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ONEOK Inc. Rockets Out of the Gate in 2018

By Matthew DiLallo - May 2, 2018 at 9:00AM

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The pipeline and processing company is on pace to hit its bullish full-year outlook.

Pipeline giant ONEOK (OKE 2.25%) expected 2018 to be a big year, and that's just how it started. Earnings and cash flow rocketed higher thanks to a big uptick in volumes. Because of that, the company remains confident it will achieve its 2018 forecast.

ONEOK results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Adjusted EBITDA

$570.3 million

$459.6 million

24.1%

Distributable cash flow (DCF)

$432.0 million

$324.2 million

33.3%

Distribution coverage ratio

1.37 times

1.46 times

-6.2%

Data source: ONEOK. EBITDA = earnings before interest, taxes, depreciation, and amortization.

A natural gas well with pipelines at sunset.

Image source: Getty Images.

What happened with ONEOK this quarter? 

Volumes rose across the board:

  • Adjusted EBITDA in ONEOK's natural gas liquids (NGLs) segment surged 23% year over year to $342.1 million thanks to a 12% increase in NGL volumes gathered and a 21% improvement in those fractionated, which is the process of separating them into various streams like ethane and propane. The increase in ethane volumes is worth noting because the company sees this potentially adding $100 billion in incremental EBITDA this year.
  • The natural gas gathering and processing segment delivered a 26% improvement in adjusted EBITDA to $130.6 million. Volume growth due to new supplies from the STACK and Bakken shale plays drove 23% more natural gas through these systems during the quarter.
  • Earnings in the natural gas pipelines segment rose 13% to $93.6 million due to higher transportation services and increased natural gas storage volumes.
  • This growth helped fuel a more than 30% increase in DCF, enabling ONEOK to grow its dividend 30% over the past year while maintaining a healthy coverage ratio.

What management had to say 

CEO Terry Spencer commented on the results, saying:

Increased producer activity and drilling efficiencies across our operating footprint drove volume growth and higher financial results in the first quarter 2018, compared with the first quarter 2017. Our focus for 2018 continues to be executing on our more than $4 billion of announced capital-growth projects to provide the services our customers need, and maintaining our strong balance sheet. We continue to return value to shareholders through our recent dividend increase while achieving a dividend coverage ratio of nearly 1.4 times for the quarter.

ONEOK is off to a phenomenal start in 2018. The company has benefited from the improvement in activity levels in the oil market thanks to higher oil prices because producers are drilling more wells that are flowing their volumes through ONEOK's systems. Further, producers expect to continue growing, which is why many signed contracts for additional future capacity with ONEOK, enabling it to secure several expansion projects in recent months that will drive growth over the next three years. Even better, it has accomplished all of this while improving its balance sheet and continuing to grow its dividend at a fast pace.

Looking forward 

ONEOK's strong start to 2018 has it on track to achieve its full-year forecast. That outlook anticipates adjusted EBITDA in the range of $2.215 billion to $2.415 billion this year, up 16.5% at the midpoint from 2017, while DCF should be between $1.615 billion to $1.815 billion, an increase of 23.9% at the midpoint from last year. This forecast, when combined with the expansion projects the company has under way, positions ONEOK to achieve its goal of increasing the dividend at a 9% to 11% annual rate through 2021.

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Stocks Mentioned

ONEOK, Inc. Stock Quote
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