Morningstar | Oneok Reports Good 4Q and Strong Guidance in 2019-20
Oneok reported a good fourth quarter and issued strong guidance for 2019-20. We don't expect a material change to our $66 fair value estimate or narrow moat rating. Overall, we think Oneok is executing extremely well on an aggressive project plan, but it is clearly taking advantage of a very well-positioned asset base as natural gas liquids volumes in the United States continue to surge.2018 adjusted EBITDA of $2.4 billion and 2019 guidance of a midpoint of $2.6 billion met our expectations, while 2020 guidance of at least $3.1 billion was above our expectations. Key to the ongoing growth is Oneok's attractive project slate, which includes more than $4.4 billion in projects expected to be completed in 2019 and the first quarter of 2020. 2019 natural gas liquids volumes are expected to be driven upwards about 11% with the completion of the southern leg of the Elk Creek pipeline, and a full-year of contributions from the Sterling III pipeline and West Texas LPG extensions completed in 2018. 2020 results are anticipated to benefit from the full ramp up of the completed Elk Creek pipeline, substantial additions in natural gas processing capacity, and the completion of the MB-4 fractionator. Funding for this level of growth projects, in our view, will come from existing cash flows, retained distributions (due to a 1.37 times coverage ratio during the fourth quarter), and debt. We expect the debt/EBITDA ratio to increase to just under 5 times in 2019 from about 3.8 times at the end of 2018 before rapidly deleveraging to closer to 4 times by 2022 as the new projects come online. Overall, we think Oneok is executing extremely well.
Oneok is a midstream service provider. The company's segments include: Natural Gas Gathering and Processing, which provides midstream services to producers in North Dakota, Montana, Wyoming, Kansas and Oklahoma; natural gas liquids (NGLs), which owns and operates facilities that gather, fractionate, treat and distribute NGLs and store NGL products, primarily in Oklahoma, Kansas, Texas, New Mexico and the Rocky Mountain region; and Natural Gas Pipelines, which provides transportation and storage services to end users through its wholly owned assets and its ownership interests in Northern Border Pipeline Company and Roadrunner Gas Transmission, LLC.
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