Pipeline giant ONEOK (NYSE:OKE) continues to benefit from higher oil prices, which has incentivized producers to ramp up their drilling activities, resulting in more volume flowing through its system than anticipated in the third quarter. Because of that -- and the expectation for continued volume growth in the fourth quarter -- the company boosted its full-year outlook for the second time this year.

ONEOK results: The raw numbers


Q3 2018

Q3 2017

Year-Over-Year Change

Adjusted EBITDA

$650.2 million

$517.2 million


Distributable cash flow

$472.1 million

$364.4 million


Distribution coverage ratio

1.39 times

1.29 times


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

What happened with ONEOK this quarter? 

Natural gas liquids (NGLs) led the charge:

  • Adjusted EBITDA in ONEOK's NGLs segment surged 36% versus last year's third quarter to $399 million. NGL volumes gathered rose 18% while those fractionated -- which is a process that separates the raw NGL stream into other products such as ethane, propane, and butane -- jumped 21% compared with last year's third quarter. In addition to the rising volumes from an increase in drilling activities, the company completed the first phase of expansion on its West Texas LPG pipeline while also connecting four third-party natural gas processing plants to its systems this year, which provided a further boost to volumes. Meanwhile, strong demand from petrochemical facilities due to recent capacity expansions helped drive a 100,000-barrel-a-day increase in ethane volumes compared with the year-ago period. 
  • Earnings from the natural gas gathering and processing segment rose 12% to $159.6 million, driven by a 15% increase in volumes processed in the Williston Basin and STACK and SCOOP region.
  • The natural gas pipelines segment's earnings were up 3% to $90.1 million due to higher volumes.
  • ONEOK has secured $1.8 billion of additional expansion projects since July, boosting its current backlog up to $6 billion.
  • ONEOK continued to enhance an already excellent balance sheet by pushing its debt-to-EBITDA ratio down to 3.4 times, which is a significant improvement from 4.9 times in the year-ago quarter.
Pipelines with a blue sky in the background.

Image source: Getty Images.

What management had to say 

CEO Terry Spencer commented on the quarter, stating that "sustained NGL and natural gas volume growth across our assets continues to result in high-quality earnings growth." Two regions, however, are fueling the bulk of this growth. The mid-continent area, which houses the STACK and SCOOP plays, helped drive NGL volume growth last quarter. The company has connected four third-party natural gas processing plants in the region to its system this year, which helped add $52.8 million in incremental NGL EBITDA last quarter. Meanwhile, that region and the Bakken have been the dual growth drivers in its natural gas processing segment, as producers in those regions continue ramping their drilling activities, which is boosting the volume of natural gas ONEOK processes.

Looking forward 

Those dual growth engines should continue gaining speed in the fourth quarter, which led the company to increase its full-year guidance once again.


Updated Guidance

Midpoint Growth vs. 2017

Prior Guidance

Midpoint Growth vs. 2017

Adjusted EBITDA

$2.43 billion to $2.51 billion


$2.285 billion to $2.415 billion


Distributable cash flow

$1.815 billion to $1.895 billion


$1.675 billion to $1.805 billion


Data source: ONEOK.

That forecast, along with ONEOK's ever-expanding growth project backlog, keeps the company firmly on track with its long-term plan to increase its dividend at a 9% to 11% annual rate through 2021.

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