ONEOK Partners Misses Earnings Est

Zacks

ONEOK Partners L.P. (OKS) reported first-quarter 2013 earnings per unit of 42 cents, missing the Zacks Consensus Estimate by 16 cents. Quarterly earnings decreased 53.8% year over year primarily due to considerably thinner natural gas liquids (NGL) location price differentials and the impact of ethane rejection.

Total Revenue

ONEOK Partner’s revenues were $2,517.4 million, 3.8% lower than the Zacks Consensus Estimate. Reported revenues also decreased 3% year over year.

First-Quarter Operating Results

Cost of sales and fuel decreased 1.2% year over year to $2.1 billion.

Total operating expenses were $192.9 million, up 16.8% year over year primarily due to higher operations and maintenance costs.

The increase in revenues was more than offset by higher total operating expenses, which affected operating income. The partnership’s operating income decreased 30.6% year over year.

Equity earnings from investments decreased 45.6% year over year to $3.1 million primarily due to a decrease in earnings from Overland Pass Pipeline.

Segment Analysis

Natural Gas Gathering and Processing: Segmental quarterly operating income decreased 29.2% year over year to $33.7 million, primarily owing to lower realized NGL product prices and compression costs, and lower natural gas volumes collected in the Powder River Basin.

Natural Gas Pipelines: This segment’s operating income was $35.9 million, up 8.8% year over year. The growth was mainly attributable to higher rates on the Guardian Pipeline, increase in contracted capacity on the intrastate natural gas pipelines and rise in natural gas storage margins.

Natural Gas Liquids: The segment reported operating income of $107.1 million compared with $174.5 million a year ago. This decrease was primarily due to decline in optimization and marketing margins, and the impact of ethane rejection.

Financial Condition

ONEOK Partners had cash and cash equivalents of $68.9 million as of Mar 31, 2013 versus $537.1 million as of Dec 31, 2012.

Long-term debt as of Mar 31, 2013 was $4,802 million versus $4,803.6 million as of Dec 31, 2012.

Cash provided by operating activities during the first three months of 2013 was $181.4 million, lower than $219.2 million in the year-ago comparable period.

Capital expenditures increased to $443.5 million from $280.8 million a year-ago mainly due to higher expenses in growth projects at the partnership’s NGL and Natural Gas Gathering and Processing segments.

Guidance

ONEOK Partners reaffirmed its net income and distributable cash flow guidance for 2013 in the range of $0.79 billion to $0.87 billion and $0.91 billion to $1.0 billion, respectively.

Other Pipeline Partnership Releases

Magellan Midstream Partners LP (MMP) is slated to release its first-quarter earnings on May 2. The Zacks Consensus Estimate is 49 cents.

Buckeye Partners L.P. (BPL) is slated to release its first-quarter earnings on May 3. The Zacks Consensus Estimate is 72 cents.

Plains All American Pipeline L.P. (PAA) is slated to release its first-quarter earnings on May 6. The Zacks Consensus Estimate is 88 cents.

Our View

Despite reporting unfavorable results in first quarter 2013, we believe ONEOK Partners’ strong projects line-up along with completion of three important projects – Bakken NGL pipeline, Stateline II plant and an ethane header pipeline – will allow it to meet the increasing demand for fossil fuel. Installation of these pipelines will likely enable the partnership to strengthen its coverage in the region, subsequently improving future results.

However, weak NGL pricing, volatile commodity prices and stringent utility regulations, are likely to weigh on the partnership’s forthcoming performance.

Tulsa, Okla.-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. ONEOK Partners currently has a Zacks Rank #3 (Hold).

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