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Oneok Buys NGL Pipes For $800M, Raises Financial Guidance For 2015

Oneok Partners LP has completed its acquisition of natural gas liquids (NGL) pipelines and associated assets in the Permian Basin from unnamed affiliates of Chevron Corp. for about $800 million.

Meanwhile, on the day before its investor conference, Oneok Partners said its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is expected to increase 19% in 2015. Its natural gas gathering and processing segment is expected to generate $309-409 million in operating income, and its NGL segment is expected to generate $867-917 million.

Oneok Partners said it now owns an 80% interest in West Texas LPG Pipeline LP, and a 100% interest in the Mesquite Pipeline. Collectively, the pipelines consist of 2,600 miles of NGL gathering lines extending from southeastern New Mexico to East Texas and Mont Belvieu, TX. Oneok Partners operates both pipelines.

"The West Texas LPG and Mesquite NGL pipelines will integrate into our existing natural gas liquids segment's portfolio of assets and provide fee-based earnings to the partnership," said Oneok Partners CEO Terry Spencer. He added that the workers currently operating the pipelines, about 75 in all, would join the company.

According to Oneok Partners, Martin Midstream Partners LP owns the remaining 20% stake in West Texas LPG.

Oneok Partners and its general partner, Oneok Inc., were preparing for an investor conference on Wednesday. Oneok Partners said it expected adjusted EBITDA to range from $1.77-1.99 billion in 2015. By comparison, the partnership's current earnings guidance ranged from about $1.55-1.61 billion as of Nov. 4.

"Our 2015 guidance reflects substantial, ongoing growth at Oneok Partners," Spencer said Tuesday. "Since 2006, we have completed more than $8 billion in capital-growth projects and acquisitions, and we have another $3 billion in capital-growth projects in various stages of construction. In addition, we continue to develop our unannounced backlog of capital-growth projects totaling approximately $4 billion to $5 billion.

"Although the commodity price environment remains volatile, we expect strong volume growth to continue in 2015 as many of our key producers plan to concentrate their drilling in more productive core areas on acreage dedicated to our systems. Completed projects and acquisitions also are expected to result in natural gas and NGL volume growth on our systems, increased distributions to unitholders and predominantly fee-based earnings at Oneok Partners."

Oneok Partners said it expects net income for 2015 to range from $1.12 billion to $1.28 billion, compared with its current 2014 earnings guidance range of $910 million to $970 million.

Some analysts were already making recommendations before Wednesday's investor conference. In a note Monday, Becca Followill, U.S. Capital Advisors LLC senior managing director, said the firm was lowering its price target for Oneok Partners from $67/unit to $58/unit -- reflecting a decline in the partnership's unit price. The firm's recommendation remains “buy.”

"The units have clearly been under pressure the past few months with the decline in oil and NGL prices and a perceived equity overhang to fund the recent $800 million NGL pipeline acquisition," Followill said. "We acknowledge that it's hard to fight an uncertain commodity tape and see risk to the units if oil prices continue to deteriorate. Over the longer term, with a current 7% yield on the units and projected 6-8% distribution growth, we think [Oneok Partners] looks attractive."

For Oneok Inc., Followill said U.S. Capital was raising its price target from $56/share to $58/share. That decision reflects a one-year forward valuation (increase of $5/share), partially offset by the lower value of units of Oneok Partners (decrease of $3/share). The firm's recommendation remains hold.

Oneok Inc. is the general partner of Oneok Partners LP. As of Sept. 30, the former owned a 38.3% overall partnership interest in the latter.

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