Please ensure Javascript is enabled for purposes of website accessibility

Oneok Expands Its Essential Bakken Presence

By Matthew DiLallo - Apr 15, 2013 at 2:40PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Oneok's natural gas solutions in the Bakken couldn't have come at a better time.

Midstream operator Oneok Partners (OKS) announced last week that two of its many Bakken growth projects are now on line. The projects, the Bakken NGL Pipeline and the Stateline II natural gas processing plant, are providing much-needed natural gas infrastructure to the oil-focused Bakken. These two projects are just the beginning of the company's plans in the high-growth Bakken.

While the company was shut out in its attempt to provide a solution to crude oil, it is seeing a lot of growth in natural gas and natural gas liquids. This is a really good niche for the company as it's providing an indispensable solution for the industry. Because the industry lacks this infrastructure, natural gas flaring has become a real problem. Just look at the following chart from Oneok:

Source: Oneok Investor Presentation

Some hard numbers will add perspective to the flaring issue. Take a look at the natural gas production numbers from Kodiak Oil & Gas (NYSE: KOG). In 2011 the company produced 1,329 MMcf of natural gas, yet flared 807 MMcf of that gas. Last year, the company produced 5,883 MMcfe of natural gas and flared 3,311 MMcfe of it. While the overall percentage of natural gas that was flared dropped from over 60% to half of total gas volume, that's still a lot of natural gas.

Kodiak isn't the only company that needs to reduce is flaring. Continental Resources (CLR 1.37%) has committed to "as close to zero percent flaring as possible." It does a much better job than Kodiak, having flared only 10% of its gas last year, which was down from the 20% of production it had flared the year before. These reductions aren't possible without new infrastructure, which is why Oneok's natural-gas-focused projects in the Bakken are so important.

The company's recently completed projects cost around $700 million to build. The important project area to watch is the growth in the companies processing capacity. The Stateline II plant is now the company's third natural gas processing plant in the Bakken. These plants will reduce the amount of flaring by enabling producers to get natural gas to customers. Overall, the company will be spending nearly $2 billion on natural gas gathering and processing projects through 2015.

These Bakken projects are just part of the equation for Oneok Partners and its general partner Oneok (OKE 0.40%). The company has already announced $5.3 billion growth projects that it's working on through 2015. In addition to that, it has more than $2 billion of unannounced projects in its backlog. Suffice it to say, Oneok will be busy over the next few years.

As these projects come on line they are expected to drive double-digit, annual EBITDA growth through 2015. Those earnings are expected to drive 8%-12% average annual distribution growth for investors in Oneok Partners. That's not bad, especially when units are already yielding just over 5%. If you're looking for a Bakken growth play, but want to earn income along the way, then Oneok or Oneok Partners are worth a look. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

ONEOK Partners, L.P. Stock Quote
ONEOK Partners, L.P.
OKS
ONEOK, Inc. Stock Quote
ONEOK, Inc.
OKE
$63.54 (0.40%) $0.25
Continental Resources, Inc. Stock Quote
Continental Resources, Inc.
CLR
$59.78 (1.37%) $0.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.