared a cash distribution of $1.08 per unit for the
      fourth quarter of 2008.  The distribution was paid on February
      13, 2009, to unitholders of record on January 30,
  2009.
 ·
              In
      April 2009, we declared a cash distribution of $1.08 per unit for the
      first quarter of 2009.  The distribution will be paid on May 15,
      2009, to unitholders of record as of April 30,
  2009.
 
 Our
general partner’s percentage interest in quarterly distributions increases after
certain specified target levels are met.  For additional information,
see “Cash Distribution Policy” under Part II, Item 5, Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities, in our Annual Report on Form 10-K for the year ended December 31,
2008.
 
 Commodity Prices - We are
subject to commodity price volatility.  Significant fluctuations in
commodity prices may impact our overall liquidity due to the impact commodity
price changes have on our cash flows from operating activities, including the
impact on working capital for NGLs and natural gas held in storage, margin
requirements and certain energy-related receivables.  We believe that
our available credit and cash and cash equivalents are adequate to meet
liquidity requirements associated with commodity price
volatility.  See Note C of the Notes to Consolidated Financial
Statements and the discussion under Natural Gas Gathering and Processing’s
“Commodity Price Risk” in Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, in this Quarterly Report on Form
10-Q for information on our hedging activities.
  - 35
-
 Table of Contents
  CASH
FLOW ANALYSIS
  We use
the indirect method to prepare our Consolidated Statements of Cash
Flows.  Under this method, we reconcile net income to cash flows
provided by operating activities by adjusting net income for those items that
impact net income but may not result in actual cash receipts or payments during
the period.  These reconciling items include depreciation and
amortization, allowance for equity funds used during construction, gain on sale
of assets, noncontrolling interests in income of consolidated subsidiaries, and
undistributed earnings from equity investments in excess of distributions
received.
 
 The
following table sets forth the changes in cash flows by operating, investing and
financing activities for the periods indicated.
 
 Three
      Months Ended
                          
                          
                          VariancesMarch
      31,
                          
                          
                          2009
      vs. 20082009
                          
                          
                          2008
                          
                          
                          Increase
      (Decrease)(Millions
      of dollars)Total
      cash provided by (used in):Operating
      activities
                          
                          $
                          74.7
                          
                          
                          $
                          242.1
                          
                          
                          $
                          (167.4
                          )
                          
                          
                          (69
                          %)Investing
      activities
                          
                          
                          (188.0
                          )
                          
                          
                          (261.2
                          )
                          
                          
                          73.2
                          
                          
                          
                          28
                          %Financing
      activities
                          
                          
                          (63.2
                          )
                          
                          
                          248.7
                          
                          
                          
                          (311.9
                          )
                          
                          
                          
                          *Change
      in cash and cash equivalents
                          
                          
                          (176.5
                          )
                          
                          
                          229.6
                          
                          
                          
                          (406.1
                          )
                          
                          
                          
                          *Cash
      and cash equivalents at beginning of period
                          
                          
                          177.6
                          
                          
                          
                          3.2
                          
                          
                          
                          174.4
                          
                          
                          
                          
                          *Cash
      and cash equivalents at end of period
                          
                          $
                          1.1
                          
                          
                          $
                          232.8
                          
                          
                          $
                          (231.7
                          )
                          
                          
                          (100
                          %)*
      Percentage change is greater than 100 percent.
  Operating Cash Flows -
Operating cash flows decreased, primarily due to changes in the components of
working capital.  These changes decreased operating cash flows by
$59.1 million for the three months ended March 31, 2009, compared with an
increase of $79.3 million for the same period in 2008, primarily due to
decreases in cash flows from accounts payable and accounts receivable in 2009
relative to 2008.  The decrease in operating cash flows was also
impacted by decreased net income for the three months ended March 31, 2009,
compared with the same period in 2008.
 
 Investing Cash Flows-
Investing cash flows for the three months ended March 31, 2009, include
decreased capital expenditures of $74.6 million, compared with the same period
in 2008, due to decreased spending for our capital projects.
 
 Financing Cash Flows - In
March 2009, we completed an underwritten public offering of senior notes
totaling approximately $498.3 million, net of discounts but before offering
expenses.  The net proceeds from the notes were used to repay
borrowings under our Partnership Credit Agreement.  Net repayments of
notes payable were $433.3 million during the first quarter of 2009.
 
 Cash
distributions to our general and limited partners for the first quarter of 2009
were $120.9 million, compared with $101.1 million in the same period in 2008, an
increase of $19.8 million.  This increase was due to additional units
outstanding during 2009, as well as cash distributions of $1.08 per unit during
the first quarter of 2009, compared with $1.025 per unit in the first quarter of
2008.
 
