ONE Gas, Inc. (OGS) | The Buildout — AI Infrastructure
The Verdict
ONE Gas is a 100-percent regulated natural gas distribution utility serving about 2.3 million customers across Oklahoma, Kansas, and Texas. It does not sell gas as a commodity; it delivers it through pipes it owns and earns a regulated return on the infrastructure it builds. In the AI buildout, that makes it a fuel-delivery link rather than a supplier: data centers and gas-fired power plants in its three states need firm gas transport, and ONE Gas can connect them using a network that already exists. It holds concentrated in-state franchise positions — roughly 89 percent of Oklahoma's gas distribution customers and 72 percent of Kansas's — so competing for those customers inside its footprint is largely a franchise question rather than a contested market.
| Market Cap | — |
| Revenue (TTM) | $2.3B |
| Revenue Growth | −0.8% |
| EBITDA Margin (TTM) | 34.0% |
| Net Debt | $3.4B |
| Earnings Beats | 2 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Rate mechanisms carry the growth capital: Texas GRIP at $36.9 million is approved and effective, Oklahoma's performance-based rate change seeks $28.7 million with interim rates in place, and Kansas GSRS seeks about $14.3 million with rates expected in October.
- Texas HB 4384 defers depreciation and ad valorem taxes and accrues a carrying cost on eligible capital; management expects it to contribute about $0.42 to full-year 2026 adjusted EPS, with $0.28 to $0.29 in the first half.
- No full rate cases are planned until the Oklahoma filing in 2027 that the tariff requires, which keeps the near-term regulatory calendar clear.
- Three large-load projects are under contract, representing roughly $15 million of incremental annual revenue and $175 million of associated capital, with service dates running from the second half of 2026 through 2028.
- Beyond those, five late-stage projects and 17 early-stage opportunities sit in the funnel; the original late-stage group could support approximately 3 gigawatts of generation and up to 1 billion cubic feet per day of demand.
What We’re Watching
- O&M expense grew 6.6% year over year in the second quarter after 8.6% in the first, against a 3% to 4% long-term target. Management guides a 'meaningfully lower' second half.
- The five remaining late-stage large-load projects may be signed and announced before the end of 2026, or may slip to early 2027, according to management.
- Texas HB 4384 is expected to contribute less in the third quarter than the second.
- Oklahoma's interim rates, implemented in late June, are subject to refund while the final order is pending.
The core thesis — a regulated compounder earning through rate-base growth — is intact and modestly strengthening: management narrowed FY2026 guidance to the upper half, quantified a new legislative earnings driver, and, across two calls, delivered on the operational commitments it tracked without a miss. The AI-specific thesis is early and small, moving from a described pipeline to three signed projects, one of which is a data center that entered service in the third quarter. The open question is whether the five remaining late-stage projects convert into contracts that disclose a counterparty and a dollar value, or remain a count without either.
Earnings
ONE Gas reported second-quarter 2026 revenue of $411.6 million and gross margin of 78.1%, against $423.7 million and 41.3% a year earlier. Adjusted net income was $52.1 million, up from $32.7 million, and adjusted EPS was $0.82 against $0.54. GAAP EPS was $0.74 versus $0.53. Management quantified the full-year benefit of Texas HB 4384 at approximately $0.42 of adjusted EPS; first-half adjusted EPS grew 16% despite weather that was 25% warmer than normal.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $412M | $832M | $424M | −2.9% |
| Gross margin | 78.1% | 52.7% | 41.3% | +3680bps |
| EBITDA | $159M | $266M | $151M | +5.1% |
| EPS | $0.74 | $2.04 | $0.53 | +40.0% |
| Large-load projects under contract | 3 | 1 | n/a | ~$15M incremental annual revenue; $175M capital |
Interest from gas fired generation, data centers, and advanced manufacturing has grown meaningfully creating additional avenues for sustainable long term growth.— Sid McAnnally, Chief Executive Officer, 2026-08-05
Management tone: Between the May and August calls, management moved from affirming FY2026 guidance to expecting the upper half of it, citing new rates, Texas HB 4384, project conversion, and cost discipline. The CFO described O&M growth stepping down from 8.6% to 6.6% and said he has 'a greater level of confidence and cost discipline to the back half of the year.' The CEO said the company has 'a great deal of confidence' in its execution and that it does 'not see limitations, in the years to come.'
