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Why ONEOK’s Gas Gathering, Processing Segment Reported 4Q15 Loss

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Natural Gas Liquids segment

ONEOK (OKE) operates as a pure-play general partner of ONEOK Partners (OKS). To analyze OKE’s earnings levers, we need to look at OKS’s operating segments.

OKS carries out its operations through the following three reportable segments:

  • Natural Gas Liquids
  • Natural Gas Pipelines
  • Natural Gas Gathering and Processing

ONEOK’s Natural Gas Liquids segment contributed 77% to its 4Q15 EBITDA (earnings before interest, tax, depreciation, and amortization). The segment’s EBITDA grew 21% year-over-year driven by increased volumes of NGLs (natural gas liquids) gathered, fractionated, and transported.

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Natural Gas Pipelines segment

The above graph shows the contribution by segment to ONEOK’s quarterly EBITDA since the start of 2014. ONEOK’s Natural Gas Pipelines segment’s 4Q15 EBITDA decreased year-over-year due primarily to lower short-term natural gas storage services.

OKE forms ~1.7% of the Guggenheim S&P 500 Equal Weight Energy ETF (RYE) and ~2% of the PowerShares High Yield Equity Dividend Achievers ETF (PEY).

Energy Transfer Partners (ETP), which engages in natural gas transportation, is scheduled to report its 4Q15 results on February 24, 2016.

Natural Gas Gathering and Processing segment

ONEOK’s Natural Gas Gathering and Processing segment contributed only 6% to the company’s 4Q15 EBITDA. The segment’s EBITDA decreased due to non-cash impairment charges primarily related to assets in the Powder River Basin and lower net realized NGL, natural gas, and condensate prices. It reported an operating income of -$21.7 million in 4Q15.

The segment’s percent-of-proceeds contracts expose it to commodity price risks. OKE is focusing on working with producers to convert its existing percent-of-proceeds contracts to include a larger fee component.

Terry K. Spencer, president and chief executive officer of ONEOK, said, “In 2015, ONEOK Partners took important steps to reduce commodity risk through initiatives such as contract restructuring in the Williston Basin and the completion of strategic capital-growth projects that will provide primarily fee-based earnings.”

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