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What Will Drive ONEOK’s 1Q16 Earnings?

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EBITDA expected to grow 45% year-over-year

ONEOK (OKE) and ONEOK Partners (OKS) are scheduled to report their 1Q16 results on May 3, 2016. Analysts expect OKE’s 1Q16 EBITDA (earnings before interest, tax, depreciation, and amortization) to be ~$409 million. This is 45% higher than the analyst-adjusted EBITDA of $282 million in 1Q15. OKE missed EBITDA estimates in seven out of the last ten quarters. ONEOK forms ~2% of the PowerShares High Yield Equity Dividend Achievers ETF (PEY).

The above graph compares OKE’s EBITDA estimates with its adjusted EBITDA. Enterprise Products Partners (EPD) is expected to report flat 1Q16 EBITDA compared to 1Q15. Spectra Energy (SE) is expected to report 1Q16 results on May 4.

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Higher volumes to drive EBITDA growth

ONEOK operates as a pure-play general partner of ONEOK Partners. In order to analyze OKE’s earnings levers, we first need to look at OKS’s earnings. The company’s EBITDA growth in 1Q16 is expected to be driven by:

  • increased NGL (natural gas liquids) gathering and fractionating volumes from recently connected natural gas processing plants in the Williston Basin, Powder River Basin, and Mid-Continent region
  • increased NGL transportation volumes primarily from the West Texas LPG pipeline system in the Permian Basin
  • the Roadrunner Gas Transmission pipeline project in West Texas, the first phase of which was completed in March 2016
  • increased distributions from OKS due to ONEOK’s purchase of an additional 21.5 million OKS units in August 2015

In this series, we’ll look at ONEOK’s expected segmental performance in 1Q16, its recent stock performance, the company’s future outlook, and the analysts’ price targets for the stock.

Let’s start with ONEOK’s expected segmental performance in 1Q16.

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