Following the recently completed 2-for-1 split, master limited partnership ONEOK Partners L.P. (OKS) reported a whopping 81% year over year growth for the second quarter of 2011. The partnership’s split-adjusted earnings for the quarter came in at 67 cents per unit compared to 37 cents earned in the year-ago quarter.
Earnings for the quarter also compared favorably with the Zacks Consensus Estimate of 52 cents, implying a positive surprise of 28.8%.
Operating Results
Total revenue of $2.8 billion in the quarter surpassed the Zacks Consensus Estimate of $2.4 billion. However, revenues improved 33.3% from last year’s $2.1 billion.
Earnings before interest, taxes, depreciation and amortization (EBITDA) were $275.3 million, up 33% from the year-ago period.
Operating income rose 38.4% to $202.0 million in the quarter, driven by favorable natural gas liquids (NGL) price differentials, increased NGL fractionation and transportation capacity available for optimization activities, higher NGL volumes gathered and fractionated, contract renegotiations, and higher isomerization margins in the natural gas liquids segment.
Equity earnings from investments climbed $8.8 million to $29.5 million, driven by increased contracted capacity on the Northern Border Pipeline (50% interest ownership). Additionally, ONEOK Partners' 50% interest in the Overland Pass Pipeline is accounted for in equity earnings from investments, effective September 2010.
Operating costs increased $15.7 million to $113.6 million, primarily due to higher employee-related costs associated with incentive and benefit plans and higher property taxes. Depreciation and amortization expense, however, dipped $0.3 million from last year to $43.7 million.
Distributable cash flow (DCF) totaled $206.9 million compared with $139.5 million last year.
Segment Analysis
Natural Gas Liquids segment: Operating income for the Natural Gas Liquids segment almost doubled to about $125.7 million in the second quarter, as a result of higher fee-based exchange margins and the benefits of favorable price differentials.
Natural Gas Gathering and Processing segment: Operating income at the Natural Gas Gathering and Processing segment increased 7.6% year over year to $47.0 million. Results at this segment benefited from higher commodity prices and contract renegotiations.
Natural Gas Pipelines segment: Natural Gas Pipelines segment’s operating income dipped 22% to $29.8 million, on account of higher operating expenses and lower transportation margins on one of its wholly owned pipelines.
Capex
Capital expenditures increased to $265.3 million, compared with $62.9 million in the second quarter 2010, due to growth projects in the natural gas gathering and processing and natural gas liquids segments.
Outlook
Going forward, ONEOK Partners expects its 2011 earnings to be in the $630 – $660 million range, up from its previous guidance of $525 – $575 million. The partnership also revised its distributable cash flow target for the year to be in the range of $735 – $765 million, versus its previous guidance of $625 – $675 million.
Capital expenditure budget for 2011 is $1.3 billion, comprising $1.2 billion in growth capital and $102 million in maintenance capital.
Our View
Based in Tulsa, Oklahoma, ONEOK Partners is one of the largest publicly traded master limited partnerships and a leader in gathering, processing, storing and transporting of natural gas in the United States.
ONEOK Partners currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long-term Neutral rating on the stock. The major peers of the partnership are El Paso Corp. (EP) and Enbridge Inc. (ENB).
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