 In the
first quarter of 2008, our common unit offering and private placement of common
units generated proceeds of approximately $443.6 million.  In
addition, ONEOK Partners GP contributed $9.4 million in order to maintain its 2
percent general partner interest in us.  We used a portion of the
proceeds and general partner contributions to repay borrowings under our
Partnership Credit Agreement.  Net repayments of notes payable were
$100 million during the first quarter of 2008.
 
 ENVIRONMENTAL
AND SAFETY MATTERS
 
 Information
about our environmental matters is included in Note G of the Notes to
Consolidated Financial Statements in this Quarterly Report on Form
10-Q.
 
 Pipeline Safety- We are
subject to United States Department of Transportation regulations, including
integrity management regulations.  The Pipeline Safety Improvement Act
requires pipeline companies to perform integrity assessments on pipeline
segments that pass through densely populated areas or near specifically
designated high consequence areas.  To our knowledge, we are in
compliance with all material requirements associated with the various pipeline
safety regulations.  Further, we cannot assure that existing pipeline
safety regulations will not be revised or that new regulations will not be
adopted that could result in increased compliance costs or additional operating
restrictions.
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  Air and Water Emissions - The
federal Clean Air Act, the federal Clean Water Act and analogous state laws
impose restrictions and controls regarding the discharge of pollutants into the
air and water in the United States.  Under the Clean Air Act, a
federally enforceable operating permit is required for sources of significant
air emissions.  We may be required to incur certain capital
expenditures for air pollution-control equipment in connection with obtaining or
maintaining permits and approvals for sources of air emissions.  The
Clean Water Act imposes substantial potential liability for the removal of
pollutants discharged to waters of the United States and remediation of waters
affected by such discharge.  To our knowledge, we are in compliance
with all material requirements associated with the various
regulations.
 
 The
United States Congress is actively considering legislation to reduce emissions
of greenhouse gases, including carbon dioxide and methane.  In
addition, state and regional initiatives to regulate greenhouse gas emissions
are under way.  We are monitoring federal and state legislation to
assess the potential impact on our operations.  We estimate our direct
greenhouse gas emissions annually as we collect all applicable greenhouse gas
emission data for the previous year.  Our most recent estimate, based
on 2007 data, is estimated to be less than 6 million metric tons of carbon
dioxide equivalents on an annual basis.  We expect to complete our
annual estimate for 2008 during the second quarter of 2009
and will post the information on our Web site when
available.  We will continue efforts to quantify our direct greenhouse
gas emissions and will report such emissions as required by any mandatory
reporting rule, including the rules anticipated to be issued by the United
States Environmental Protection Agency (EPA) in mid-2009.
 
 Superfund - The Comprehensive
Environmental Response, Compensation and Liability Act, also known as CERCLA or
Superfund, imposes liability, without regard to fault or the legality of the
original act, on certain classes of persons who contributed to the release of a
hazardous substance into the environment.  These persons include the
owner or operator of a facility where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
facility.  Under CERCLA, these persons may be liable for the costs of
cleaning up the hazardous substances released into the environment, damages to
natural resources and the costs of certain health studies.
 
 Chemical Site Security - The
United States Department of Homeland Security (Homeland Security) released an
interim rule in April 2007 that requires companies to provide reports on sites
where certain chemicals, including many hydrocarbon products, are
stored.  We completed the Homeland Security assessments, and our
facilities were subsequently assigned one of four risked-based tiers ranging
from high (Tier 1) to low (Tier 4) risk, or not tiered at all due to low
risk.  A majority of our facilities were not tiered.  We are
currently waiting for Homeland Security’s analysis to determine if any of the
tiered facilities will require Site Security Plans and possible physical
security enhancements.  In addition, the Transportation Security
Administration, along with the Department of Transportation, has completed a
review and inspection of our “critical facilities” with no material
issues.
 
 Climate Change - Our
environmental and climate change strategy focuses on taking steps to minimize
the impact of our operations on the environment.  These strategies
include: (i) developing and maintaining an accurate greenhouse gas emissions
inventory, according to rules anticipated to be issued by the EPA in mid-2009,
(ii) improving the efficiency of our various pipelines, natural gas processing
facilities and natural gas liquids fractionation facilities, (iii) following
developing technologies for emissions control, (iv) following developing
technologies to capture carbon dioxide to keep it from reaching the atmosphere,
and (v) analyzing options for future energy investment.
 
