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Higher Volumes Drive ONEOK’s 2Q16 Earnings Growth

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ONEOK’s EBITDA increases 15%

ONEOK (OKE) reported its 2Q16 results on August 2, 2016, after the Market closed. Its 2Q16 analyst-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased 15.2%, from $359.7 million in 2Q15 to $414.5 million in 2Q16.

Analysts expected EBITDA of $444.6 million for the quarter. The company reported an adjusted EBITDA of $452.7 million. It missed EBITDA estimates for the quarter by 7%.

The above graph compares OKE’s EBITDA estimates with its adjusted EBITDA. Kinder Morgan (KMI) also missed analysts’ 2Q16 earnings estimates.

ONEOK’s cash flow available for dividends increased from $149.6 million in 2Q15 to $171.8 million in 2Q16.

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Higher volumes drive EBITDA growth

ONEOK operates as a pure-play general partner of ONEOK Partners (OKS). The company’s EBITDA growth in 2Q16 was driven by the following:

  • higher NGL (natural gas liquids) volumes “primarily from recently connected natural gas processing plants and decreased ethane rejection in the Mid-Continent and Williston Basin,” according to the company
  • higher average fee rates as a result of contract restructuring efforts in the natural gas gathering and processing segment
  • higher natural gas volumes in the Williston Basin
  • higher transportation revenues

Terry K. Spencer, president and chief executive officer of ONEOK, said, “ONEOK continues to benefit from natural gas and natural gas liquids volume growth across all three ONEOK Partners business segments year over year.”

Strong dividend coverage

ONEOK reported 2Q16 dividend coverage of 1.33x. On July 28, 2016, it declared quarterly dividends of ~$0.62 per share for 2Q16. The dividend remained unchanged from the previous quarter. OKE’s dividends were flat in 4Q15 and 1Q16 as well.

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