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    ONEOK Inc (OKE)

    Business Description

    OKE, or ONEOK, Inc., is a leading midstream service provider in North America, specializing in gathering, processing, fractionation, transportation, storage, and marine export services for natural gas, natural gas liquids (NGLs), refined products, and crude oil . The company operates through four main business segments, with a focus on providing fee-based services, which accounted for more than 85% of its consolidated earnings in 2023 . ONEOK's operations are primarily centered around the handling and distribution of natural gas and its derivatives, making it a key player in the energy sector .

    1. Natural Gas Liquids - Involves gathering, treating, fractionating, transporting, storing, marketing, and distributing Purity NGLs, making it the largest revenue contributor.
    2. Natural Gas Gathering and Processing - Focuses on gathering, treating, processing, and marketing natural gas.
    3. Refined Products and Crude - Engages in transporting, storing, and distributing refined products and crude oil, added after acquiring Magellan Midstream Partners.
    4. Natural Gas Pipelines - Provides transportation and storage services for natural gas.

    Q2 2024 Summary

    Initial Price$80.20April 1, 2024
    Final Price$81.72July 1, 2024
    Price Change$1.52
    % Change+1.90%

    What went well

    • ONEOK is executing high-return, low-cost expansion projects such as the rebuild of the Medford fractionator, which will add 210,000 barrels per day of fractionation capacity for approximately $385 million . This expansion offers a very low cost per barrel capacity and enhances system efficiency and balance .
    • The company is capitalizing on integration synergies from recent acquisitions, including the Magellan merger and the Easton acquisition, leading to increased blending opportunities and bundled services that provide very attractive returns and asymmetric upside . This integrated approach strengthens ONEOK's ability to capture value across the entire value chain .
    • Strong performance in the refined products and crude segment is driven by synergies realized ahead of schedule, seasonal demand, and additional tailwinds from refinery downtimes in the Chicago area. Blending activity is expected to ramp up in the third quarter, reinforcing confidence in achieving or exceeding the $175 million in synergies outlined .

    Q&A Summary

    1. Earnings Guidance and Outlook
      Q: Will you beat your earnings guidance?
      A: The team is confident about their performance and likes where they are trending. They raised guidance in the first quarter and will re-evaluate guidance again in the third quarter.

    2. Capital Allocation and Share Repurchases
      Q: Will you start share buybacks after debt maturity?
      A: They plan to allocate capital appropriately from the third quarter onwards and are committed to completing the $2 billion share repurchase program over the announced time frame, balancing it with opportunities for high-growth projects and maintaining a strong balance sheet.

    3. Medford Rebuild Decision and Economics
      Q: Why rebuild Medford when you can batch NGLs?
      A: Rebuilding Medford provides low-cost fractionation capacity and is the most efficient way to balance their system. It avoids moving all raw feed to Mont Belvieu, creating capacity on Arbuckle for more raw feed, and fits best into their system.

    4. Easton Acquisition Synergies
      Q: What synergies does Easton acquisition unlock?
      A: The Easton acquisition accelerates commercial synergies through a more capital-efficient and faster connection of NGL and refined products systems, allowing them to capture synergies at a lower capital cost and faster pace.

    5. 2025 CapEx Outlook
      Q: How will pulling projects forward affect 2025 CapEx?
      A: Capital for projects pulled forward into 2024 will positively impact 2025 CapEx, leading to lower capital expenditure in 2025. They will enjoy operating leverage from existing systems as they fill demand.

    6. Refined Products and Crude Segment Strength
      Q: What's driving strength in refined products and crude segment?
      A: Synergies are coming in strong and will accelerate through the remainder of the year. Seasonal factors and increased blending activities in the third quarter contribute, and issues in Chicago are creating tailwinds. They are confident in where the segment will end the year.

    7. Butane Blending Opportunities
      Q: Any butane blending opportunities?
      A: By integrating refined products and NGL systems, they can supply butane into refined products, saving on sourcing and logistics. They continue to find ways to blend more butane, with greater blending opportunities expected next year through small capital projects.

    8. Ethane Market Trends and Outlook
      Q: How is ethane trending and outlook?
      A: Ethane prices are volatile and dependent on natural gas prices. The Permian is in full recovery, while the Mid-Continent is in rejection. They have locked in incentivized ethane through the third and fourth quarters and expect recovery in ethane markets as petrochemicals run at high utilization rates.

    9. Bakken Mergers and Impact
      Q: How will Bakken producer mergers affect you?
      A: They have good relationships with all parties involved and believe the mergers won't impact their business. Consolidation brings assets into strong hands, which may even lead to increased activity.

