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A Look at Which Segment Could Drive ONEOK’s 4Q16 Earnings Growth

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Feb. 21 2017, Published 10:56 a.m. ET

OKE’s segments

ONEOK (OKE) operates three business segments: Natural Gas Liquids, Natural Gas Pipelines, and Natural Gas Gathering and Processing.

ONEOK’s Natural Gas Liquids business earned 60% of its EBITDA (earnings before interest, tax, depreciation, and amortization) for 3Q16. Natural Gas Pipelines and Natural Gas Gathering and Processing contributed 17% and 23%, respectively, towards the 3Q16 EBITDA.

The above chart shows OKE’s segment-wise EBITDA over the last 11 quarters.

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Natural Gas Liquids segment

The Natural Gas Liquids segment’s 3Q16 EBITDA rose 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. These should continue to drive EBITDA growth in 4Q16 as well.

Natural Gas Pipelines segment

ONEOK’s Natural Gas Pipelines segment’s 3Q16 EBITDA rose 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 the projects are fully subscribed under long-term take-or-pay commitments. These projects are expected to contribute to the segment’s EBITDA in 4Q16.

Natural Gas Gathering and Processing segment

ONEOK’s Natural Gas Gathering and Processing segment’s 3Q16 EBITDA rose 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 resulting in higher average fee rates.

Targa Resources (TRGP) reported a 21% rise in its gathering and processing segment’s earnings in 4Q16.

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