EUR 850.00 For Business Accounts Only

Morningstar | Oneok's Large Project Pipeline Will Pay Dividends in 2019 and 2020

Oneok brings several attractive financial elements to its narrative, 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 fundamental Oneok narrative is equally compelling, in our view, built primarily around efforts to benefit from a network of natural gas liquids assets. About 85% of the firm's earnings are fee-based, and the firm hedges its limited commodity price exposure.In this industry environment, we see the NGL volume exposure (largely ethane) as more of an opportunity than threat. In fact, fractionation constraints at Mont Belvieu offer just such an opportunity, as Oneok is adding fractionation capacity (at a cost of $1.3 billion) and pipeline capacity to take advantage of higher demand for propane exports and ethane for U.S. steam crackers starting up. Oneok has been waiting patiently since 2013 for ethane demand to recover, which has finally taken place in 2018 with demand at 1.5 million barrels per day and all time-highs compared with 1 million bpd in 2013. We expect higher demand as new crackers come on line, and 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 $6 billion investment program over the next few years, positioning it to further take advantage of strong production growth prospects. One key project is the Elk Creek pipeline, which will initially move 240,000 bpd (expandable up to 400,000 bpd) of NGLs from the Williston Basin to the midcontinent at a cost of $1.4 billion and due in service in late 2019. Oneok is also investing just over $800 million in gathering and processing capacity in the Williston Basin to capture the considerable amount of gas being flared due to constraints. 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.