Research · Sep 3, 2026
[OGS] ONE Gas Thesis 2026: A Pure-Play Tri-State Gas Utility Compounds Rate-Base Growth Into Dividend Increases
ONE Gas, Inc. (NYSE: OGS) is a Tulsa, Oklahoma-headquartered pure-play regulated natural gas distribution utility — one of the largest publicly-traded gas-only LDCs in the United States — serving ~2.3M+ customers across Oklahoma, Kansas and Texas. The company was created in 2014 when ONEOK, Inc. (OKE) spun off its natural-gas-distribution business as a separate public company called ONE Gas, retaining the natural-gas-pipelines/midstream business under the ONEOK name. ONE Gas operates three regulated utility subsidiaries: Oklahoma Natural Gas (~880K+ customers across most of Oklahoma — the company's largest and oldest unit, with deep roots in Tulsa/Oklahoma City), Kansas Gas Service (~660K+ customers across most of Kansas — Wichita, Topeka, Kansas City, Lawrence, Manhattan), and Texas Gas Service (~750K+ customers in Austin/Round Rock, El Paso, several South Texas/Coastal Bend communities, and parts of west and central Texas — historically the highest-growth piece given Austin/Texas population dynamics). Each utility is regulated by its respective state commission — the Oklahoma Corporation Commission, the Kansas Corporation Commission, and the Texas Railroad Commission (which regulates Texas gas utilities). The business model is classic regulated-utility: rate base growth + allowed ROE + customer growth + formulaic rider/replacement mechanisms drive EPS growth, with capex (multi-year ~$5-6B+) funded by a balanced mix of debt + equity issuance. Geography is favorable: Sun Belt states (Texas especially, Oklahoma to a lesser degree) experiencing population/economic growth providing organic customer additions. Capital structure investment-grade, utility-conventional. Robert McAnnally became CEO in 2021 after Pierce Norton departed. OGS enters FY2026 with FY2025 revenue selected various aggregate ~$2.0-2.3B, aggregate adjusted EPS ~$4.05-4.50 (~6-9% growth), adjusted EBITDA ~$830-920M. The first thesis pillar is the regulated tri-state gas-distribution franchise — the entirety of the business: Oklahoma Natural Gas (ONG) the largest unit (~880K+ customers dominant in OK — OKC, Tulsa, Norman, Lawton, Stillwater, Edmond, Broken Arrow), regulated by OCC through periodic general rate cases plus an annual PBRC mechanism for formulaic recovery, rate base ~$2.5-3B growing ~6-8% on infrastructure-replacement (cast-iron/bare-steel via GSEP or similar) + customer growth; Kansas Gas Service (KGS) ~660K+ customers dominant in KS (Wichita, Topeka, KC, Lawrence, Manhattan, Salina, Hutchinson), KCC-regulated with periodic rate cases + GSRS for accelerated capex recovery, rate base ~$1.7-2B growing ~6-8%; Texas Gas Service (TGS) ~750K+ customers serving Austin/Round Rock, El Paso, South Texas/Coastal Bend communities, parts of west/central Texas, RRC + city-tariff-regulated, rate base ~$1.5-1.8B with fastest customer growth (Texas demographics + Austin boom); unified capex plan ~$5-6B+ five-year focuses on cast-iron/bare-steel replacement, system reinforcement (capacity for TX growth), technology/meter modernization, decarbonization-related early-stage investments (RNG blending, hydrogen pilot); FY2025 dynamics are rate base growing ~7-9%, customer growth strong in TX, rate cases in progress, weather mixed, EPS growth ~6-9%; FY2026 catalyst is rate-case approvals (OCC/KCC/RRC), ROE allowances (~9.5-10%+), capex execution, customer growth, weather normalization; risks/competitors are adverse rate-case outcomes, warm winters, gas-commodity volatility, weather/safety operational events (especially TX), long-term electrification headwind, rate sensitivity; comp set is Atmos Energy (ATO, leader at premium), Spire (SR), Southwest Gas (SWX), Northwest Natural (NWN), New Jersey Resources (NJR), Chesapeake Utilities (CPK), Black Hills (BKH). The second pillar is the dividend-growth track record and conservative capital posture: dividend raised every year since 2014 spin-off, growing ~5-7% annually, ~$2.70-2.95/share currently (~3.5-4.5% yield, quarterly), ~58-66% payout — well-covered with room for continued growth; dividend the headline shareholder-return mechanism (no buybacks — utility model); conservative capital posture — ~50/50 debt/equity target, capex funded through operating cash flow + periodic senior unsecured note issuance (~$200-500M/yr, well-laddered) + periodic equity issuances (ATM or block, ~$100-200M/yr — necessary for capital-structure maintenance and IG ratings); credit profile A-/A3 / BBB+/Baa1-area; capital priorities fund capex → grow dividend → maintain IG → selective bolt-on (rare in gas LDC); FY2025 dynamics are capex on track, dividend grown, balanced debt + equity issuance, capital structure intact; FY2026 catalyst is the next dividend increase, capex execution, rate-case cycle, credit profile preservation; risks are payout-ratio compression from a bad rate-case cycle, equity-issuance dilution ahead of EPS growth, refinancing-rate sensitivity, and long-term gas-distribution-substitution risk (less acute in OK/KS/TX); comp set is gas LDC peers Atmos (ATO), Spire (SR), Southwest Gas (SWX), Northwest Natural (NWN), Chesapeake (CPK), NJR plus broader yield/growth Black Hills (BKH), MGE Energy (MGEE), Avista (AVA). The capital story: growing dividend ~$2.70-2.95/share annually (~3.5-4.5% yield, ~5-7% growth, raised every year since 2014 spin), no buybacks (utility ATM/block equity issuances ~$100-200M/yr), net debt ~$3.5-4.5B (senior unsecured + CP/revolver, well-laddered), ~5-6x net debt/EBITDA (utility-normal), ~13-16% FFO/debt, IG (A-/A3 / BBB+/Baa1-area), ~50/50 debt/equity target, ~62-66M shares (growing modestly), FCF negative-to-modest (capex > OCF, funded by debt + equity), capital priorities fund capex → grow dividend → maintain IG → selective M&A, with rate-case-timing dynamics, rate sensitivity, equity-dilution and FFO/debt covenants as principal considerations. At ~$62-78 per share on ~62-66M shares (~$4.0-5.0B equity, ~$8-9.5B EV) OGS trades at roughly ~15-19x P/E and ~10-12x EV/EBITDA with a ~3.5-4.5% dividend yield — in line with gas-utility peers, with the pure-play tri-state Sun Belt customer-growth story supporting a modest premium — versus Atmos (ATO, leader at premium), Spire (SR), Southwest Gas (SWX), Northwest Natural (NWN), New Jersey Resources (NJR), Chesapeake (CPK), Black Hills (BKH); broader utility comps NextEra (NEE, premium), WEC Energy (WEC), Xcel (XEL), Pinnacle West (PNW), Idacorp (IDA). FY2026 base case: ~$2.05-2.35B revenue + ~$4.25-4.75 adj. EPS + ~$870-960M adjusted EBITDA + ~6-9% EPS growth + rate-base growth ~7-9% + dividend grown ~5-7% + IG credit + capex on track + customer growth in TX/OK steady; bull case: ~$2.1-2.4B+ revenue + ~$4.45-5.00+ adj. EPS on constructive rate cases, accelerated TX/OK customer growth, favorable weather, dividend grown materially, credit upgrade, possible bolt-on, and a re-rating; bear case: ~$1.9-2.05B revenue + ~$3.85-4.15 adj. EPS on adverse rate cases, warm winters, regulatory delays, equity-dilution outpacing EPS growth, unfavorable RRC decision, and a compression. The thesis depends on the regulated-tri-state-gas-utility pipeline (rate-base growth + multi-state rate cases + TX/OK customer growth + infrastructure-replacement capex) plus the dividend-growth + conservative capital pipeline (post-spin annual-increase streak + balanced debt/equity capex funding + IG ratings + payout discipline) plus a constructive Sun Belt regulatory environment plus Robert McAnnally's continued stewardship.