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OKS Reports In-Line Earnings, Beats Rev

Zacks Equity Research

ONEOK Partners L.P. (OKS) reported third quarter 2013 earnings per unit of 64 cents, in line with the Zacks Consensus Estimate. However, quarterly earnings decreased 17.9% year over year.

The dismal performance was primarily due to narrower natural gas liquids (“NGL”) location price differentials and the impacts related to the partnership’s plan to change NGL optimization capacity to fee-based exchange-services capacity. The negatives were partially offset by an increase in natural gas volumes gathered and processed, and NGL gathered on account of completion of several growth projects.

Total Revenue

ONEOK Partner’s revenues were $3,134.7 million, surpassing the Zacks Consensus Estimate of $2,799 million by 12%. Quarterly revenues increased 23.1% from the prior-year figure of $2,547.5 million.

Operating Results

In third quarter 2013, cost of sales and fuel increased 27.4% year over year to $2,711.2 million.

ONEOK Partner’s total operating expenses were $183.5 million, up 7.4% year over year primarily due to higher depreciation expenses and increase in general taxes.

The increase in revenues was more than offset by higher total operating expenses, affecting operating income. The partnership’s operating margin decreased to 7.7% from the prior-year level of 9.8%.

The partnership’s earnings before interest, taxes, depreciation and amortization were $331.9 million versus $329.2 million in the prior-year quarter.

Segment Analysis

Natural Gas Gathering and Processing: Segmental quarterly operating income edged up 2.6% year over year to $58.5 million. An improvement in operating income was primarily driven by an increase in volumes from the Stateline I and Stateline II natural gas processing plants at the Williston Basin.

Natural Gas Pipelines: The segment operating income was $35.2 million, up 5.1% year over year. The decline was mainly attributable to higher transportation margins as a result of higher rates on Guardian Pipeline and increased contracted capacity with natural gas producers on the intrastate pipelines.

Natural Gas Liquids: The segment reported operating income of $146.2 million, down 8% year over year mainly due to a decline in optimization and marketing margins, and the impact of ethane rejection.

Financial Condition

ONEOK Partners had cash and cash equivalents of $723 million as of Sep 30, 2013 versus $537.1 million as of Dec 31, 2012.

Long-term debt as of Sep 30, 2013 was $6,046.5 million versus $4,803.6 million as of Dec 31, 2012.

Cash provided by operating activities during the first nine months of 2013 was $654.1 million, higher than $620.5 million in the year-ago comparable period.

In third-quarter 2013, ONEOK Partners’ capital expenditures increased 19.7% year over year to $449.1 million due to investment in numerous projects at the NGL and natural gas gathering and processing segments.

In Oct 2013, the board of directors announced that the partnership will increase its third-quarter distribution to 72.5 cents per unit from 72 cents per unit. On an annualized basis, new cash distribution rate will be $2.90 per unit. The new cash distribution will be paid on Nov 14, 2013, to unitholders of record as of Nov 4, 2013.


ONEOK Partners narrowed its full-year 2013 net income and distributable cash flow guidance. Net income projection revised to $790 - $830 million from the previous projection of $790 - $870 million and distributable cash flow guidance adjusted to $930 - $980 million, compared with the previous guidance range of $910 million - $1.0 billion.

The revision in net income was primarily due to lower-than-expected earnings from the partnership’s NGL segment as a result of thinner NGL location price differentials.

Other Company Releases

Plains All American Pipeline, L.P. (PAA) announced third-quarter 2013 operating earnings of 50 cents per unit, beating the Zacks Consensus Estimate of 44 cents by 13.6%.  However, quarterly earnings were lower than 73 cents reported in the year-ago quarter.

Buckeye Partners L.P.’s (BPL) third quarter 2013 operating earnings of 72 cents per unit were 17.2% lower than the year-ago figure. Earnings also trailed the Zacks Consensus Estimate of 82 cents per unit by 12.2%.

Magellan Midstream Partners LP (MMP) reported third quarter 2013 earnings per unit (EPU) of 54 cents (excluding mark-to-market commodity-related pricing adjustments), surpassing the prior-year quarter adjusted profit of 35 cents amid strong segmental performances.

Our View

Despite missing earnings in the quarter due to higher depreciation expenses as well as general taxes, we appreciate the partnership’s continuous effort towards expansion of its operations on the back of stable financial position.

These initiatives will enable the partnership to meet the increasing demand and serve higher number of customers, thereby improving results going forward.

However, we believe that volatile commodity prices and stringent utility regulations may to some extent challenge ONEOK Partners’ future performance.

Tulsa, Okla.-based ONEOK Partners is engaged in gathering, processing, storing and transporting of natural gas in the U.S. The partnership currently has a Zacks Rank #3 (Hold).

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