ONEOK (NYSE: OKE) CEO Terry Spencer has called 2019 "a year of project execution" for the midstream company. That's because the pipeline giant entered the year with $5.5 billion of growth projects under construction. The company hopes to finish the bulk of those expansions by the early part of 2020, which would set it up to enjoy accelerated earnings growth. That would give ONEOK more fuel so that it can continue growing its 5.1%-yielding dividend.
However, thanks to ONEOK's strong execution in the recently completed first quarter, the company's expansion program is on track to start paying dividends even sooner. That was the central theme of Spencer's comments on the accompanying conference call.
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Making progress on the current pipeline
Spencer stated on the call that ONEOK's "capital growth program remains on track and on budget." He then provided a bit more detail by pointing out that:
Project construction is progressing very well with our ability to predict expected completion dates improving every week. As it looks today, we now expect the southern section of the Elk Creek pipeline to be complete early in the third quarter of this year and the entire pipeline complete during the fourth quarter. The Arbuckle II pipeline and MB-4 fractionator are expected to be complete in the first quarter of 2020.
Unlike some competitors, ONEOK hasn't run into any delays in constructing its projects. Because of that, the company is on schedule to complete its expansions. Elk Creek is even running a bit ahead of pace since the company initially expected to finish that pipeline by the end of this year. This timeline led Spencer to comment that "the earlier these projects are completed and are placed into service, the earlier ONEOK begins to recognize earnings on them."
The company is far enough ahead on some projects that Spencer stated, "We may be above the guidance midpoint of $3.1 billion" for its capital budget. That's because the company could be "spending construction dollars in 2019 that were previously planned for 2020 and accelerating the in-service dates for some projects."
Adding more fuel to continue high-octane growth
In addition to the excellent progress on its current slate of expansion projects, ONEOK continues to add new ones to the backlog. The company recently announced the extension of its Bakken NGL pipeline in North Dakota, which it will connect to a third-party natural gas processing plant. Spencer commented on this project by stating: "We're not only connecting an additional plant, we're reaching into a new area of the Bakken and providing NGL takeaway in Williams County, which historically has had limited transportation options. And by doing so, we are enhancing our ability to provide potential NGL transportation services to more customers." Overall, ONEOK expects to invest $100 million into this pipeline expansion, which should come online by the end of next year.
The company is also working hard to develop more projects. Spencer stated on the call that "our commercial team continues to evaluate a potential NGL export facility on the Gulf Coast. As this opportunity continues to evolve and develop, we will provide further details as appropriate." This project is a noteworthy one because it would enable ONEOK to become a true full-service midstream company that can provide "wellhead-to-water" capabilities so that oil and gas companies can ship their production from newly drilled wells to overseas markets.
Nearing an acceleration point
Spencer concluded his prepared remarks by stating: "After more than a year of talking about our capital growth projects, we are nearing completion on several of them. Over the coming months, these projects will add critical NGL takeaway, fractionation, and natural gas processing capacity for our customers where they need it the most, providing ONEOK with substantial long-term fee-based earnings and cash flow growth." In the company's view, earnings growth will accelerate to more than 20% next year. Meanwhile, with more growth on the way, it should be able to continue expanding cash flow at a healthy pace well into the future. That should give ONEOK the fuel to continue increasing its high-yielding dividend.
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