    10. AI Data Center Projects
      Q: Updates on AI data center-related projects?
      A: They now have 17 potential power plant projects, with 5 specifically for AI demand, totaling around 1 Bcf per day across their footprint. Discussions are ongoing with more activity expected as markets look long-term.

    11. Producer Activity and Bakken Well Connects
      Q: How are Bakken well connects compared to guidance?
      A: Despite fewer well connects, wells are more efficient with longer laterals. They are confident in meeting volume guidance for the remainder of the year and into 2025.

    12. Growth Opportunities and Optimization
      Q: Are there more growth opportunities beyond initial guidance?
      A: They continue to find ways to grow through low-capital projects, increasing blending opportunities, and integrating refined products and NGL systems. Diversification reduces downside risk.

    13. Denver Expansion Economics
      Q: Tell us about Denver expansion economics.
      A: It's a 5x multiple project on 35,000 barrels per day. They've laid a 16-inch line into Denver, providing cheap expansion capability. As demand grows, they can conduct subsequent open seasons.

    14. Williston Basin Gas-Oil Ratios
      Q: Are GORs in Williston Basin increasing?
      A: Yes, as wells age, the gas-oil ratio naturally increases. Overall, GORs are increasing as a general trend.

    15. Saguaro Project Update
      Q: Any updates on Saguaro project?
      A: The project is commercially strong with world-class customers. MPL is working on project financing to make their final investment decision. No material capital spend is anticipated in 2024.

    16. Bakken Position and Competition
      Q: What's the risk from a competitor's pipeline conversion in Bakken?
      A: They are aware of the alternative pipeline but don't expect a material impact. They have long-term contracts averaging over 9 years and provide superior service with redundancy and reliability.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Julie H. EdwardsBoard Chair2022Julie H. Edwards has been serving as the Board Chair of ONEOK, Inc. since 2022. She has been a director at ONEOK since 2007. She is the first female Board Chair in ONEOK's 118-year history .
    Pierce H. Norton IIPresident and Chief Executive Officer2021Pierce H. Norton II is the President and Chief Executive Officer of ONEOK, Inc. since 2021. He joined ONEOK in 2004 and held various roles before becoming President and CEO of ONE Gas in 2014 .
    Walter S. Hulse IIIChief Financial Officer, Treasurer, and Executive Vice President2022Walter S. Hulse III has been serving in his current role since 2022. He previously held various executive positions at ONEOK from 2017 to 2021 .
    Kevin L. BurdickExecutive Vice President and Chief Enterprise Services Officer2023Kevin L. Burdick has been in his current role since 2023. He was previously the Executive Vice President and Chief Commercial Officer from 2022 to 2023 .
    Sheridan C. SwordsExecutive Vice President, Commercial Liquids and Gathering and Processing2023Sheridan C. Swords has been serving in his current role since 2023. He was previously the Senior Vice President of Natural Gas Liquids and Natural Gas Gathering and Processing from 2022 to 2023 .
    Lyndon C. TaylorExecutive Vice President, Chief Legal Officer, and Assistant Secretary2023Lyndon C. Taylor has been serving in his current role since 2023. Before joining ONEOK, he was with Devon Energy Corporation from 2005 to 2021 .
    Charles M. KelleySenior Vice President, Natural Gas Pipelines2022Charles M. Kelley has been serving as the Senior Vice President, Natural Gas Pipelines at ONEOK since 2022. He was previously the Senior Vice President, Natural Gas from 2018 to 2022 .
    Mary M. SpearsSenior Vice President and Chief Accounting Officer, Finance and Tax2022Mary M. Spears has been in her current role since 2022. She was previously the Vice President and Chief Accounting Officer from 2019 to 2021 .
    Scott D. SchingenSenior Vice President, Natural Gas Liquids and Natural Gas Operations2023Scott D. Schingen has been serving in his current role since 2023. He was previously the Senior Vice President, Operations from 2021 to 2023 .
    James R. HoskinSenior Vice President, Refined Products and Crude Operations2023James R. Hoskin serves as the Senior Vice President, Refined Products and Crude Operations at ONEOK since 2023. He was previously with Magellan Midstream Partners in 2023 .

