ONEOK Partners, L.P.’s (OKS) fourth-quarter 2014 adjusted earnings of 67 cents per unit beat the Zacks Consensus Estimate of 58 cents by 15.5% and were in line with the year-ago figure.
For 2014, the partnership reported adjusted earnings of $2.64 per unit, surpassing the Zacks Consensus Estimate of $2.25 by 17.3%. On a year-over-year basis, earnings surged 12.3% from $2.35 per unit.
On a GAAP basis, earnings in 2014 stood at $2.33 per unit compared with $2.35 a year ago. The variance between GAAP and adjusted earnings were due to a non-cash impairment charge of 31 cents.
Total Revenue
In the fourth quarter, ONEOK Partners reported total revenue of $2.84 billion, missing the Zacks Consensus Estimate by 17.7%. Quarterly revenues decreased 17.5% year over year primarily due to a decline in commodity sales. This was partially offset by higher services revenues.
The partnership’s annual revenues stood at $12.19 billion, lagging the Zacks Consensus Estimate by 4.2%. Reported revenues however increased 2.7% from $11.87 billion a year ago.
Quarterly Operational Results
In the quarter under review, ONEOK Partners’ costs of sales and fuel were $2,281.3 million, down 24.2% from $3,008 million a year ago.
Total operating expenses increased 33.9% year over year to $267.2 million due to higher operations and maintenance expenses, depreciation and amortization, and general taxes.
The partnership reported operating income of $300.9 million, up around 19% year over year.
ONEOK Partners’ adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter surged 18.6% year over year to $415.5 million.
In the reported quarter, the partnership’s interest expenses were $70.6 million, up 7.6% from $65.6 million a year ago.
Segment Results
In the fourth quarter, ONEOK Partners’ operating income at natural gas gathering and processing, natural gas liquids, and natural gas pipelines increased 27.8%, 20.6% and 7.4% year over year, respectively.
Financial Condition
As of Dec 31, 2014, ONEOK Partners had cash and cash equivalents of $42.5 million versus $134.5 million as of Dec 31, 2013.
Long-term debt (excluding current maturities) as of Dec 31, 2014 was $6,038.4 million versus $6,044.9 million as of Dec 31, 2013.
In 2014, the partnership’s cash flow from operating activities was $1,309.8 million, higher than $1,007.7 million in the year-ago period.
ONEOK Partners’ capital expenditure in the fourth quarter of 2014 was $573 million versus $565.4 million in the prior-year quarter.
In the quarter, the partnership’s distributable cash flow (DCF) was $306 million versus $245 million a year ago.
Guidance
ONEOK Partners reduced its guidance for 2015 net income, adjusted EBITDA and DCF due to the volatile commodity price environment.
The partnership decreased its net income guidance for 2015 to the range of $845–$1,010 million from previous projection of $1,120–$1,280 million.
For 2015, ONEOK Partners lowered its projection for DCF to $1,080–$1,260 million from the earlier estimate of $1,310–$1,490 million and adjusted EBITDA guidance to $1,510–$1,730 million from the previous guidance of $1,770–$1,990 million.
In addition, the partnership lowered its guidance for 2015 capital expenditure to $1,000–$1,400 million from the earlier projection of $2,600–$3,000 million, due to the delay in few projects and slower-than-anticipated growth outlook.
Peer Release
Magellan Midstream Partners LP (MMP) reported fourth-quarter 2014 earnings per unit of 93 cents (excluding mark-to-market commodity-related pricing adjustments), in line with the Zacks Consensus Estimate.
Our View
Higher natural gas gathering and processing volumes, and decline in costs of sales and fuel primarily led to favorable earnings in fourth-quarter 2014.
ONEOK Partners pursues a disciplined capital investment program to expand its operations in several mineral-rich areas in the U.S., backed by a strong cash generating capacity. These initiatives will enable the partnership to serve more upstream players, thereby boosting cash inflows.
However, volatile commodities prices and stringent government regulations remain our major causes of concern.
ONEOK Partners currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Delek Logistics Partners, LP (DKL) and Valero Energy Partners LP (VLP), each carrying a Zacks Rank #1 (Strong Buy).
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