We downgrade our recommendation on
ONEOK Partners, L.P.
) to Neutral from Outperform owing to the continuous decline in
natural gas prices, which adversely impact prices of the product
and services offered by the partnership, and slow pace of economic
recovery. In addition, prevailing volatility of the equity and
credit markets will also impact ONEOK's ability to obtain necessary
financing to acquire new assets and expand its existing
The partnership is exposed to commodity price fluctuations,
especially natural gas, crude oil and NGL prices. ONEOK earns a
major part of its revenues as payment for gathering, processing,
transportation and storage services and from the sale of purified
NGL products. A decline in commodity prices may result in lesser
payments for ONEOK's products and services. This will significantly
impact the partnership's financial performance in the future.
ONEOK has geographically diversified gas assets including a
collection of gathering, processing and transportation systems. The
partnership's gathering and processing business operates in five
distinctly different basins. Apart from its continued focus on
adding new supplies, this diversity has helped the partnership to
offset a decline in natural gas production in some of its operating
basins. The wide array of operations enables the partnership to
serve a large number of customers in a better way.
In addition, ONEOK strongly believes in organic growth. For the
full-year 2012, the partnership plans to invest $4.7- $5.6 billion
in several growth projects. ONEOK expects its organic growth to
mainly come from the Bakken Shale and Three Forks in the
Mid-Continent region, where it owns and operates a vast majority of
its gathering assets. At the same time, the partnership is in the
middle of several vital projects including construction of the
Garden Creek processing facility and Sterling III NGL pipeline and
development of the Bakken Shale assets.
On the flip side, ONEOK does not own all of the land on which
its pipelines and facilities are located. The partnership depends
on third parties and governmental agencies to construct and operate
its pipelines and related facilities. Sometimes, the partnership
loses these rights through its incapability to renew the contracts
on acceptable terms or ends up incurring higher costs to renew
these contracts. Loss of rights and higher renewal expenses
adversely affect the partnership's financial condition, operational
results and cash flow.
During its first quarter 2012 earnings release, ONEOK announced
its 2012 net income guidance in the range of $810 million - $870
million. The company expects distributable cash flow to be in the
band of $925 million - $985 million. The Zacks Consensus Estimate
for second quarter and full year 2012 earnings are currently pegged
at 71 cents per unit and $2.95 per unit, respectively.
ONEOK Partners, L.P. currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating.
Tulsa, Oklahoma-based ONEOK Partners, L.P. is one of the largest
publicly traded master limited partnerships and a leader in
gathering, processing, storage and transportation of natural gas in
the U.S. The company competes with
Plains All American Pipeline, L.P.
ONEOK PARTNERS (OKS): Free Stock Analysis
PLAINS ALL AMER (PAA): Free Stock Analysis
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