OKS for high yield

[dan_s]

TULSA, Okla., Aug. 2, 2016 /PRNewswire/ -- ONEOK Partners, L.P. (NYSE: OKS) today announced second-quarter 2016 financial results.

SUMMARY
•Second-quarter 2016 net income attributable to ONEOK Partners and adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) increased 25 and 18 percent, respectively, compared with the second quarter 2015;
•Second-quarter 2016 distribution coverage ratio was 1.15; and
•Second-quarter 2016 natural gas volumes processed increased 12 percent and natural gas liquids (NGL) volumes fractionated increased 10 percent, compared with the second quarter 2015.

I added OKS to our High Yield Income Portfolio because of their exposure to growing production in Oklahoma's SCOOP & STACK play. - Dan

"ONEOK Partners continues to post solid 2016 financial results as natural gas and natural gas liquids volumes increased across all three business segments year over year," said Terry K. Spencer, president and chief executive officer of ONEOK Partners. "Our well-positioned assets and approximately $9 billion in capital-growth projects and acquisitions since 2006 provide opportunities for continued earnings growth without significant additional infrastructure needs or capital spending, particularly in the natural gas liquids segment.

"Our natural gas liquids segment continues to be a key driver of fee-based growth for the partnership, with segment operating income and adjusted EBITDA in the first half of 2016 increasing more than 25 percent compared with the same period last year," Spencer said. "We continue to expect a significant benefit from ethane recovery beginning in 2017 and have already observed intermittent periods of higher recovery on parts of our system this year. While prices have begun to improve, we haven't yet seen a large revenue increase from ethane recovery because a portion of the fees associated with the increased volumes were previously being earned through minimum volume commitments.

"In addition to ethane, new NGL supply opportunities are available in our natural gas liquids segment in the growing STACK and SCOOP plays in Oklahoma," he continued. "ONEOK Partners currently provides NGL gathering, transportation and fractionation services in these plays and is well-positioned, along with our natural gas gathering and processing segment, to benefit from continued growth opportunities in the region.

"Our natural gas gathering and processing segment also recorded increased volumes in the first half of 2016 and continues to benefit from contract restructuring efforts that began in 2015," Spencer said. "Our continuing contract restructuring efforts contributed to an 8 cent, or 12 percent, increase in the segment's average fee rate for the second quarter, compared with the first quarter 2016.

"We've taken the commercial, operational and financial steps to enable us to continue to grow our earnings in spite of a difficult commodity price environment," Spencer concluded. "Our focus on stable, fee-based earnings growth has positioned us well for the remainder of 2016."

[dan_s]

I have updated my forecast model for OKS. My valuation increases to $45.50/unit, compared to First Call's price target of $39.81.

Thanks to capital investments that OKS made in 2015, revenues are going up. A spike in revenues to $2.32 Billion/Qtr is expected in Q4 (compared to $2.13 Billion in Q2.

Current distributions are $0.79/quarter for annual yield of ~7.8% (most of which is tax deferred). Based on my forecast, OKS should be able to increase cash distributions in 2017 as top line revenues should increase by ~$1.0 Billion YOY.

As I posted earlier, OKS (based in Tulsa) has a lot of exposure to growing production in Central Oklahoma. When I worked for Hess in Tulsa, the ONEOK offices were right across the street.

[Wade4213]

Thanks Dan -

I've been following OKS and am considering adding to to my portfolio. I appreciate your analysis.

T