 We
participate in the EPA’s Natural Gas STAR Program to voluntarily reduce methane
emissions.  We were honored in 2008 as the “Natural Gas STAR Gathering
and Processing Partner of the Year” for our efforts to positively address
environmental issues through voluntary implementation of emission-reduction
opportunities.  In addition, we continue to focus on maintaining low
rates of lost-and-unaccounted-for methane gas through expanded implementation of
best practices to limit the release of methane gas during pipeline and facility
maintenance and operations.  Our most recent calculation of our annual
lost-and-unaccounted-for natural gas, for all of our business operations, is
less than 1 percent of total throughput.  We expect to complete our
annual estimate for 2008 during the second quarter of 2009
and will post the information on our Web site when
available.
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  FORWARD-LOOKING
STATEMENTS
  Some of
the statements contained and incorporated in this Quarterly Report on Form 10-Q
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act, as
amended.  The forward-looking statements relate to our anticipated
financial performance, management’s plans and objectives for our future
operations, our business prospects, the outcome of regulatory and legal
proceedings, market conditions and other matters.  We make these
forward-looking statements in reliance on the safe harbor protections provided
under the Private Securities Litigation Reform Act of 1995.  The
following discussion is intended to identify important factors that could cause
future outcomes to differ materially from those set forth in the forward-looking
statements.
 
 Forward-looking
statements include the items identified in the preceding paragraph, the
information concerning possible or assumed future results of our operations and
other statements contained or incorporated in this Quarterly Report on Form 10-Q
identified by words such as “anticipate,” “estimate,” “expect,”
“project,”  “intend,” “plan,” “believe,” “should,” “goal,” “forecast,”
“could,” “may,” “continue,” “might,” “potential,” “scheduled” and other words
and terms of similar meaning.
 
 You
should not place undue reliance on forward-looking statements.  Known
and unknown risks, uncertainties and other factors may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by forward-looking
statements.  Those factors may affect our operations, markets,
products, services and prices.  In addition to any assumptions and
other factors referred to specifically in connection with the forward-looking
statements, factors that could cause our actual results to differ materially
from those contemplated in any forward-looking statement include, among others,
the following:
 
