ONEOK Partners in 2Q15: Volumes Benefit Operating Performance



ONEOK missed estimates for the quarter

ONEOK Partners (OKS) reported its second-quarter results on August 4, 2015. Revenue came in at $2.1 billion—23% lower than the consensus estimate and down 31% year-over-year. Its revenue, however, rose 18% from 1Q15. ONEOK Partners’ revenues were severely hit by low commodity prices in 1Q15. Revenues for most energy MLPs, especially ones with greater exposure to commodity prices, have been hit by lower commodity prices since mid-2014.

ONEOK Partners’ EBITDA (earnings before interest, tax, depreciation, and amortization) for the quarter was 2% lower than the consensus estimate. Its EBITDA increased 27% over 1Q15 and 7% over the same quarter last year.

EBITDA is a popularly used metric to measure MLP performance because it provides a clear picture of a company’s operational performance. At the same time, it excludes non-cash depreciation and amortization expenses that might distort a company’s actual performance figures.

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Factors driving EBITDA growth

The year-over-year growth in OKS’s EBITDA despite a drop in revenue is due to the fact that its cost of sales fell more than revenue did. EBITDA growth this quarter came from increased natural gas and NGL (natural gas liquids) gathering and processing volumes. An increased focus on fee-based contracts also contributed to the growth.

During ONEOK Partners’ 2Q results announcement, Terry K. Spencer, president and chief executive officer, said, “We’re seeing positive results from our recontracting efforts in the natural gas gathering and processing segment as we continue to focus on enhancing our fee-based asset mix by working with producers to convert existing percent-of-proceeds contracts to include a larger fee component.”

The above graph compares OKS’s EBITDA estimates with actual EBITDA. The EBITDA numbers exclude equity in net earnings from investments. As the graph shows, OKS has missed EBITDA estimates for all of the last ten quarters.

Peers Targa Resources (NGLS), Energy Transfer Partners (ETP), EQT Midstream Partners (EQM), and Summit Midstream Partners (SMLP) reported year-over-year EBITDA growth of 16%, 19%, 59%, and 19%, respectively, in 2Q15.

ONEOK Partners forms 4.5% of the Global X MLP ETF (MLPA).


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