Strong revenue growth reported by ONEOK

ONEOK, Inc. announced higher second-quarter 2019 financial results, compared with the second quarter 2018, and maintained 2019 financial guidance.

The company saw an 11 percent increase in net income to $312 million or 75 cents per diluted shares compared to the first quarter of 2019. Its adjusted EBITDA totaled $632.4 million which was a 5 percent increase.

“The southern section of our Elk Creek NGL Pipeline is now complete, and we expect it to provide a significant earnings uplift in the second half of 2019,” said Terry K. Spencer, ONEOK president and chief executive officer.

“Our capital-growth program remains on schedule and on budget, including multiple projects that will add critical natural gas and NGL infrastructure to significantly reduce flaring in the Williston Basin,” added Spencer. “With solid results and volumes so far in 2019 and the benefit of additional projects still being placed in service this year, we feel confident in achieving our 2019 financial guidance and our positioning for strong growth in 2020.”

The company said higher results were driven primarily by natural gas liquids and natural gas volume growth, higher average fee rates in both the natural gas liquids and natural gas gathering and processing segments and increased transportation services in the natural gas pipelines segment. Net income also increased due to higher allowance for equity funds used during construction  related to ONEOK’s capital-growth projects.

Results were offset partially by lower earnings from optimization and marketing due to narrower location price differentials, and higher rail transportation and third-party fractionation costs in the natural gas liquids segment and higher employee-related costs due to the growth of ONEOK’s operations. Net income also was offset partially by increased depreciation expense due to capital-growth projects being placed in service.

HIGHLIGHTS:

• Second quarter 2019 operating income and adjusted EBITDA exceeded first quarter 2019 excluding the $20 million earnings benefit realized in the first quarter 2019 related to purity NGLs held in inventory at year end 2018;
• Completing on July 15, 2019, the southern section of the Elk Creek Pipeline that extends from the Powder River Basin in eastern Wyoming to ONEOK’s existing Mid-Continent NGL facilities;
• Announcing in July 2019 NGL and natural gas growth projects to accommodate customer needs including:
  • A 200 million cubic feet per day (MMcf/d) expansion of ONEOK’s Bear Creek natural gas processing facility in the Williston Basin expected to be completed in the first quarter 2021.
  • A 40,000 barrel per day (bpd) additional expansion of the West Texas LPG pipeline in the Permian Basin, expected to be completed in the first quarter 2021.
  • Mid-Continent NGL fractionation facility expansions totaling approximately 65,000 bpd, with 15,000 bpd expected to be completed in the third quarter 2020 and 50,000 bpd expected to be completed in the first quarter 2021, and additional NGL infrastructure to increase capacity between the Elk Creek and Arbuckle II pipelines.
• Declaring in July 2019 a quarterly dividend of 89 cents per share, or $3.56 per share on an annualized basis;
• Distributable cash flow (DCF) in excess of dividends paid of $183.2 million;
• Net debt-to-EBITDA ratio on a trailing 12-month basis of 4.2 times as of June 30, 2019; and
• Having $2.5 billion of borrowing capacity available under its credit agreement and $273.4 million of cash and cash equivalents as of June 30, 2019.

BUSINESS-SEGMENT RESULTS:

Natural Gas Liquids Segment

Second-quarter 2019 NGL raw feed throughput volumes increased 11%, compared with the same period in 2018, driven primarily by higher volumes in the Rocky Mountain region, STACK and SCOOP areas and the Permian Basin.

The segment connected three third-party natural gas processing plants to its system in the second quarter 2019, two in the Mid-Continent region and one in the Permian Basin.

The decrease in second-quarter 2019 adjusted EBITDA, compared with the second quarter 2018, primarily reflects:

• A $36.9 million decrease in optimization and marketing due to lower optimization of $29.7 million related primarily to narrower location price differentials and lower marketing of $8.0 million related primarily to the timing of purity NGL inventory sales and changes in the value of NGLs held in inventory; and
• A $17.2 million increase in operating costs due primarily to higher employee-related costs and the timing of routine maintenance projects; offset partially by
• A $50.7 million increase in exchange services due to $43.5 million from higher volumes primarily in the Rocky Mountain region, STACK and SCOOP areas and the Permian Basin, $20.6 million in higher average fee rates primarily in the Permian Basin and Barnett Shale and $12.6 million related to lower unfractionated NGL inventory levels, offset partially by $20.5 million in higher rail transportation and third-party fractionation costs.

