Hurricane Harvey battered the state of Texas in the third quarter, forcing many oil and gas producers to turn off their pumps until the storm passed. In addition, heavy rain caused flooding, which temporarily closed several oil and gas processing facilities. Consequently, there was a concern that the storm would impact ONEOK's (OKE 2.25%) third-quarter results. While the company did see some effects, it more than overcame them to post solid numbers, enabling it to affirm its full-year guidance.
ONEOK results: The raw numbers
|
Metric |
Q3 2017 |
Q3 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Adjusted EBITDA |
$517.2 million |
$469.7 million |
10.1% |
|
Distributable cash flow |
$364.4 million |
$331.5 million |
9.9% |
|
Distribution coverage ratio |
1.29 |
1.52 |
(15.1%) |
Data source: ONEOK. EBITDA = earnings before interest, taxes, depreciation, and amortization.
Image source: Getty Images.
What happened with ONEOK this quarter?
Rising volumes took earnings and cash flow with it:
- Adjusted EBITDA in ONEOK's natural gas liquids (NGLs) segment rose 5% from the year-ago quarter to $293.9 million because the company gathered higher volumes of NGLs in the Bakken shale of North Dakota and the STACK/SCOOP plays of Oklahoma. That said, earnings would have been $4.5 million higher if not for the impact of Hurricane Harvey.
- The natural gas gathering and processing segment's adjusted EBITDA jumped 29% to $142 million during the quarter. An increase in natural gas production from the Bakken and STACK/SCOOP plays fueled a 16% increase in volumes. In addition, the company collected an average fee rate that was 13% higher than last year due to recently restructured contracts.
- ONEOK's natural gas pipeline segment also reported higher adjusted EBITDA, which increased 9% year over year to $87.5 million. The primary driver was the expansion of the WesTex pipeline, which drove higher fee-based earnings.
- The across-the-board improvement in earnings helped fuel a near double-digit jump in distributable cash flow (DCF). Furthermore, while ONEOK's coverage ratio slipped in the quarter, that was due to the 21% increase in its dividend this year.
What management had to say
CEO Terry Spencer commented on the third quarter by saying:
Third-quarter financial results reflect increases in both adjusted EBITDA and distributable cash flow, compared with 2016, driven by natural gas and natural gas liquids volume growth. Solid volume performance through the first nine months of the year has ONEOK well-positioned to achieve 2017 financial guidance.
ONEOK's results came in about as expected despite a $4.5 million impact from Hurricane Harvey. The company reaffirmed that it expects adjusted EBITDA to be between $1.89 billion to $2.06 billion this year and that DCF will be between $1.28 billion to $1.44 billion.
Looking forward
One of the other highlights of the quarter was that ONEOK continued to make progress on its growth plan, which positions it to deliver 9% to 11% annual dividend increases in 2018 through 2021. The latest step forward came in late October when the company announced that it would expand its West Texas LPG joint venture with Martin Midstream Partners (MMLP 1.88%). That nearly $200 million expansion would bring the system to the fast-growing Delaware Basin, enabling ONEOK and Martin Midstream to cash in on that growth. The first phase of that project should enter service and start generating cash flow in the third quarter of 2018. With that announcement, ONEOK has now secured $490 million in expansions since June.
Meanwhile, Spencer said that the company is "developing more potential opportunities that further expand our existing assets, which continue to create our highest returns on capital invested." Its ability to secure those projects will keep it on pace to rapidly increase its dividend.