Management Guidance
Management reaffirmed the FY2026 ranges — adjusted net income of $306 million to $314 million and adjusted EPS of $4.83 to $4.95 — and said it expects the upper half, at $310 million to $314 million and $4.89 to $4.95. It newly quantified Texas HB 4384 at approximately $0.42 of full-year adjusted EPS, with about $0.28 to $0.29 in the first half, and said the benefit is uneven: a larger second quarter, a smaller third quarter, then rebuilding once the annual GRIP filing is reflected in rates. The company held its 3% to 4% long-term O&M growth target and guided second-half O&M growth 'meaningfully lower' than the second quarter's 6.6%. Long-term adjusted EPS growth guidance remains 5% to 7%, offered in December 2025, with a 2027 update promised later in 2026.
Trajectory
Reported revenue is a weak guide for this business because ONE Gas passes natural gas cost through to customers; the 10-Q states that operating income is not affected by swings in the cost of gas. The clearer signals are the ones the computed data flags: revenue direction decelerating, gross and operating margins expanding, and EBITDA margin compressing. Behind the income statement, adjusted EPS grew 6% in the first quarter and 16% across the first half, with the second quarter's 52% comparison flattered by a weak prior-year weather base and by Texas HB 4384 timing. Rate additions are doing the work — new rates added roughly $27 million of revenue in the first quarter and about $16 million in the second — while O&M growth ran above the company's own long-term target in both quarters.
The Model
The model projects FY+1 revenue of $2,305 million and EBITDA of $798 million, a 34.6% margin. For FY+2 it projects revenue of $2,420 million and EBITDA of $864 million, a 35.7% margin. Trailing-twelve-month revenue was $2,311.8 million with EBITDA of $786.6 million, so the near-term figure is roughly flat with the current run rate. The disclosed drivers behind the near term are the rate mechanisms already approved or in progress — Texas GRIP effective in July, Oklahoma interim rates, and Kansas GSRS expected in October — plus the Texas HB 4384 benefit. The further-out step depends on large-load projects whose disclosed service dates run from the second half of 2026 through 2028, and on the Oklahoma rate case filed in 2027.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $2.4B | $2.3B | $2.4B |
| YoY Growth | — | −5.0% | +5.0% |
| EBITDA | $775M | $798M | $864M |
| EBITDA Margin | 31.9% | 34.6% | 35.7% |
Projections are the median of 5 independent model runs. The model’s revenue sits 4.0% below analyst consensus.
Management reaffirmed the FY2026 ranges — adjusted net income of $306 million to $314 million and adjusted EPS of $4.83 to $4.95 — and said it expects the upper half, at $310 million to $314 million and $4.89 to $4.95. It newly quantified Texas HB 4384 at approximately $0.42 of full-year adjusted EPS, with about $0.28 to $0.29 in the first half, and said the benefit is uneven: a larger second quarter, a smaller third quarter, then rebuilding once the annual GRIP filing is reflected in rates. The company held its 3% to 4% long-term O&M growth target and guided second-half O&M growth 'meaningfully lower' than the second quarter's 6.6%. Long-term adjusted EPS growth guidance remains 5% to 7%, offered in December 2025, with a 2027 update promised later in 2026.
What Could Go Right — and Wrong
- Two or more of the five remaining late-stage large-load projects convert into signed contracts before the end of 2026, disclosing a counterparty and a dollar value.
- Second-half O&M growth comes in meaningfully below the second quarter's 6.6% rate, keeping the 3% to 4% long-term target credible and the guidance raise intact.
- A clean final Oklahoma order at or near the full $28.7 million removes the refund contingency on the interim rates.
- The 12,000 hours of AI-enabled annualized labor savings is updated upward or replicated across a second process, supporting the O&M glide path.
- The fall planning update rebases the 5% to 7% long-term earnings growth plan off a stronger 2026 base, and a dividend-growth decision follows.
- O&M growth stays at or above the second quarter's 6.6% rate in the third or fourth quarter, leaving the upper-half guidance with no cushion.
- The five late-stage projects slip beyond early 2027, breaking a timeline management has already bracketed twice.
- A prospective large-load customer routes around the utility — through behind-the-meter generation or a direct interstate pipeline deal — as the cross-stack theme describes integrated deals bypassing utility intermediation.
- Texas HB 4384's third-quarter contribution comes in below the cadence management described, or the accrual proves more volatile than modeled.