    Questions to Ask Management

    1. How does the decision to rebuild the Medford fractionation facility for $385 million align with your recent Magellan merger and Easton acquisition, considering the potential to utilize existing infrastructure to transport NGLs from Mont Belvieu to Conway?
    2. Given that a peer is converting a pipeline to NGL service in the Bakken where you hold significant market share, how are you assessing the risk to your Bakken position, and could this impact your volumes or contracts in the region?
    3. With the strong performance in your refined products and crude segment this quarter, are these earnings levels sustainable or primarily driven by seasonal factors and temporary market conditions like refinery downtime in Chicago?
    4. Your leverage ratio is at 3.36x, hitting your long-term target. What factors are influencing your timing on executing the $2 million share repurchase program, and why not accelerate buybacks now that leverage is within your target?
    5. After the Magellan and Easton acquisitions, can you elaborate on how these integrated assets are providing asymmetric upside, and how you plan to capitalize on blending and optimization opportunities to enhance stable, long-term returns?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateJanuary 2024
    End Date/DurationJanuary 1, 2029 or upon completion of $2.0 billion repurchase
    Total additional amount$2.0 billion
    Remaining authorization$2.0 billion as of October 21, 2024
    DetailsPart of capital allocation strategy for long-term value, funded through cash on hand, operating cash flows, and short-term borrowings

    Past Guidance

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Income: Midpoint increased to $2.88 billion .
      2. Adjusted EBITDA: Midpoint increased by $75 million to $6.175 billion, with the high end at $6.325 billion .
      3. Cost and Commercial Synergies: Expect to meet or exceed the midpoint of $175 million in 2024, with additional annual synergies expected to meet or exceed $125 million in 2025 .
      4. Capital Expenditure: Total 2024 capital expenditure guidance remains unchanged at $1.75 billion to $1.95 billion .
      5. Net Debt-to-EBITDA Ratio: Run rate net debt-to-EBITDA ratio was 3.36x at the end of the second quarter, in line with their long-term leverage target of 3.5x .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Net Income: Midpoint increased to $2.88 billion .
      2. Adjusted EBITDA: Midpoint increased by $75 million to $6.175 billion .
      3. Cost and Commercial Synergies: Expect to meet or exceed the midpoint of $175 million in 2024, with additional annual synergies expected to meet or exceed $125 million in 2025 .
      4. Capital Expenditure: Total 2024 capital expenditure guidance remains unchanged at $1.75 billion to $1.95 billion .
      5. Natural Gas Gathering and Processing Segment: Processing volumes expected to grow 9% at the midpoint compared with 2023, averaging more than 1.6 Bcf per day in 2024 .
      6. Mid-Continent Region Processing Volumes: Expected to grow approximately 3% at the guidance midpoint compared with 2023, averaging approximately 770 million cubic feet per day in 2024 .
      7. Natural Gas Pipelines Segment: Strong demand for natural gas storage and transportation services in 2024, with storage capacity contracted under long-term agreements and pipeline transportation capacity nearly 96% contracted .
      8. Refined Products and Crude Segment: Healthy business fundamentals with more than 85% fee-based earnings and anticipate additional mid-single-digit tariff rate increases in July 2024 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Net Income: Midpoint of more than $2.8 billion .
      2. Earnings Per Share (EPS): Midpoint of $4.88 per diluted share .
      3. Adjusted EBITDA: Midpoint of $6.1 billion .
      4. Synergies: Assumed a midpoint of $175 million of total realized annual cost and initial commercial synergies in 2024, followed by an additional $125 million in 2025 .
      5. Capital Expenditures: Total of $1.85 billion, which includes growth and maintenance capital .
      6. Dividend Growth Rate: Targeting an annual growth rate ranging between 3% to 4% .
      7. Share Repurchase Authorization: Announced a $2 billion share repurchase authorization, targeted to be largely used over the next 4 years .
      8. Natural Gas Processing Volumes: Expected to grow 9% at the midpoint compared with 2023, averaging more than 1.6 Bcf per day in the Rocky Mountain region .
      9. Mid-Continent Processing Volumes: Expected to grow approximately 3% at the guidance midpoint compared with 2023, averaging approximately 770 million cubic feet per day .
      10. Natural Gas Storage and Transportation: Expected strong demand with more than 75% of natural gas storage capacity contracted under long-term agreements and nearly 96% of pipeline transportation capacity contracted .
      11. Refined Products Tariff Rates: Expected additional mid-single-digit increases in July 2024 .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A
    • Guidance: The documents do not contain information about the guidance provided in the Q3 2024 earnings call for ONEOK (OKE). The available information is from the Q2 2024 earnings call.

    Latest news

    Recent developments and announcements about OKE.

    Corporate Leadership

      Leadership Change

      ·
      Jan 7, 2025, 9:30 PM

      Randy Lentz is leaving his position as CEO of Medallion Midstream to become the Executive Vice President and Chief Operating Officer at ONEOK. Sheridan C. Swords is stepping up to the newly created position of Executive Vice President and Chief Commercial Officer at ONEOK. These appointments are effective immediately as of January 6, 2025.

