ONE Gas (OGS) Q3 2026 earnings review
ONE Gas raises its profit outlook, while operating costs stabilize
ONE Gas, a natural gas utility in Oklahoma, Kansas and Texas, earned higher profit as regulator-approved rate increases took effect and operating costs stopped climbing. Third-quarter profit per share excluding one-offs grew 13%, while revenue after gas costs rose 5% by our math, above what the company's own plan pointed to. Chief executive Robert S. McAnnally raised the full-year outlook for a second time, though by our math the plan leaves per-share profit growth slowing to 2% in the fourth quarter.
| Revenue after gas costs | $317.5M +5.0% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.53 +12.8% from a year ago |
| Operations and maintenance costs | $137.1M -0.1% from a year ago |
| Full-year profit per share outlook | Raised $0.06 middle of the range: 11.2% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because day-to-day operating costs held steady after five quarters of overruns and regulators approved new rate increases across all three states. The utility also finished its 2026 bond sales and paid off a maturing loan. One caution: the new $29 million Oklahoma rate order was appealed to the state Supreme Court, and rising non-cash accounting credits did not stop operating cash flow from falling 5% over nine months.
The question now is whether fourth-quarter results keep operating cost growth below the 4% long-term target and protect the contested Oklahoma rates. If costs stay low and the court upholds the order, the higher rate base flows into 2027 profit; if costs rebound or the court forces a refund, earnings give back part of this year's gain. Fourth-quarter expenses and the upcoming 2027 plan will tell.
🐂 Bull Case
New Rate Approvals Drive the Second Outlook Raise
ONE Gas, a regulated natural gas utility in Oklahoma, Kansas and Texas, earns more when state regulators let it raise customer rates to pay for new pipes. Chief executive Robert S. McAnnally said the utility could "for the second time this year, raise our 2026 financial outlook" as he sees "diverse large-load demand" from big industrial and power users.
- Third-quarter revenue from new rates: up $13.5 million from a year ago ($57.2 million over nine months)
- Texas infrastructure rate increase: $36.9 million a year, in effect since July 2026
- Kansas reliability surcharge: $14.3 million a year, approved in September and in effect since October 2026
- Revenue after gas costs: $317.5 million, up 5.0% from a year ago by our math
Because the Kansas law expanded what projects qualify, that state's surcharge nearly doubled from last year's $7.2 million. These approved increases beat the utility's second-half pace by 3% by our math, so they carry the higher full-year plan even before new industrial projects add meaningful sales.
What to watch: the 2027 financial plan and five-year targets due with fourth-quarter results. A higher multi-year growth target would show that larger rate recoveries and industrial contracts are lifting long-term profit.
Operating Expenses Stopped Growing in the Third Quarter
Operations and maintenance expense — the day-to-day cost of running and repairing gas lines — had grown faster than the utility's 3% to 4% long-term target for five straight quarters. Management promised that growth would step down in the second half as it brought pipeline monitoring work in-house.
In the third quarter, operations and maintenance costs were $137.1 million, down 0.1% from a year ago by our math and down 1.2 percentage points as a share of revenue. Employee costs rose only $1.0 million, so operating margin expanded 2.5 percentage points to 19.8%. One quarter does not settle a five-quarter overrun, because nine-month operating costs are still up 5.0%.
What to watch: fourth-quarter operations and maintenance expense. Another quarter below 4% growth from a year ago would confirm that bringing contractors' work in-house is holding costs down.
Debt Issuance Completes the 2026 Financing Plan
Entering the quarter, ONE Gas carried about $1 billion in short-term debt exposed to floating interest rates, including a $250 million loan due in September. "Our 2026 financing plan is complete," McAnnally said, after the utility issued $375 million of 5.45% ten-year notes in August and paid off the maturing loan.
The refinancing locked in long-term funding, but it raised third-quarter net interest expense (excluding Kansas securitized bonds) by $1.6 million. The utility still holds $789.8 million in short-term notes payable on its balance sheet, up from $737.4 million in December, so short-term rate exposure has eased rather than disappeared.
What to watch: net interest expense and short-term notes payable at year-end. A drop in short-term borrowings would limit the drag from the 5.45% bond coupon.
🐻 Bear Case
Oklahoma Rate Increase Faces a Supreme Court Appeal
Oklahoma Natural Gas, the company's largest division, filed in February for a $28.7 million annual base rate increase under its yearly performance-based rate rule. The utility began collecting those higher rates on an interim basis in late June.
On October 14, the Oklahoma Corporation Commission approved the request, but ONE Gas disclosed that "That order has been since appealed to the Oklahoma Supreme Court." Because "Interim rates subject to refund were implemented on June 26, 2026," every dollar collected under the new Oklahoma tariff remains at legal risk. That $28.7 million increase is more than one-third of all new rate money approved across its three states this year.
What to watch: filings and rulings at the Oklahoma Supreme Court on the October rate order. An adverse ruling would force ONE Gas to refund the interim revenue it has booked since June.