 ·
              the
      effects of weather and other natural phenomena on our operations, demand
      for our services and energy prices;
 ·
              competition
      from other United States and Canadian energy suppliers and transporters,
      as well as alternative forms of energy, including, but not limited to,
      biofuels such as ethanol and
biodiesel;
 ·
              the
      capital intensive nature of our
businesses;
 ·
              the
      profitability of assets or businesses acquired or constructed by
      us;
 ·
              our
      ability to make cost-saving changes in
  operations;
 ·
              risks
      of marketing, trading and hedging activities, including the risks of
      changes in energy prices or the financial condition of our
      counterparties;
 ·
              the
      uncertainty of estimates, including accruals and costs of environmental
      remediation;
 ·
              the
      timing and extent of changes in energy commodity
  prices;
 ·
              the
      effects of changes in governmental policies and regulatory actions,
      including changes with respect to income and other taxes, environmental
      compliance, climate change initiatives, authorized rates of recovery of
      gas and gas transportation costs;
 ·
              the
      impact on drilling and production by factors beyond our control, including
      the demand for natural gas and refinery-grade crude oil; producers’ desire
      and ability to obtain necessary permits; reserve performance; and capacity
      constraints on the pipelines that transport crude oil, natural gas and
      NGLs from producing areas and our
facilities;
 ·
              difficulties
      or delays experienced by trucks or pipelines in delivering products to or
      from our terminals or pipelines;
 ·
              changes
      in demand for the use of natural gas because of market conditions caused
      by concerns about global warming;
 ·
              conflicts
      of interest between us, our general partner, ONEOK Partners GP, and
      related parties of ONEOK Partners
GP;
 ·
              the
      impact of unforeseen changes in interest rates, equity markets, inflation
      rates, economic recession and other external factors over which we have no
      control;
 ·
              our
      indebtedness could make us vulnerable to general adverse economic and
      industry conditions, limit our ability to borrow additional funds, and/or
      place us at competitive disadvantages compared to our competitors that
      have less debt or have other adverse
  consequences;
 ·
              actions
      by rating agencies concerning the credit ratings of us or our general
      partner;
 ·
              the
      results of administrative proceedings and litigation, regulatory actions
      and receipt of expected clearances involving the OCC, KCC, Texas
      regulatory authorities or any other local, state or federal regulatory
      body, including the FERC;
 ·
              our
      ability to access capital at competitive rates or on terms acceptable to
      us;
 ·
              risks
      associated with adequate supply to our gathering, processing,
      fractionation and pipeline facilities, including production declines that
      outpace new drilling;
 ·
              the
      risk that material weaknesses or significant deficiencies in our internal
      control over financial reporting could emerge or that minor problems could
      become significant;
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  ·
              the
      impact and outcome of pending and future
  litigation;
 ·
              the
      ability to market pipeline capacity on favorable terms, including the
      effects of:
 -
              future
      demand for and prices of natural gas and
NGLs;
 -
              competitive
      conditions in the overall energy
market;
 -
              availability
      of supplies of Canadian and United States natural gas;
  and
 -
              availability
      of additional storage capacity;
 ·
              performance
      of contractual obligations by our customers, service providers,
      contractors and shippers;
 ·
              the
      timely receipt of approval by applicable governmental entities for
      construction and operation of our pipeline and other projects and required
      regulatory clearances;
 ·
              our
      ability to acquire all necessary permits, consents and other approvals in
      a timely manner, to promptly obtain all necessary materials and supplies
      required for construction, and to construct gathering, processing,
      storage, fractionation and transportation facilities without labor or
      contractor problems;
 ·
              the
      mechanical integrity of facilities
operated;
 ·
              demand
      for our services in the proximity of our
  facilities;
 ·
              our
      ability to control operating costs;
 ·
              acts
      of nature, sabotage, terrorism or other similar acts that cause damage to
      our facilities or our suppliers’ or shippers’
  facilities;
 ·
              economic
      climate and growth in the geographic areas in which we do
      business;
 ·
              the
      risk of a prolonged slowdown in growth or decline in the U.S. economy or
      the risk of delay in growth recovery in the U.S. economy, including
      increasing liquidity risks in U.S. credit
  markets;
 ·
              the
      impact of recently issued and future accounting pronouncements and other
      changes in accounting policies;
 ·
              the
      possibility of future terrorist attacks or the possibility or occurrence
      of an outbreak of, or changes in, hostilities or changes in the political
      conditions in the Middle East and
elsewhere;
 ·
              the
      risk of increased costs for insurance premiums, security or other items as
      a consequence of terrorist attacks;
 ·
              risks
      associated with pending or possible acquisitions and dispositions,
      including our ability to finance or integrate any such acquisitions and
      any regulatory delay or conditions imposed by regulatory bodies in
      connection with any such acquisitions and
  dispositions;
 ·
              the
      impact of unsold pipeline capacity being greater or less than
      expected;
 ·
              the
      ability to recover operating costs and amounts equivalent to income taxes,
      costs of property, plant and equipment and regulatory assets in our state
      and FERC-regulated rates;
 ·
              the
      composition and quality of the natural gas and NGLs we gather and process
      in our plants and transport on our
pipelines;
 ·
              the
      efficiency of our plants in processing natural gas and extracting and
      fractionating NGLs;
 ·
              the
      impact of potential impairment
charges;
 ·
              the
      risk inherent in the use of information systems in our respective
      businesses, implementation of new software and hardware, and the impact on
      the timeliness of information for financial
  reporting;
 ·
              our
      ability to control construction costs and completion schedules of our
      pipelines and other projects; and
 ·
              the
      risk factors listed in the reports we have filed and may file with the
      SEC, which are incorporated by
reference.
 
 These
factors are not necessarily all of the important factors that could cause actual
results to differ materially from those expressed in any of our forward-looking
statements.  Other factors could also have material adverse effects on
our future results.  These and other risks are described in greater
detail in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for
the year ended December 31, 2008.  All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by these factors.  Other than as required under
securities laws, we undertake no obligation to update publicly any
forward-looking statement whether as a result of new information, subsequent
events or change in circumstances, expectations or otherwise.
 
 ITEM3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 Our
quantitative and qualitative disclosures about market risk are consistent with
those discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures
About Market Risk in our Annual Report on Form 10-K for the year ended December
31, 2008.
 
 COMMODITY
PRICE RISK
 
 See Note
C of the Notes to Consolidated Financial Statements and the discussion under
Natural Gas Gathering and Processing’s “Commodity Price Risk” in Item 2,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, in this Quarterly Report on Form 10-Q for information on our hedging
activities.
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  ITEM4.
              CONTROLS
      AND PROCEDURES
  Quarterly Evaluation of Disclosure
Controls and Procedures-As of the end of the
period covered by this report, the Chief Executive Officer (Principal Executive
Officer) and the Chief Financial Officer (Principal Financial Officer) of ONEOK
Partners GP, our general partner, evaluated the effectiveness of our disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the
Exchange Act.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to management of ONEOK Partners GP,
including the officers of ONEOK Partners GP who are the equivalent of our
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.  Based on their
evaluation, they concluded that as of March 31, 2009, our disclosure controls
and procedures were effective in ensuring that the information required to be
disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
 
 Changes in Internal Control Over
Financial Reporting -We have made no changes
in our internal control over financial reporting (as defined in Rule 13a-15(f)
and 15d-15(f) under the Exchange Act) during the first quarter ended March 31,
2009, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
 
 PART
II - OTHER INFORMATION
 
 ITEM1.
              LEGAL
      PROCEEDINGS
 
 Additional
information about our legal proceedings is included under Part I, Item 3, Legal
Proceedings, in our Annual Report on Form 10-K for the year ended December 31,
2008.
 
