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Must-Know: ONEOK’s Structure and Business

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ONEOK (OKE) is the sole general partner of ONEOK Partners (OKS), with 41.2% ownership in OKS. ONEOK Partners owns and operates NGL (natural gas liquids) systems, connecting NGL supply in the Mid-Continent, Permian, and Rocky Mountain regions with key market centers. OKE engages in the gathering, processing, storage, and transportation of natural gas in the US.

The below graphic shows the geographical spread of ONEOK Partners’s assets.

ONEOK Partners’s natural gas business has 18,800 miles of gathering pipelines, 6,600 miles of transmission pipelines, and 55 billion cubic feet of storage capacity. It has 20 processing plants and processing capacity of 1,750 cubic feet per day.

OKS’s Natural Gas Liquids segment owns 7,100 miles of gathering pipelines, 4,300 miles of distribution pipelines, and 27 million barrels of storage capacity. It has seven fractionators and fractionation capacity of 840,000 barrels per day.

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ONEOK’s interest in OKS

ONEOK increased its ownership in OKS from 37.8% to 41.2%, with additional OKS units purchased in August 2015. OKE’s 41.2% ownership interest includes its 2% GP interest. OKE also holds all the IDRs (incentive distribution rights), which entitles it to receive increasing percentages of incremental cash flows that OKS distributes.

Available cash is distributed to OKS’s general partner (OKE) and limited partners according to their partnership percentages of 2% and 98%, respectively. However, with a quarterly distribution of $0.79 per unit, OKS currently operates in the highest distribution tier.

The IDRs entitle OKE 50% of the amounts distributed in excess of $0.4675 per unit. So, IDRs provide significant leverage to OKE’s cash flow. In periods of no distribution growth, the importance of IDRs becomes relatively reduced.

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