    Financial Actions

      Strategic Assets

      ·
      Jan 3, 2025, 11:21 AM

      ONEOK Completes Sale of Interstate Natural Gas Pipelines

      ONEOK, Inc. has successfully closed the sale of its three wholly owned interstate natural gas pipeline systems to DT Midstream, Inc. The transaction, effective as of December 31, 2024, was completed for a total cash consideration of $1.2 billion, subject to customary adjustments. The pipelines involved in this sale are the Guardian Pipeline, Midwestern Gas Transmission, and Viking Gas Transmission.

      Impact on Financials and Operations

      This strategic move is part of ONEOK's efforts to optimize its asset portfolio and align with its capital allocation priorities. The proceeds from this sale are expected to enhance ONEOK's financial flexibility, aiding in the achievement of its leverage target of 3.5 times by 2026. This transaction is anticipated to support ONEOK's operational and financial strategies, potentially leading to improved financial health and operational efficiency.

      Operational Transition

      DT Midstream, as the new owner, shares a commitment to safety and reliability, which is expected to benefit all stakeholders. Employees transitioning to DT Midstream will play a crucial role in establishing the company's new Tulsa office and ensuring the continued success of these essential natural gas systems.

      Strategic Assets

      ·
      Nov 22, 2024, 10:15 PM

      ONEOK's Asset Sale to DT Midstream

      ONEOK, Inc. has entered into a definitive agreement to sell its three wholly owned interstate natural gas pipeline systems to DT Midstream, Inc. for a total cash consideration of $1.2 billion. The transaction, announced on November 19, 2024, is expected to close in the fourth quarter of 2024, pending regulatory approvals and customary closing conditions .

      Details of the Transaction

      • Assets Involved: The sale includes the Guardian Pipeline, Midwestern Gas Transmission, and Viking Gas Transmission systems.
      • Financials: The purchase price represents 10.8 times the previous 12 months EBITDA as of June 30, 2024 .
      • Strategic Rationale: This move is part of ONEOK's strategy to optimize its asset portfolio and enhance its capital allocation priorities. The transaction is expected to improve ONEOK's financial flexibility and support its deleveraging efforts towards a target of 3.5 times by 2026 .

      Potential Effects on Financials and Operations

      • Financial Flexibility: The proceeds from the sale are anticipated to enhance ONEOK's financial flexibility, aiding in its deleveraging strategy .
      • Operational Impact: The transaction aligns with ONEOK's focus on its integrated operating footprint, and DT Midstream is considered an ideal owner for these assets due to its similar culture of safety and reliability .

      This strategic disposition underscores ONEOK's commitment to maintaining its position as a leading diversified energy infrastructure company .

    Legal & Compliance

      Legal Proceedings

      ·
      Nov 25, 2024, 10:18 PM

      Summary of the Legal Matter Involving ONEOK, Inc. and EnLink Midstream, LLC

      Key Parties Involved:

      • ONEOK, Inc.: A leading midstream service provider involved in the gathering, processing, storage, and transportation of natural gas.
      • Elk Merger Sub I, L.L.C. and Elk Merger Sub II, L.L.C.: Subsidiaries of ONEOK, Inc. created for the purpose of the merger.
      • EnLink Midstream, LLC: A company providing integrated midstream services across natural gas, crude oil, and NGL commodities.
      • EnLink Midstream Manager, LLC: The managing member of EnLink Midstream, LLC.

      Nature of the Proceedings: The legal matter involves an Agreement and Plan of Merger dated November 24, 2024, between ONEOK, Inc., its subsidiaries (Elk Merger Sub I and II), EnLink Midstream, LLC, and EnLink Midstream Manager, LLC. This agreement outlines the terms and conditions under which ONEOK, Inc. will acquire EnLink Midstream, LLC through a merger process involving the aforementioned subsidiaries .

      Potential Financial or Operational Consequences:

      • Merger Consideration: The agreement specifies the merger consideration, which includes the exchange of certificates and adjustments, but does not provide for dissenters' rights .
      • Operational Changes: Post-merger, the organizational documents of the surviving entity will be amended, and new officers and directors will be appointed .
      • Indemnification and Insurance: The agreement includes provisions for indemnification and insurance to protect the officers and directors of the involved companies .
      • Regulatory Approvals: The merger is subject to obtaining necessary regulatory approvals and satisfying other conditions precedent .
      • Impact on Stock: The Parent Common Stock to be delivered to the Company Unitholders must be approved for listing on the NYSE .

      This merger is a significant strategic move for ONEOK, Inc., potentially enhancing its service capabilities and market reach in the midstream sector. However, it also involves complex legal and regulatory processes that must be navigated to ensure a successful integration of the two companies.