 Mont
Belvieu Emissions,Texas
Commission on Environmental Quality - As previously reported, we are in
discussions with the Texas Commission on Environmental Quality (TCEQ) staff
regarding air emissions at our Mont Belvieu fractionator, which may have
exceeded the emissions allowed under our air permit.  On March 13, 2009,
the TCEQ issued a Notice of Enforcement, alleging that we failed to isolate the
source of the emissions in a timely manner.  In a letter dated April 15,
2009, the TCEQ proposed settling the matter by entering into an Agreed Order
with an administrative penalty of $160,000 and requiring us to perform certain
preventative procedures.  We are evaluating this proposal and preparing a
response.
  ITEM1A.
              RISK
      FACTORS
  Our
investors should consider the risks set forth in Part I, Item 1A, Risk Factors
of our Annual Report on Form 10-K for the year ended December 31, 2008, that
could affect us and our business.  Although we have tried to discuss
key factors, our investors need to be aware that other risks may prove to be
important in the future.  New risks may emerge at any time and we
cannot predict such risks or estimate the extent to which they may affect our
financial performance.  Investors should carefully consider the
discussion of risks and the other information included or incorporated by
reference in this Quarterly Report on Form 10-Q, including “Forward-Looking
Statements,” which are included in Part I, Item 2, Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
 
 ITEM2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
 
 Not
Applicable.
 
 ITEM3.
              DEFAULTS
      UPON SENIOR SECURITIES
 
 Not
Applicable.
 
 ITEM4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 Not
Applicable.
 
 ITEM5.
              OTHER
      INFORMATION
 
 Not
Applicable.
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  ITEM6.
              EXHIBITS
 
 Readers
of this report should not rely on or assume the accuracy of any representation
or warranty or the validity of any opinion contained in any agreement filed as
an exhibit to this Quarterly Report on Form 10-Q (Report), because such
representation, warranty or opinion may be subject to exceptions and
qualifications contained in separate disclosure schedules, may represent an
allocation of risk between parties in the particular transaction, may be
qualified by materiality standards that differ from what may be viewed as
material for securities law purposes, or may no longer continue to be true as of
any given date.  All exhibits attached to this Report are included for the
purpose of complying with requirements of the SEC, and, other than the
certifications made by our officers pursuant to the Sarbanes-Oxley Act of 2002
included as exhibits to this Report, all exhibits are included only to provide
information to investors regarding their respective terms and should not be
relied upon as constituting or providing any factual disclosures about us, any
other persons, any state of affairs or other matters.
 
 The
following exhibits are filed as part of this Quarterly Report on Form
10-Q:
  Exhibit
      No.
                Exhibit
      Description
 4.1
              Fifth
      Supplemental Indenture, dated as of March 3, 2009, among ONEOK Partners,
      L.P., ONEOK Partners Intermediate Limited Partnership and Wells Fargo
      Bank, N.A., as trustee, with respect to the 8.625 percent Senior Notes due
      2019 (incorporated by reference to Exhibit 4.2 to the Current Report on
      Form 8-K, filed by ONEOK Partners, L.P. on March 3, 2009 (File No.
      1-12202)).
 
 31.1
              Certification
      of John W. Gibson pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
 
 31.2
              Certification
      of Curtis L. Dinan pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
 
 32.1
              Certification
      of John W. Gibson pursuant to 18 U.S.C. Section 1350 as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only pursuant
      to Rule 13a-14(b)).
 
 32.2
              Certification
      of Curtis L. Dinan pursuant to 18 U.S.C. Section 1350 as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only pursuant
      to Rule 13a-14(b)).
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  SIGNATURE
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this Report to be signed on its behalf by the undersigned hereunto
duly authorized.
  
 ONEOK
      PARTNERS, L.P.By:  ONEOK
      Partners GP, L.L.C., its General PartnerDate:
      April 30, 2009
                    
                    
                    
                    
                    
                    By:
                    /s/ Curtis L. DinanCurtis
      L. DinanExecutive
      Vice President,Chief
      Financial Officer and Treasurer(Signing
      on behalf of the Registrantand
      as Principal Financial Officer)
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