- Western Farmers faces construction cost or schedule pressure: the contract is still being bid, installation is not expected until early 2027, and in-service is targeted for the third quarter of 2028.
Looking Ahead
Over the next twelve months ONE Gas faces a sequence of tests that are mostly operational rather than structural. The El Paso pipeline and the Oklahoma data center entered service in the third quarter of 2026. Kansas GSRS rates are expected in October. Management has pointed to a signing window of late 2026 or early 2027 for the five remaining late-stage large-load projects. Oklahoma's interim rates remain subject to refund until a final order arrives. And the company says a 2027 and forward-five-year update is coming in the fall planning process, alongside a decision on whether to accelerate dividend growth.
- October 2026Kansas GSRS rates effective — Kansas Gas Service's ~$14.3M surcharge increase is expected to take effect.
- Fall 20262027 and five-year update — Management rebases the 5%-7% long-term plan and discusses dividend growth.
- Q3 2026Q3 2026 earnings — Tests whether O&M growth steps down toward the 3%-4% target.
- Year-end 2026Watch & Protect completed — Oklahoma in-sourcing of the watch and protect function reaches fully in house.
- Late 2026 or early 2027Late-stage projects signed — Five highest-confidence large-load prospects may be signed and announced.
- Q3 2028Western Farmers in service — 43-mile Oklahoma pipeline; construction expected to begin early 2027.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $2.1B | $2.4B | $2.3B | +16.5% |
| Gross Margin | 39.1% | 62.0% | 74.7% | +2,288bps |
| EBITDA | $696M | $775M | $787M | +11.4% |
| EBITDA Margin | 33.4% | 31.9% | 34.0% | 147bps |
| Net Income | $223M | $264M | $288M | +18.6% |
| Free Cash Flow | −$333M | −$128M | −$173M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)74.7%
- EBITDA Margin (TTM)34.0%
- Net Margin (TTM)12.5%
- ROIC5.4%
- FCF Conversion-22.0%
- SBC / Revenue0.7%
The Company
ONE Gas is a 100-percent regulated natural gas distribution utility headquartered in Tulsa, Oklahoma. It delivers natural gas to approximately 2.3 million customers and describes itself in its 10-K as one of the largest publicly traded natural gas utilities in the United States. Its three divisions hold concentrated in-state positions: Oklahoma Natural Gas serves about 89 percent of Oklahoma's gas distribution customers, Kansas Gas Service about 72 percent of Kansas's, and Texas Gas Service about 13 percent of Texas's. The company reports one business segment — regulated public utilities delivering natural gas to residential, commercial, and transportation customers — so there is no divisional margin table.
It owns the physical network: 43,200 miles of distribution mains and 2,200 miles of transmission across the three states. It does not sell gas as a commodity; it earns a regulated return on the infrastructure it builds, and natural gas cost is passed through to customers, so operating income is not affected by gas-price swings. Earnings come from rate-base growth recovered through formulaic mechanisms — performance-based rates in Oklahoma, GRIP in Texas, and GSRS in Kansas — rather than contested general rate cases. Management says system-integrity spending is about 60% to 70% of the capital budget, and capital investments including asset removal costs are guided to approximately $800 million for 2026.
Business Segments
Competitive Landscape
The source material contains no competitive commentary — no pricing behavior, no win/loss data, and no share shifts are disclosed. What is established is structural: ONE Gas holds roughly 89 percent of Oklahoma's gas distribution customers and 72 percent of Kansas's, so head-to-head competition in those states is largely a franchise question. Inside its three-state footprint the company argues its existing pipeline network is the advantage: 'By leveraging our existing pipeline network, we can respond quickly to meet customer needs and create value for all customers.' Outside that footprint it is a small participant in a market where, per the cross-stack theme, producers, midstream operators, and power developers are signing integrated deals that bypass traditional utility intermediation.
- Atmos Energy (ATO)Named in the source's supply-chain relationship map; no competitive discussion in the material.
- NiSource (NI)Named in the source's supply-chain relationship map; no competitive discussion in the material.
- SRNamed in the source's supply-chain relationship map; no competitive discussion in the material.
- Southwest Gas (SWX)Named in the source's supply-chain relationship map; no competitive discussion in the material.
Supply Chain
ONE Gas buys interstate pipeline transportation and storage, gas commodity, and the pipe, valves, and equipment that build its network. Only one supply-chain relationship in the source carries a direct quote; the rest are mapped rather than sourced.
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