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Why Have OKS’s Distributions Been Flat for Last Three Quarters?

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OKS’s distributions

On October 21, 2015, ONEOK Partners (OKS) declared a quarterly cash distribution of $0.79 per unit. OKS’s distributions remained flat for the third consecutive quarter. The consensus estimate for ONEOK Partners’ per unit distribution for all of 2015 is $3.16, a 2.9% rise over distributions in 2014.

The graph below shows the growth in ONEOK Partners’ quarterly per unit distribution. It also shows the consensus per unit distribution estimates for 4Q15 and 1Q16. OKS forms ~0.9% of the Global X MLP & Energy Infrastructure ETF (MLPX).

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OKS’s distribution coverage ratio

OKS’s distribution coverage ratio in 2Q15 was 0.88x. Although this is higher than the 0.6x ratio reported in 1Q15, it’s still less than 1x. Distribution coverage is the ratio of distributable cash flow to total distributions. A ratio below 1x is considered risky, as it shows the company is distributing more cash than it’s generating, which can’t continue in the long run. So it’s no wonder OKS’s distributions have been flat for the last three quarters.

According to OKS, the sharp decline in commodity prices and lower NGL (natural gas liquid) price differentials impacted the company’s first-quarter performance in 2015. The MLP is increasingly focused on fee-based revenues to minimize commodity price risks.

Will OKS’s coverage ratio improve in 3Q15?

With the expected increase in OKS’s EBITDA (earnings before interest, taxes, depreciation, and amortization) for 3Q15 and while distributions for the quarter remain flat, the company’s coverage ratio should improve in the third quarter.

OKS targets a long-term annual coverage ratio of 1x, irrespective of the commodity price environment. The MLP earlier stated a long-term target annual coverage ratio of 1.05x to 1.15x.

Peers Energy Transfer Partners (ETP), Tallgrass Energy Partners (TEP), and Summit Midstream Partners (SMLP) reported an increase in 3Q15 distributions compared to distributions in 2Q15. Targa Resources’ (NGLS) distributions for 3Q15 are flat compared to the previous quarter.

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