ONEOK (NYSE:OKE) and ONEOK Partners (NYSE:OKS) both reported second-quarter results after the market closed on Tuesday. The reports really need to be taken in tandem, since all of ONEOK's income is derived from distributions it receives from its MLP, ONEOK Partners. Any weakness at ONEOK Partners will eventually flow through to ONEOK's results.

A look at ONEOK Partners' numbers
ONEOK Partners' results were a bit mixed. While the company's distributable cash flow increased to $276.9 million, up $4.9 million year over year, it slipped on a per-unit basis a result of a higher unit count, as well as a higher distribution rate. This combination pushed the MLP's distribution coverage ratio down to 0.88 times, which is not only below the 1.02 times from the year-ago quarter but also below the worrisome 1.0 mark, meaning the company is paying out more cash via distributions than it's producing.

Driving this decline is that some of the company's earnings are exposed to commodity prices, as it receives a percentage of proceeds instead of a fixed fee on some of its contracts. This situation really muted the company's growth, considering volumes were very strong, as NGL gathering and fractionated volumes increased 51% and 7%, respectively, while natural gas gathering and processed volumes increased 17% and 16%, respectively.

Because of this impact, the company is working to recontract more of its natural gas gathering and processing contracts to have a larger fee-based component. That's part of its long-term goal to have its overall fee-based cash flow to be at a level where the company can maintain a minimum coverage ratio of 1 in any commodity price environment.

A look at ONEOK's numbers
Securing that distribution is important to ONEOK, since the company's sole source of income is the distributions it receives from its MLP. During the second quarter, those distributions increased to $171.2 million, up from $156.5 million in the second quarter of last year, as a result of ONEOK Partners' increasing its distribution to investors, as well as the fact that ONEOK continues to buy more of the partnership's units.

After expenses, cash available for dividends stood at $149.6 million during the quarter, up from $130 million in the year-ago quarter. Given the company's current dividend rate, that works out to a dividend coverage ratio of 1.18. Not only is that well in the safe zone, but it's also much higher than the 1.09 ratio from the second quarter of last year. This improvement suggests that even if ONEOK Partners were forced to reduce its distribution because of its weak coverage ratio, ONEOK probably would still be able to maintain its current dividend level to its investors.

A look at the outlook
Despite the weak oil and gas market, ONEOK Partners has increased confidence that it will be able to meet its full-year expectations for natural gas gathering and processing volumes. As a result, the company also expects its financial results to be within its guidance range, with distributable cash flow expected to be $1.08 billion to $1.26 billion. Meanwhile, ONEOK reaffirmed its cash flow available for dividends in a range of $570 million to $650 million, along with free cash flow of $90 million to $120 million.

Investor takeaway
Despite solid volume growth, ONEOK Partners' distributable cash flow barely grew and actually fell on a per-unit basis, as a result of its exposure to commodity prices. To combat that problem, the company is focused on increasing its earnings from fixed fees to provide more income stability. That will also benefit general partner ONEOK, since all of its income is derived from the distributions it receives from its MLP.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Oneok and Oneok Partners. The Motley Fool owns shares of Oneok. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.