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What Drove ONEOK’s Gas Gathering and Processing Earnings in 4Q16?

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Natural Gas Liquids segment

ONEOK (OKE) operates three business segments—Natural Gas Liquids, Natural Gas Pipelines, and Natural Gas Gathering and Processing. Its Natural Gas Liquids segment earned 54.0% of the company’s total EBITDA (earnings before interest, tax, depreciation, and amortization) for 4Q16.

The segment’s 4Q16 EBITDA fell 9.0% year-over-year, driven by the following:

  • lower volumes in certain regions
  • severe weather in December 2016
  • increased ethane rejection
  • narrower marketing product price differentials
  • increased employee-related costs

The above graph shows OKE’s EBITDA by segment for the last eight quarters.

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Natural Gas Pipelines segment

EBITDA for ONEOK’s Natural Gas Pipelines segment rose 22.0% year-over-year in 4Q16. According to ONEOK, the rise was driven by “higher fee-based earnings driven by increased firm demand charge contracted capacity and capital-growth projects placed in service.”

Natural Gas Gathering and Processing segment

ONEOK’s Natural Gas Gathering and Processing segment’s 4Q16 EBITDA rose 30.0% year-over-year. The strong growth was driven by higher fee rates from contract restructuring efforts. Recently completed projects have added to volume growth in the Rocky Mountain region.

The segment’s average fee rate for 4Q16 was $0.84 compared to $0.55 in 4Q15. The company has been taking steps to restructure its percent-of-proceeds contracts to include a larger fee component.

In comparison, Targa Resources (TRGP) reported a 21.0% rise in its Gathering and Processing segment’s 4Q16 earnings.

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