We retain our Neutral recommendation on Tulsa, Oklahoma-based ONEOK Partners L.P. (OKS), one of the largest publicly traded master limited partnerships (MLP).
A leader in gathering, processing, storage and transportation of natural gas in the United States, ONEOK Partners' assets comprise a geographically diverse collection of gathering and processing as well as transportation systems serving various customers in five distinctly different basins. Along with a sustained focus on adding new supplies, this diversity has helped the partnership offset declines in natural gas production in some of its basins.
Looking ahead, ONEOK Partners plans to invest roughly $2.5–$3.5 billion in growth projects through 2015, with annual investments of $300–$500 million per year. Additionally, ONEOK Partners plans to invest $0.9–$1.2 billion through 2013 to its already robust NGL growth projects in order to enhance infrastructure and improve supplies to the Gulf Coast region. As a part of its acquisition strategy, the partnership is looking forward to closing transformational deals that would allow it to enter into new businesses in the energy value chain.
Additionally, ONEOK Partners has a solid balance sheet, with plenty of liquidity and investment-grade credit ratings. As of March 31, 2011, the partnership had roughly $772.0 million available under its credit facility and $617.4 million of cash and cash equivalents. Total debt at quarter-end was $3.9 billion with a debt-to-capital ratio of 54%.
The partnership targets to improve its already solid distribution growth profile at a 5%–10% rate annually in 2012 and 2013. Recently, the partnership increased its quarterly cash distribution by 1 cent to $1.15 per unit ($4.60 per unit annualized), in sync with its strategy to grow distribution by a cent every quarter.
In our view, ONEOK Partners’ scale and financial strength, broad array of services, supply diversity, excellent market connectivity and low operating costs provide distinct competitive advantages. Plus, the partnership’s growing quarterly distributions (current 5.7% annual yield), driven by the growth of its existing businesses and strategic acquisitions, make it an attractive investment.
However, we believe these positives are fairly reflected in the partnership’s current valuation, leaving little room for further upside.
Moreover, we believe ONEOK Partners remain exposed to the fluctuations in commodity prices, as it earns revenues mainly as a payment for its gathering and processing as well as transportation and storage services, and from the sale of purity NGL products. A decline in prices for these commodities may result in lesser payments for ONEOK Partners products and services, which could significantly impact the partnership’s cash flows.
Also, the demand for natural gas and some of ONEOK Partners products, namely propane, butanes and natural gasoline, are weather sensitive and seasonal.
ONEOK Partners currently retains a Zacks #3 Rank (short-term Hold rating). This is at par with the partnership’s major peers Enbridge Inc. (ENB) and Kinder Morgan Energy Partners L.P. (KMP).
ENBRIDGE INC (ENB): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis Report
Be the first to comment