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ONEOK Focuses on Existing Businesses to Drive Growth

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ONEOK’s capital expenditures

ONEOK’s (OKE) capital expenditures for the nine months ended September 30, 2015, were $930 million compared to $1.2 billion for the same period last year. ONEOK has suspended capital expenditures for certain natural gas–related projects. It intends to resume work on these projects when market conditions improve. The company’s NGL (natural gas liquids) business is contributing an increasingly higher proportion of its earnings.

At the same time, OKE, which exclusively operates as a general partner of ONEOK Partners (OKS), is focused on converting its existing percent-of-proceeds contracts to include a larger fee component in its natural gas gathering and processing business.

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Cash flow available for dividends

The above graph shows ONEOK’s cash flows available for dividends and total capital expenditures over the last two years. The right axis shows OKE’s per-share dividends. ONEOK’s cash flow available for dividends for 3Q15 was 26% higher compared to 3Q14. The growth was driven by increased earnings in its NGL business, as we’ve already seen.

Terry K. Spencer, president and chief executive officer of ONEOK, said in the 3Q15 earnings release, “We expect NGL and natural gas volumes to continue to increase as a result of connecting seven third-party natural gas plants to our NGL system this year, reaching full capacity at our Williston Basin natural gas processing plants in September and the expected completion of our new 200 million cubic feet per day (MMcf/d) Lonesome Creek natural gas processing plant in the Williston Basin by the end of this month.”

ONEOK’s dividends

After flat dividends for the first and second quarters of 2015, ONEOK raised its per share quarterly dividends by 1.7% in 3Q15. ONEOK’s coverage ratio for 3Q15 was 1.3x. OKE forms 0.4% of the Energy Select Sector SPDR ETF (XLE), an ETF of top US energy sector companies.

Kinder Morgan (KMI), Williams Companies (WMB), and Enterprise Products Partners (EPD) have raised their 3Q15 dividends by 4.1%, 8.5%, and 1.3%, respectively, compared to the previous quarter. However, KMI slashed its 4Q15 dividends by 75% compared to 3Q15. Enbridge Energy Partners’ (EEP) 3Q15 distributions were flat quarter-over-quarter.

 

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