OKS Surpasses Est, Lowers Guidance

Zacks

ONEOK Partners LP (OKS) reported fourth-quarter 2012 earnings per unit of 66 cents, beating the Zacks Consensus Estimate by 2 cents. However, quarterly earnings were 47.6% lower than the prior-year results of $1.26 per unit primarily due to the decrease in the natural gas liquids (NGL) price differentials.

The partnership’s earnings of $3.04 per unit in 2012 surpassed the Zacks Consensus Estimate by 0.7%. On the per unit basis, full-year earnings were 9.3% lower than the prior-year figure, primarily due to a 6.5% year-over-year increase in units outstanding.

Total Revenue

ONEOK Partner’s quarterly revenue of $2.9 billion was 20.9% above the Zacks Consensus Estimate. However, quarterly revenue decreased 7% from $3.1 billion in the year-ago quarter.

Full-year 2012 revenue was $10.2 billion, up 3.3% from the Zacks Consensus Estimate. However, revenue was 10.1% lower than the prior-year results.

Operating Results

In the quarter under review, cost of sales and fuel decreased 4.7% year over year to $2.5 billion.

Quarterly total operating expenses were $175.2 million, down 0.8% year over year due to lower operations and maintenance costs.

In the reported quarter, equity earnings from investments decreased 9% year over year to $30.6 million due to the decrease in earnings from Northern Border Pipeline under the Natural Gas Pipelines segment and a drop in earnings at the NGL segment.

Segment Analysis

Natural Gas Gathering and Processing: Segmental quarterly operating income increased 40% year over year to $59.1 million, primarily backed by the increase in volumes at the Williston Basin following the completion of the Garden Creek and Stateline I natural gas processing plants.

Natural Gas Pipelines: This segment’s fourth-quarter operating income was $44.7 million, up 51.5% year over year. The growth was mainly attributable to the increase in contracted capacity on the intrastate natural gas pipelines and higher retained fuel volumes.

Natural Gas Liquids: In the quarter under review, the segment reported operating income of $125.8 million compared with $245.1 million in the year-ago quarter. The decrease in operating income was primarily due to the decline in the NGL location price differentials, lower isomerization margins and the effect of operational measurement losses.

Financial Condition

As of Dec 31, 2012, the partnership had $537.1 million of cash and cash equivalents versus $35.1 million as of Dec 31, 2011.

Long-term debt as of Dec 31, 2012, was $4.8 billion versus $3.5 billion as of Dec 31, 2011.

Interest expenses increased 10.3% year over year to $57.9 million in the fourth quarter primarily due to the issuance of senior notes worth $1.3 billion in Sep 2012.
 
Cash provided by operating activities for the twelve months ended Dec 31, 2012 was $0.95 billion, lower than $1.1 billion in the year-ago comparable period.

Capital expenditure for the year increased to $1.6 billion from $1.1 billion in 2011 due to higher expenditures in the growth projects at the partnership’s NGL segment.

Guidance

Based on lower anticipated NGL volumes due to extended ethane rejection, narrower NGL location price differentials and lower estimated NGL pricing, ONEOK Partners lowered its net income guidance for 2013 to a band of $0.79 billion to $0.87 billion from $0.935–$1.015 billion.

The partnership made a downward revision in its distributable cash flow guidance for the year to $0.91–$1 billion from $1.05–1.14 billion.

The midpoint of ONEOK Partners’ full-year 2013 operating income guidance decreased to $0.936 billion from the previous guidance of $1.027 billion.

The capital expenditure budget for 2013 is $2.64 billion, comprising $2.5 billion in growth capital and $0.12 billion in maintenance capital.

ONEOK Partners also plans to increase distribution by 0.5 cents per quarter in 2013, upon approval from its board. Initially, the partnership expected to raise the distribution rate by 2 cents per-unit-per-quarter.

The partnership also modified its anticipation to increase the average annual distributions by 8% to 12% within 2012 to 2015, subject to the board’s approval, down from its earlier guidance of 10% to 15%.

The partnership intends to invest $4.7 billion to $5.3 billion through 2015 under its capital-investment program to construct further natural gas and natural gas liquids infrastructures.

Other Pipeline Partnership Releases

Buckeye Partners L.P. (BPL) announced fourth-quarter operating earnings of 96 cents per unit, outpacing the Zacks Consensus Estimate by 15 cents.

El Paso Pipeline Partners L.P.  (EPB) reported earnings of 63 cents per unit in the fourth quarter, surpassing the Zacks Consensus Estimate of 55 cents.

Plains All American Pipeline L.P. (PAA) reported adjusted earnings of 98 cents per unit for the fourth quarter, beating the Zacks Consensus Estimate of 69 cents.

Our View

On the quarterly income front, strong performances by ONEOK Partners’ Natural Gas Gathering and Processing, and Natural Gas Pipelines segments helped the partnership to surpass the Zacks Consensus Estimate.

The partnership continues to make investments in different growth projects, which we believe will boost its future performance.

In addition, higher negotiated natural gas storage rates, rise in services to electric generation customers and higher demand from producers to transport their natural gas products to the market, may improve the partnership’s forthcoming results.

Lower-than-anticipated NGL exchange margins in the Rocky Mountain region, lower estimated natural gas and NGL pricing, are likely to weigh on the partnership’s future performance.

Tulsa, OK-based ONEOK Partners is one of the largest publicly traded master limited partnerships and a leader in gathering, processing, storing and transporting natural gas in the United States. The partnership currently has a Zacks Rank #3 (Hold).

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