EUR 850.00 For Business Accounts Only

Morningstar | Oneok has simplified its corporate structure.

The newly combined Oneok family brings several attractive financial elements to the corporation’s story, including no cash taxes through 2021, a lower cost of capital through the elimination of incentive distribution rights, an investment-grade credit rating, and a very attainable 9%-11% dividend growth forecast through 2021. The core Oneok narrative is equally compelling, in our view, built primarily around efforts to benefit from a network of natural gas liquids assets. About 90% of the firm's earnings are fee-based, limiting commodity price exposure.In this industry environment, we see the NGL volume exposure (largely ethane) as more of an opportunity than threat. Oneok has been waiting patiently since 2013 for ethane demand to recover, which seems to be finally taking place in 2017 and 2018 with demand at 1.4 million barrels per day and all time-highs compared with 1 million bpd in 2013. Similarly, industrywide ethane rejection levels are around 600 thousand bpd, roughly twice 2013 levels. Oneok estimates its fractionation plants can handle an additional 175,000-200,000 bpd of ethane, resulting in a $200 million earnings uplift. We expect about half of this uplift to be realized in 2018. Industry estimates from new ethylene plants starting up put incremental demand for ethane between 750,000 and 1 million bpd by 2020. Oneok is also adding gathering and processing as well as new NGL pipelines in a more than $4.3 billion investment program over the next few years, positioning it to further take advantage of strong production growth prospects. If Oneok can add direct NGL (which include ethane) exporting capabilities to its asset portfolio on the Gulf Coast, it will have another key growth engine. However, it already has the international relationships and market access required to move its NGLs to the export market. This means the firm can take advantage of wider international differentials but will simply pay a third party a fee for some of the final steps in the process.