ONEOK (NYSE:OKE) delivered a solid finish to 2018 as earnings and cash flow came within the upwardly revised guidance ranges the company provided in the third quarter. Meanwhile, the pipeline giant expects continued growth in 2019 -- though at a slower pace than last year -- before reaccelerating in 2020 as it completes expansion projects this year. 

ONEOK results: The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Adjusted EBITDA

$625.2 million

$547.7 million

14.2%

Distributable cash flow

$464.7 million

$366 million

27%

Distribution coverage ratio

1.32 times

1.28 times

3.1%

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

What happened with ONEOK this quarter? 

Natural gas gathering and processing (G&P) led the way:

  • Adjusted EBITDA in ONEOK's natural gas liquids (NGLs) segment rose 12% versus the year-ago period to $347.4 million, fueled by higher volumes in the STACK/SCOOP region, Williston Basin, and Permian Basin, as well as from optimization and marketing activities. For the full year, adjusted EBITDA in the NGL segment zoomed 25% due to those same factors.
  • Earnings from the company's natural gas G&P assets surged 21% to $174.6 million, driven by a 9% increase in natural gas volumes processed compared with the year-ago period across all its operating areas. Meanwhile, full-year adjusted EBITDA jumped 22% thanks to a 16% increase in volumes as well as an improvement in the average fee earned.
  • Earnings in the natural gas pipelines segment rose 10% to $97.2 million during the quarter due to higher volumes, which helped push full-year profits up 8%.
  • Overall for the full year, ONEOK generated $2.45 billion of adjusted EBITDA, which was 23% higher than 2017 and close to the midpoint of its $2.43 billion-to-$2.51 billion guidance range. 
  • Distributable cash flow, meanwhile, tallied $1.82 billion, up 32% from the previous year and within the company's $1.815 billion-to-$1.895 billion guidance range. That was enough money to cover the company's dividend by a comfortable 1.37 times -- even though ONEOK increased it 12% -- leaving it with some excess cash to help fund expansion projects.
Pipelines at an oil and gas facility.

Image source: Getty Images.

What management had to say 

CEO Terry Spencer commented on ONEOK's success over the past year, saying that: "2018 was an exceptional year for ONEOK, with continued volume growth across our operations and the announcement of more than $5.5 billion of capital-growth projects that will help meet customer needs and the increasing demand for natural gas and NGLs in the U.S. and abroad. We ended the year with a strong balance sheet and the financial capability to fund these projects with no expected equity needs in 2019."

ONEOK has done an excellent job maintaining a strong financial profile even as it invests heavily to expand its asset base. The company currently plans to spend between $2.5 billion and $3.7 billion on expansion projects this year, up from $2.1 billion in 2018. However, thanks to its growing stream of excess cash and low leverage ratio, ONEOK believes it can fund that spending without selling more stock this year, which should help ease any worry that the company might need to dilute investors.

Looking forward 

ONEOK also provided its guidance for 2019 as well as an initial outlook for 2020. Spencer stated that "as we look ahead, 2019 will be a year of project execution, positioning ONEOK for strong earnings growth in 2020." While the company recently finished $500 million of capital projects, the bulk of its expansions should come online toward the end of this year and into early 2020. That time frame leads the company to believe that adjusted EBITDA will rise another 6% in 2019 before reaccelerating to a 20% growth rate in 2020 at the midpoint of its guidance range.