Pipeline giant ONEOK (NYSE:OKE) continued its strong showing in 2018, delivering outstanding results for the second quarter as both earnings and cash flow zoomed more than 30%. Add that to its excellent results in the first quarter, and ONEOK is on track to deliver even better growth this year than it initially anticipated.

ONEOK results: The raw numbers


Q2 2018

Q2 2017

Year-Over-Year Change

Adjusted EBITDA

$601.8 million

$462.3 million


Distributable cash flow

$453.5 million

$330.1 million


Distribution coverage ratio

1.39 times

1.50 times


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

Pipelines going over water at sunset.

Image source: Getty Images.

What happened with ONEOK this quarter? 

NGLs and G&P led the way:

  • Adjusted EBITDA in ONEOK's natural gas liquids (NGLs) segment jumped 29% versus last year's second quarter to $352.1 million. Fueling the NGL segment's growth was higher volumes in the Mid-Continent region (primarily the STACK/SCOOP) and the Permian Basin. Overall, the company delivered a 12% increase in NGL volumes gathered as well as those fractionated, which is the process of separating the NGLs into ethane, propane, and other products. ONEOK pointed out that its ethane volumes increased by 60,000 barrels per day in the quarter, which brought in some incremental income.
  • Earnings from the natural gas gathering and processing (G&P) segment soared 30% to $166.9 million, driven by a 19% increase in volumes in both the Williston Basin and STACK and SCOOP areas.
  • The natural gas pipelines segment's earnings increased 6% to $85.4 million due to higher volumes.
  • The strong volume and earnings growth drove DCF up more than 37%, which enabled the company to increase its dividend by 11% over the past year while maintaining a very healthy coverage ratio.
  • ONEOK also ended the quarter with an excellent balance sheet as its earnings growth when combined with a stock sale helped push its debt-to-EBITDA ratio down to 3.7 times, which is a significant improvement from 5.1 times in the year-ago quarter.

What management had to say 

CEO Terry Spencer commented on the quarter by saying that "ONEOK's second quarter natural gas and NGL volume growth continues to demonstrate the consistent long-term productivity of the basins in which our facilities safely and reliably operate."

ONEOK is benefiting from the uptick in drilling activities in key shale regions like the Bakken and STACK thanks to higher oil prices. Those new wells have enabled the company to gather, process, and transport more natural gas as well as extract and move higher volumes of NGLs.

Meanwhile, the company's customers anticipate that their volumes will continue growing. That's enabled ONEOK to secure more than $4 billion of expansion projects, which will drive growth over the next several years.

Looking forward 

ONEOK's excellent start to 2018 enabled it to boost the midpoint of its guidance for earnings and distributable cash flow:


Updated Guidance

Midpoint Growth vs. 2017

Prior Guidance

Midpoint Growth vs. 2017

Adjusted EBITDA

$2.285 billion to $2.415 billion


$2.215 billion to $2.415 billion


Distributable cash flow

$1.675 billion to $1.805 billion


$1.615 billion to $1.815 billion


Data source: ONEOK.

That forecast keeps the company on track with its long-term plan to grow its dividend at a 9% to 11% annual rate through 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.