ONEOK Partners, L.P.
) posted second-quarter 2012 earnings of 69 cents per unit compared
with 67 cents per unit in the year-ago quarter. The year-over-year
growth was primarily driven by positive natural gas liquids ("NGL")
price differentials and higher NGL volumes gathered and
fractionated related to recent expansion of Mid-Continent NGL
ONEOK PARTNERS (OKS): Free Stock Analysis
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The quarter's earnings missed the Zacks Consensus Estimate by a
Net revenues during the quarter decreased 23.7% to $2.1 billion
from $2.8 billion reported in the year-ago quarter. However, the
top line fell short of the Zacks Consensus Estimate of $2.8
Total operating expense, in the quarter, increased 11.0% to $174.4
million from the comparable prior-year period. The rise was mainly
due to increase in operating and maintenance expenses, higher
depreciation and amortization charges and growth in general taxes.
Operating income in the quarter was $228.1 million, up 13% from the
year-ago quarter. It benefited from favorable NGL price
differentials, increased NGL fractionation and transportation
capacity available for optimization activities, higher NGL volumes
gathered and fractionated. These were partially offset by decline
in realized natural gas and NGL product prices.
In the quarter under review, equity earnings from investments
decreased to $29.2 million from $29.5 million in the second quarter
Natural Gas Gathering and Processing:
In second-quarter 2012, this segment reported operating income of
$46.7 million compared with $47.0 million in the year-ago quarter.
The results dropped due to lower realized natural gas and NGL
product prices, mainly ethane and propane, lower natural gas
volumes gathered in the Powder River Basin, increase in compression
costs, and higher third party transportation and processing costs
related to volume growth. These were partially offset by higher
natural gas volumes gathered, processed and sold in the new Garden
Creek plant at Williston Basin.
Natural Gas Pipelines:
This segment reported operating income of $32.6 million in the
reported quarter compared with $29.8 million in the prior-year
The year-over-year operating income was driven by growth witnessed
in natural gas storage margins for contract renegotiations, higher
short-term storage activity due to higher demand of electricity,
and higher transportation margins for increase in contracted
capacity with natural gas producers. This was partially offset by
decline in realized natural gas prices on the retained fuel
position and lower contracted capacity on Midwestern Gas
Natural Gas Liquids:
The Natural Gas Liquids segment reported operating income of $149.1
million in the quarter compared with $125.7 million a year ago.
The results were driven by higher NGL volumes gathered and
fractionated in the Mid-Continent and Rocky Mountain regions,
growth in NGL volumes gathered at Texas, NGL contract
renegotiations with higher fees, favorable NGL price differentials
as well as added transportation capacity available due to
completion of Arbuckle and Sterling I pipelines. These positives
were partially offset by lower volumes fractionated in Texas due to
scheduled maintenance at Mont Belvieu in Texas and lower
As of June 30, 2012, the partnership had $92.2 million of cash and
cash equivalents versus $35.1 million as of December 31, 2011.
Cash flow from operation during the reported quarter was $430.0
million compared with $501.0 million in the prior-year quarter.
Capital expenditure ("capex") during the reported quarter was
$355.4 million versus $265.3 million in the year-ago period. The
partnership made investments in several growth projects in natural
gas gathering and processing, and natural gas liquids segments,
resulting in $90.1 million year-over-year rise in capex.
ONEOK increased its 2012 net income guidance to $860 million - $910
million from the previous guidance range of $810 million to $870
million. This net income revision was primarily driven by higher
anticipated earnings in the partnership's NGL, but might be
partially offset by lower expected earnings from natural gas
gathering and processing segment.
The partnership's mid-point 2012 operating income guidance
increased to $948 million compared with the previous midpoint
guidance of $910 million. Natural gas gathering and processing
segment's 2012 mid-point operating income guidance decreased to
$220 million from the previous guidance of $247 million. ONEOK's
midpoint of operating income guidance in 2012 remains $135 million.
The midpoint of the natural gas liquids segment's 2012 operating
income guidance has been increased to $593 million from the
previous guidance of $528 million.
The partnership increased its distributable cash flow ("DCF") to
the band of $975 million - $1,025 million compared with the
previous guidance range of $925 million - $985 million.
The partnership revised its 2012 mid-point earnings before
interest, tax, depreciation and amortization ("EBITDA") to $1,289
million compared with its earlier guidance of $1,249 million.
In 2012, the partnership's mid-point capital expenditures of
approximately $2.0 billion, includes approximately $1.9 billion in
growth capital and $108 million in maintenance capital.
The partnership has increased its earlier planned investment level
in several internal growth projects to $5.7 billion - $6.6 billion
from $4.7 billion - $5.6 billion during the 2011 to 2015 timeframe.
The investment will be made to build new pipelines and natural gas
processing facilities and further develop its existing bases in its
ONEOK's 2012 earnings guidance projected an increase of 2.5 cents
per unit per quarter in unitholder distributions. Actual
declarations are subject to the partnership's board approval.
The partnership competes with
Plains All American Pipeline, L.P.
), which is expected to report its second-quarter 2012 earnings
results on August 6, 2012 after the market close. The Zacks
Consensus Estimate for the second quarter 2012 is $1.63 per unit.
Although ONEOK Partners failed to beat our projection, but we
appreciate the partnership's geographically diversified gas assets
in five distinctly different basins. This diversity enables the
partnership to mitigate a decline in natural gas production in some
of its operating basins and to serve a large number of customers.
In addition, the partnership continues to make significant
investments in varied projects under its organic growth program,
which we believe will help it cater to the growing demand from
natural gas producers. We also expect the partnership's organic
growth to primarily 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.
However we are skeptical about uncertain weather condition,
volatile credit markets and unpredictable commodity prices. These
factors may significantly impact the partnership's financial
results in the future.
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, storing and transporting of natural gas in