On May 26, 2015, we have issued an updated research report on ONEOK Partners L.P. OKS. A plethora of projects in reserve rich basins will continue to support the partnership’s performance. However, volatility in commodity prices, increasing competition and stringent regulations are causes of concern.
ONEOK Partners L.P., a Zacks Rank #3 (Hold) stock, reported weak results in the first quarter with both earnings per unit and revenues lagging the Zacks Consensus Estimate. The partnership’s performance was affected by a sharp decline in commodity prices and lower weather relates sales compared to the prior-year quarter.
Despite the ongoing softness in commodity prices, the partnership continues to expand its operations through strategic investments backed by a strong cash generating capacity. ONEOK Partners invested around $1.75 billion in 2014 and plans to spend $1 billion to $1.4 billion in 2015. A solid project backlog of nearly $4 billion to $5 billion places the partnership well for any recovery in commodity prices.
ONEOK Partners is currently not expecting a reduction in drilling activities at its operating territories. However, ONEOK Partners’ midstream services will be affected if the upstream players reduce exploration and production to counter unfavorable price movements. This will subsequently affect the partnership’s cash inflow.
ONEOK Partners does not own all of the land on which its pipelines and facilities are built. The partnership attains rights to build and operate its pipelines and allied facilities on land owned by third parties and government agencies for a specific period. Sometimes, the partnership loses these rights because of its failure to renew contracts on acceptable terms or incurs higher costs to renew the same contracts.
Some better-ranked stocks in the industry include Buckeye Partners, L.P. BPL, Tesoro Logistics LP TLLP and Columbia Pipeline Partners LP CPPL, each carrying a Zacks Rank #2 (Buy).
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