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Which Segment Drives ONEOK’s Growth?

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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.

ONEOK’s Natural Gas Liquids segment contributed 60% to its 3Q16 EBITDA.[1. earnings before interest, tax, depreciation, and amortization] The segment’s EBITDA grew 13% year-over-year, driven by higher NGL (natural gas liquids) fee-based exchange-services volumes primarily from recently connected natural gas processing plants in the Williston Basin.

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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 3Q16 EBITDA increased 23% year-over-year. The increase was primarily driven by higher firm demand charge volumes contracted from customers serving end-user markets.

The segment transports and stores natural gas. These activities are regulated by the Federal Energy Regulatory Commission.

In October 2016, the segment completed the WesTex Transmission Pipeline expansion and the second phase of its joint venture Roadrunner Gas Transmission Pipeline. Both projects are fully subscribed under long-term, take-or-pay commitments.

Natural Gas Gathering and Processing segment

ONEOK’s Natural Gas Gathering and Processing segment’s 3Q16 EBITDA grew 33% year-over-year. The company had been taking steps for some time to restructure its percent-of-proceeds contracts to include a larger fee component.

The 3Q16 EBITDA growth was primarily driven by natural gas volume growth in the Williston Basin as well as restructured contracts that resulted in higher average fee rates.

Let’s take a deeper look at the earnings of OKE’s biggest segment—Natural Gas Liquids.

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