ONEOK (NYSE:OKE) continues to benefit from its strategic focus on capturing the natural gas produced as a byproduct of oil-focused wells. Drillers had been burning off this gas due to the lack of infrastructure. However, they're now able to cash in on an increasing amount of it as ONEOK completes its expansion projects. That's also helping boost the midstream company's volumes and cash flow, which continued growing in the second quarter.

ONEOK results: The raw numbers


Q2 2019

Q2 2018


Adjusted EBITDA

$632.4 million

$601.8 million


Distributable cash flow

$540.5 million

$453.5 million


Dividend coverage ratio




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

What happened with ONEOK this quarter? 

Natural gas led the way:

  • Adjusted EBITDA in ONEOK's natural gas liquids (NGLs) segment slipped 1.5% from the year-ago period to $364.8 million. That was mainly due to the timing of when it sold NGLs out of its inventory, which negatively impacted pricing. That issue offset an 11% increase in the volumes flowing through its systems thanks to growth in the Rocky Mountain region, STACK/SCOOP areas of Oklahoma, and the Permian Basin.
  • Earnings from the company's natural gas gathering and processing business jumped nearly 12% to $186.6 million. The company benefited from its ability to gather and process more natural gas from wells drilled in the Bakken Shale, as well as those in the STACK/SCOOP region.
  • The natural gas pipelines segment's earnings surged almost 18% to $100.5 million. That was mainly due to the company's recent expansion projects, which enabled it to transport more gas across its pipeline systems.
  • Distributable cash flow grew at a much faster pace than earnings during the quarter as a result of the timing of the distributions it receives from unconsolidated affiliates. Through the second quarter, the company has already booked $159 million of the $170 million-$180 million it expects to collect from these entities this year.
  • ONEOK generated $183.2 million in excess cash after paying its dividend during the quarter. That's a nearly 45% year-over-year increase even though ONEOK raised its dividend 8% over the past year.
Pipelines heading to a refinery with the sun shining in the background.

Image source: Getty Images.

What management had to say

CEO Terry Spencer previously called 2019 "a year of project execution" for the company. That's exactly what ONEOK did during the second quarter. Spencer said that "our capital-growth program remains on schedule and on budget, including multiple projects that will add critical natural gas and NGL infrastructure to significantly reduce flaring in the Williston Basin." He noted that "the southern section of our Elk Creek NGL Pipeline is now complete," which puts that project ahead of schedule. This leads the company to believe that it will experience a "significant earnings uplift in the second half of 2019," according to Spencer.

Looking forward 

Commenting on what lies ahead, Spencer stated, "With solid results and volumes so far in 2019 and the benefit of additional projects still being placed in service this year, we feel confident in achieving our 2019 financial guidance and our positioning for strong growth in 2020." As a result, ONEOK should generate between $1.82 billion and $2.06 billion of cash flow, which would be 7% higher than 2018's total at the midpoint of its guidance range. Meanwhile, the company's growth rate remains on track to accelerate to 20% in 2020 as more expansions come on line.

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