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ONEOK to Invest $295M to Expand Pipeline Capacity in Permian

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ONEOK to Invest $295M to Expand Pipeline Capacity in Permian

ONEOK's (OKE) investment to increase takeaway capacity of Permian Basin producers.

ONEOK Inc. OKE will increase operations in the Permian Basin through the expansion of the West Texas LPG Limited Partnership pipeline system. With 80,000 bpd (barrels per day) capacity, the expansion project is expected to be completed in the first quarter of 2020.

Total investment for the project will amount to $295 million and is being supported by six third-party natural gas processing plants. The plants are expected to produce 60,000 bpd of NGLs (Natural Gas Liquids).

ONEOK’s Pipeline Capacity Expansion

The company will invest nearly $495 million to increase West Texas LPG Limited Partnership pipeline system’s capacity by 190,000 bpd in the Delaware Basin and the Permian Basin. The earlier investment includes $200 million which was jointly made with Martin Midstream Partners L.P. for the expansion of natural gas liquids system in Oct, 2017.

The resource rich U.S. shales have resulted in a massive growth in fossil fuel production. The rise in production is creating the need for more pipelines and allied services. The operators are developing pipelines, expanding old ones and creating inter connection among the existing ones to cater to rising demand from the producers.

ONEOK expects 2018 total growth capital expenditures in the range of $2.0-$2.3 billion and maintenance capital expenditures in the range of $160.0-$180.0 million. Additionally, to gain from the increasing production and demand for NGLs, the company announced $3.7-billion NGL pipeline growth projects.

Our view

Per U.S. Energy Information Administration report, the estimated natural gas consumption level in June 2018 was 2,055 Bcf or 68.5 Bcf/day, up 7.6% from 1,910 Bcf consumed in June 2017. In June 2018, the preliminary level for dry natural gas production was 2,431 billion cubic feet (Bcf) or 81.0 Bcf/day, up 11.6% year over year. This is the 13th consecutive month where dry natural gas production increased year over year.

Increasing consumption of natural gas reflects higher demand, which leads to higher production of natural gas. Rise in production leads to more pipeline systems. Hence, ONEOK’s decision to expand pipeline will boost earnings in the future.

Price Movement

In a year’s time, ONEOK’s shares have gained 15.1% compared with the industry’s rise of 2.8%.



Zacks Rank & Key Picks

ONEOK currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are National Fuel Gas Company NFG, Southwest Gas Corporation SWX and UGI Corporation UGI. While National Fuel Gas sports a Zacks Rank #1(Strong Buy), Southwest Gas and UGI Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

National Fuel Gas’ EPS estimate for 2018 has moved up 3.3% in the past 60 days to $3.40. In the past six months, shares of this company have gained 10.2%.

Southwest Gas’ EPS estimate has moved 3.6% higher for the current year to $3.71 in the past 60 days. The stock has gained 16.1% over the past six months.

UGI Corporation’ EPS estimate has been revised 1.5% upward for the current year to $2.77 in the past 60 days. The stock has gained 21.1% over the six months.

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