ONEOK (OKE 2.00%) benefited from a rebound in the oil market during the first quarter, which drove producers to complete more wells so that they could capture those higher prices. On top of that, the company benefited from recently completed expansion projects, which enabled it to transport and process more volumes of natural gas and natural gas liquids (NGLs). The company has several additional expansions currently under construction, which positions it for high-octane growth in the coming years.
ONEOK results: The raw numbers
|
Metric |
Q1 2019 |
Q1 2018 |
Year-Over-Year Change |
|---|---|---|---|
|
Adjusted EBITDA |
$637.5 million |
$570.3 million |
11.8% |
|
Distributable cash flow |
$506.8 million |
$432 million |
17.3% |
|
Distribution coverage ratio |
1.43 times |
1.37 times |
4.4% |
Data source: ONEOK. EBITDA = earnings before interest, taxes, depreciation, and amortization.
What happened with ONEOK this quarter?
ONEOK generated strong growth in all three segments:
- Adjusted EBITDA in ONEOK's NGLs segment rose about 10% from last year's first quarter to $377.6 million. The company benefited from higher volumes in the STACK/SCOOP region, Williston Basin, and Permian Basin as well as from its marketing activities to capture premium prices for NGLs. The company also benefited from the expansion and buyout of its minority partner on the West Texas LPG system as well as the expansion of its Sterling III pipeline.
- Earnings from its natural gas gathering and processing business jumped nearly 17% to $152.2 million. The main driver was volume growth in the Williston Basin, including a 7% increase in gas processed. ONEOK also benefited from the expansion of its Canadian Valley gas plant.
- The natural gas pipelines segment delivered a 14% increase in earnings to $106.6 million, due mainly to higher volumes. One of the drivers of that growth was the completion of several projects that increased the capacity of ONEOK's systems.
- ONEOK generated $152.6 million in free cash flow after paying its dividend. That's up 32% year over year even though the company increased its payout by 9% in the past year.
Image source: Getty Images.
What management had to say
CEO Terry Spencer commented on the quarter by stating that "continued strong producer activity and recent project completions resulted in solid first-quarter results that have positioned us well for the remainder of 2019."
The company also made excellent progress on its expansion program, which "remains on track and on budget, with our largest projects slated for completion beginning early in the third quarter of 2019 through the first quarter of 2020," according to Spencer. That will not only enable the company to provide much-needed midstream infrastructure for its customers but will provide "ONEOK with substantial long-term earnings and cash flow growth."
In addition to continuing the progress of its existing growth projects, ONEOK recently added another small one to its backlog. It intends on investing about $100 million to build a 75-mile NGL pipeline that will connect the northern portion of its Bakken NGL pipeline to a third-party gas processing plant in the region. The company expects to complete this project by the fourth quarter of 2020.
Looking forward
ONEOK's solid start to the year keeps it on track to achieve its full-year guidance of generating between $1.82 billion and $2.06 billion of cash flow. At that midpoint, that's about 7% higher than last year. Meanwhile, the company sees earnings growth accelerating in 2020 to more than 20% as its largest expansions start entering service.