The increase in adjusted EBITDA for the six-month 2019 period, compared with the same period last year, primarily reflects:

• An $81.2 million increase in exchange services due to $88.3 million from higher volumes primarily in the Rocky Mountain region, STACK and SCOOP areas and the Permian Basin, $42.2 million in higher average fee rates primarily in the Permian Basin and Barnett Shale and $7.9 million related to lower unfractionated NGL inventory levels, offset partially by $42.2 million in higher rail transportation and third-party fractionation costs and $11.3 million due primarily to narrower product price differentials; offset partially by
• A $36.0 million increase in operating costs due primarily to higher employee-related costs and the timing of routine maintenance projects; and
• A $10.4 million decrease in optimization and marketing due to $33.9 million in narrower location price differentials, offset partially by $8.6 million in increased optimization volume, higher marketing of $7.7 million related primarily to the sale of NGL purity products previously held in inventory offset partially by changes in the value of NGLs currently held in inventory, and $7.2 millionin higher earnings related primarily to product price differentials.

Natural Gas Gathering and Processing Segment

The natural gas gathering and processing segment’s second-quarter 2019 adjusted EBITDA increased 12%, compared with the same period in 2018.

Volume growth in the Williston Basin and STACK and SCOOP areas of the Mid-Continent contributed to an 8% increase in natural gas volumes processed compared with the same period in 2018.

The segment also continues to benefit from higher fee-based earnings, with an average fee rate of 93 cents per Million British thermal units (MMBtu) in the second quarter 2019, compared with 89 cents per MMBtu in the second quarter 2018.

Second-quarter 2019 adjusted EBITDA increased, compared with the second quarter 2018, which primarily reflects:

• A $27.5 million increase due primarily to natural gas volume growth in the Williston Basin and STACK and SCOOP areas, offset partially by natural production declines; and
• A $6.5 million decrease in operating costs due primarily to lower materials, supplies and outside services expenses, offset partially by higher employee-related costs due to operational growth; offset partially by
• An $8.2 million decrease due to favorable contract settlements in the second quarter 2018; and
• A $4.8 million decrease due primarily to lower realized natural gas and NGL prices, net of hedges.

The increase in adjusted EBITDA for the six-month 2019 period, compared with the same period last year, primarily reflects:

• A $51.8 million increase due primarily to natural gas volume growth in the Williston Basin and STACK and SCOOP areas, offset partially by natural production declines; and
• A $2.7 million decrease in operating costs due primarily to lower materials, supplies and outside services expenses, offset partially by higher employee-related costs due to operational growth; offset partially by
• An $8.2 million decrease due to favorable contract settlements in the second quarter 2018.

Natural Gas Pipelines Segment

The natural gas pipelines segment’s adjusted EBITDA increased 18% in the second quarter 2019, compared with the same period in 2018, due primarily to higher firm transportation capacity contracted due to completed expansion projects.

The increase in adjusted EBITDA for the second quarter 2019, compared with the second quarter 2018, primarily reflects:

• A $19.0 million increase from higher transportation services due primarily to firm transportation capacity contracted due to completed expansion projects; offset partially by
• A $2.4 million increase in operating costs due primarily to higher employee-related costs.

The increase in adjusted EBITDA for the six-month 2019 period, compared with the same period last year, primarily reflects:

• A $34.7 million increase from higher transportation services due primarily to firm transportation capacity contracted due to completed expansion projects; and
• A $4.0 million increase due primarily to higher equity in net earnings from investments due to increased seasonal transportation capacity contracted on Northern Border Pipeline in the first quarter 2019 and increased firm transportation capacity contracted on Roadrunner Gas Transmission; offset partially by
• A $5.7 million decrease from lower net retained fuel and the timing of equity gas sales; and
• A $4.8 million increase in operating costs due primarily to higher employee-related costs.