ONEOK (NYSE:OKE) hit a speed bump during the third quarter, causing earnings to slip while cash flow barely budged. That's quite a reversal from the energy company's fast-paced growth earlier this year. The primary issue was some weakness in its natural gas liquids (NGLs) segment resulting from lower prices and higher expenses.

However, the company remains on track to deliver on its full-year guidance. It also expects to reaccelerate next year, thanks to the upcoming completion of several expansion projects.

Drilling down into ONEOK's third-quarter results


Q3 2019

Q3 2018

Year-Over-Year Change

Adjusted EBITDA

$649.8 million

$650.2 million


Distributable cash flow

$480.9 million

$472.1 million


Distribution coverage ratio

1.31 times

1.39 times


Data source: ONEOK.

Driving ONEOK's mixed quarter was the lackluster results of its NGLs segment:

ONEOK's earnings by segment in the third quarter for 2019 and 2018.

Data source: ONEOK. Chart by author.

Overall, earnings in the company's key NGLs segment declined by about 8% year over year even though volumes increased 3%. The main issues weighing on its results during the quarter were the wide differences in regional NGL prices and higher operating costs resulting from the timing of routine maintenance expenses.

The company partially offset those problems with growth in its natural gas-focused businesses. The gathering and processing segment delivered roughly 10% growth thanks in part to a 7% increase in volumes, driven mainly by production growth in the Williston Basin and STACK/SCOOP regions. ONEOK's natural gas pipeline business, meanwhile, delivered a 15% year-over-year increase in earnings, primarily a result of recently completed expansion projects.

Pipelines laid out for construction at sunset.

Image source: Getty Images.

A look at what's ahead for ONEOK

With three quarters in the books, ONEOK now has a better idea of how the rest of the year will play out. That led it to update its full-year guidance ranges:


Original Guidance

Midpoint Growth Versus 2018

Updated Guidance

Midpoint Growth Versus 2018

Adjusted EBITDA

$2.5 billion to $2.7 billion


$2.56 billion to $2.64 billion


Distributable cash flow (DCF)

$1.82 billion to $2.06 billion


$1.96 billion to $2.08 billion


Data source: ONEOK.

As that table shows, while ONEOK narrowed its adjusted EBITDA range, it still anticipates 6.2% growth at the midpoint. DCF, meanwhile, is now on track to grow at a faster pace this year.

The company also continued to make excellent progress on its expansion program during the third quarter. As a result, CEO Terry Spencer noted that "our capital-growth projects remain on or ahead of schedule." He further stated that "we recently completed the Demicks Lake I plant in the Williston Basin, expect line fill activities to begin on the northern section of the Elk Creek NGL pipeline in November 2019, and expect a portion of our MB-4 fractionator in Mont Belvieu to be completed in the fourth quarter 2019." That timeline is worth noting, because "these projects will provide immediate earnings and volume uplift in 2020 and stable fee-based growth for years to come," according to Spencer. It leads the company to believe it can deliver "greater than 20% earnings growth in 2020," he said.

That outlook, when combined with the company's solid financial profile, should enable ONEOK to continue increasing its dividend. Overall, it has boosted the payout by 7% in the last year, which has helped push the yield up to 5.1%.

Gearing up for the reacceleration

ONEOK's growth engine sputtered during the third quarter because of higher costs and weaker commodity prices. However, that bump in the road won't derail the company from achieving its full-year forecast. Meanwhile, the excellent progress it made on its growth projects has it poised to stomp on the accelerator in 2020. As a result, ONEOK should have plenty of fuel to continue rewarding dividend investors.