ONEOK Inc. OKE and ONEOK Partners, L.P. OKS announced 2016 financial and production guidance, following which shares of ONEOK Inc. surged 15.43% to close at $21.85 yesterday.
ONEOKE Inc. projects dividends to remain flat, no cash income taxes and no long-term debt maturities until 2022. The company expects an available cash balance of approximately $250 million in 2016 that is to be deployed for the development of ONEOK Partners.
As per ONEOK Partners, growth capital expenditures and maintenance capital expenditures will be approximately $460 million and $140 million, respectively. Despite the volatility in commodity prices, the partnership expects earnings to increase primarily driven by growth in ethane volume and fee-based earnings. Around one-third of all ethane in the U.S is utilizing the partnership’s processing plants, which provides it with a significant growth opportunity.
Segment Details
Natural gas liquids (“NGL”) gathered and fractionated are projected to be in the range of 800,000–870,000 barrels per day (bpd) and 540,000–590,000 bpd, respectively, in 2016. The recently completed Lonesome Creek plant and the scheduled completion of the Bakken NGL pipeline expansion and Bear Creek natural gas processing plant in the third quarter of 2016 will contribute significantly to this volume growth.
The natural gas pipelines segment expects its earnings to be more than 95% fee-based in 2016. The first phase of the Roadrunner Gas Transmission pipeline project, which is under a 25-year fee-based contract, is expected to be completed in the first quarter of 2016, thereby providing more visibility to fee-based earnings.
The partnership projects natural gas gathered volumes to grow by approximately 27% in the Williston Basin and over 6% in the Mid-Continent from 2015 volumes. This will be made possible partly by the expectation that fee-based margin of the natural gas gathering and processing segment will constitute over 75%, compared with the 2015 guidance of 45%.
However, robust natural gas production from the major shale plays has resulted in massive supply outpacing demand, holding back their prices. Industrial demand has also been below par in the last few years. With a mild start to this year’s winter, weaker natural gas consumption by residential and commercial users has also added to the woes. With supply far ahead of demand, natural gas prices are not expected to make a turnaround anytime soon.
Zacks Rank
Tulsa, OK-based ONEOK currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the utility-gas distribution industry are Chesapeake Utilities Corporation CPK, sporting a Zacks Rank #1 (Strong Buy) and Northwest Natural Gas Company NWN, carrying a Zacks Rank #2 (Buy).
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