ONEOK Partners L.P. (OKS) reported fourth-quarter 2013 earnings per unit of 67 cents, in line with the Zacks Consensus Estimate. Quarterly earnings increased 1.5% year over year primarily on the back of higher revenues.
For 2013, the partnership’s earnings were $2.35 per unit, beating the Zacks Consensus Estimate by 1.3%. Annual earnings were 22.7% lower than the year-ago level, primarily due to higher cost of sales and fuel and an increase in unit count.
Revenues
In fourth-quarter 2013, revenues of $3.45 billion surpassed the Zacks Consensus Estimate by 9.8%. Quarterly revenues increased 18.3% from the prior-year figure of $2.92 billion.
The partnership’s annual revenues were $11.87 billion, beating the Zacks Consensus Estimate by 1.6%. Reported revenues increased 16.6% year over year.
Operating Results
In the quarter under review, ONEOK Partners’ cost of sales and fuel increased 19.5% year over year to around $3,008 million.
Quarterly total operating expenses were $199.6 million, up 13.9% year over year primarily due to higher operations and maintenance expenses as well as depreciation expenses.
The partnership’s quarterly operating margin was 7.3%, down from 7.9% in the prior-year quarter.
In the quarter, the partnership’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) jumped 11.3% year over year to $350.4 million, primarily due to a rise in natural gas volumes gathered, processed and sold, and higher natural gas liquids (“NGL”) volumes gathered.
ONEOK Partners’ interest expenses increased 13.3% year over year to $65.6 million, primarily due to a higher long-term debt level.
Segment Analysis
Natural Gas Gathering and Processing: Segmental quarterly operating income declined 5.1% year over year to $56.1 million. A drop in operating income was primarily due to a decrease in realized NGL product prices and alterations in contract mix.
Natural Gas Pipelines: In the reported quarter, segment operating income was $48.7 million, up 8.9% year over year. The increase was mainly attributable to higher transportation margins as a result of higher rates on the Guardian Pipeline and increased contracted capacity with natural gas producers on intrastate pipelines.
Natural Gas Liquids (“NGL”): The segment reported operating income of $148.9 million. An 18.4% year over year increase was mainly due to higher exchange-services margins from a rise in NGL volumes gathered, increased revenues from customers with minimum volume obligations, and higher fees from contract renegotiations for NGL exchange-services activities.
Financial Condition
ONEOK Partners had cash and cash equivalents of $134.5 million as of Dec 31, 2013 versus $537.1 million as of Dec 31, 2012.
Long-term debt (excluding current maturities) as of Dec 31, 2013 was $6,044.9 million versus $4,803.6 million as of Dec 31, 2012.
For 2013, cash provided by operating activities was $1,007.7 million, higher than $946.1 million in the year-ago comparable period.
ONEOK Partners’ capital expenditures in 2013 increased 24.3% year over year to $1,939.3 million, mainly owing to investment in several projects at the NGL and Natural Gas Gathering and Processing segments.
For 2013, the partnership’s distributable cash flow (“DCF”) was $949.2 million versus $1.0 billion a year ago.
Guidance
ONEOK Partners maintained its 2014 net income guidance in the range of $975 million to $1,075 million.
The partnership has provided an EBITDA guidance for 2014 in the band of $1,565 million to $1,665 million.
ONEOK Partners’ 2014 operating income guidance at the midpoint of $1,200 million reflects an estimated 33.2% rise year over year. The uptrend is likely to come on the back of higher volumes at the Natural Gas Gathering and Processing segment and higher-than-expected NGL volumes gathered and fractionated at the NGL segment.
The partnership has also provided a preliminary DCF guidance for 2014 in the range of $1,150 million to $1,250 million.
ONEOK Partners continues to pay incremental cash distribution to its unitholders. The projected cash distribution is expected to increase 1.5 cents per unit, per quarter, subject to the board’s approval.
Other Company Releases
Plains All American Pipeline, L.P. (PAA) announced fourth-quarter 2013 earnings of 74 cents per unit, beating the Zacks Consensus Estimate of 61 cents by 21.3%.
Access Midstream Partners, L.P. (ACMP) announced fourth-quarter 2013 earnings of 47 cents per unit, beating the Zacks Consensus Estimate by 9.3%.
Buckeye Partners L.P.’s (BPL) fourth quarter 2013 earnings of 75 cents per unit missed the Zacks Consensus Estimate of 85 cents by 11.8%.
Our View
ONEOK Partners’ quarterly earnings were in line with the consensus estimate, primarily due to higher operations and maintenance expenses and interest expenses, and a rise in the unit count.
However, we appreciate the partnership’s strategic capital investment program to expand its operations in the mineral rich areas, backed by a stable financial position. These initiatives will enable ONEOK Partners to meet increasing midstream service demand from the upstream players and serve more customers, thereby boosting cash inflows.
The partnership currently has a Zacks Rank #2 (Buy).
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