Non-Cash Accounting Credits Outpace Operating Cash Flow
Since late last year, ONE Gas has steered investors to profit excluding one-offs, which adds back deferred carrying costs — an accounting credit under Texas House Bill 4384 for returns on new Texas pipes before customers start paying for them. Management says this measure gives a fuller view of its regulated economics.
- Nine-month profit excluding one-offs: up $37.6 million from a year ago, to $218.9 million
- Nine-month Texas accounting credit: $12.2 million, up from $3.4 million a year ago (full-year plan: $15.7 million)
- Total regulatory assets on the balance sheet: $384.4 million, up 25.7% since December by our math
- Nine-month operating cash flow: $507.8 million, down 5.2% from a year ago by our math
The accounting credit is non-cash until future rate filings put it onto customer bills, so cash from operations fell $28.0 million even as reported profit climbed. Meanwhile, the release gave no update on when industrial projects start paying cash or on pending federal safety rules.
What to watch: full-year operating cash flow against the $15.7 million full-year accounting credit. A wider gap would mean the utility must borrow more to fund its $800 million construction budget.
New Shares Cut One-Third of Per-Share Profit Growth
Because ONE Gas spends more on pipeline construction and dividends than it generates in operating cash, it sells new common stock to keep its balance sheet balanced. Those share sales spread the utility's profit across more owners.
In the third quarter, diluted shares rose 4.3% from a year ago to 63.2 million, after the company settled forward share contracts in December. As a result, third-quarter profit excluding one-offs rose 17.2% to $33.5 million, but profit per share rose only 12.8% to $0.53. The full-year plan expects 63.25 million diluted shares, so dilution will keep trimming per-share growth by about 4 percentage points.
What to watch: fourth-quarter settlement of remaining forward share sales and any new stock offerings for 2027. Issuing more shares will keep per-share profit growth behind total profit growth.
👓 Other Themes
Cheaper Natural Gas Keeps Customer Bills Steady
ONE Gas passes the wholesale cost of natural gas directly to its customers without a markup, and weather rules smooth out warm winters. Nine-month weather was 23% warmer than normal, so the cost of gas fell 21% to $557.7 million. That savings offset the $57.2 million of rate increases, letting McAnnally say "we expect our average 2026 customer bills to remain flat to last year."
💲 Other KPIs
Spending on pipeline safety and new customer hookups rose 10.3% from a year ago in the third quarter, after dipping 4.6% in the first quarter and 0.9% in the second. Nine-month capital spending reached $586.9 million, up 2.0% from last year, which leaves $213.1 million for the fourth quarter to hit the $800 million annual budget.
The utility added 11,000 average customers from a year ago, a 0.5% increase that matches the pace of the past three quarters. Texas added 6,000 customers, Kansas added 3,000 and Oklahoma added 2,000, lifting third-quarter residential sales revenue by $3.3 million.
🔮 Guidance
Raised. The middle of the full-year range moved up $0.06 to $4.98, or 11.2% growth from last year. By our math, that leaves $1.51 for the fourth quarter, or 2.0% growth vs 12.8% in the third quarter, because Texas accounting credits are smaller in the fourth quarter and share count is 4.5% higher. This is the second raise this year: +$0.03 in Q2, +$0.06 in Q3.
Raised. Management lifted the middle of the range by $3 million to $315 million, which is 16.2% growth for the year. By our math, that implies $96.1 million in the fourth quarter, up 7.1% from a year ago vs 17.2% in the third quarter. It is the second raise this year: +$2M in Q2, +$3M in Q3.
Raised. ONE Gas narrowed the range and lifted the middle by $0.02 to $4.73, or 8.2% growth for the year. By our math, that leaves $1.46 for the fourth quarter, up 2.8% from a year ago vs 11.4% in the third quarter. The $0.02 GAAP raise is smaller than the $0.06 raise excluding one-offs because Texas accounting credits rose faster than previously planned.
Raised. The middle of the range rose $1.3 million to $299.3 million, or 13.3% growth from 2025. By our math, that leaves $92.6 million for the fourth quarter, up 7.3% from a year ago vs 18.0% in the third quarter.
Unchanged. The utility still plans to spend about $800 million on pipeline replacements and expansions, with $230 million of that going to connect new customers. By our math, that leaves $213.1 million for the fourth quarter, up 15.8% from a year ago after 10.3% growth in the third quarter.
❓ Key Questions
Who appealed the Oklahoma rate order and why?
The Oklahoma Corporation Commission approved the $28.7 million rate increase on October 14, and an appeal went to the Oklahoma Supreme Court. Investors need to know which provisions are contested and whether any revenue is reserved for refund.
Were the two industrial projects placed in service?
Last quarter, management said the El Paso manufacturing project and the Oklahoma data center project would go into service in the third quarter. The earnings release did not mention whether either project is now operating.
Have any late-stage industrial projects signed contracts?
The utility had five late-stage power and industrial projects in its pipeline last quarter and said some could sign before year-end. Converting them into signed contracts is key to the upcoming five-year capital plan.
Why did full-year Texas accounting credits jump to $15.7M?
Management initially estimated about $12 million of non-GAAP Texas carrying-cost credits for 2026, but the new outlook table shows $15.7 million at the middle of the range even as eligible third-quarter plant additions fell.