U.S. Markets closed

ONEOK Partners: Contract Conversion Helps, Regulations Hurt

Zacks Equity Research

ONEOK Partners, L.P. OKS has seen mixed earnings estimates lately. The current year has witnessed three upward estimate revisions and three downward estimate movements in the last 60 days. The company’s fourth quarter earnings missed the Zacks Consensus Estimate. Revenues, however, beat the estimate. This mixed trend is the reason behind the stock carrying just a Zacks Rank #3 (Hold).

ONEOK Partners has been actively pursuing strategies to convert percent-of-proceeds-based contract into fee-based contract to reduce exposure to the commodity pricing environment and increase margins. Restructuring of percent-of-proceed contracts in the Natural Gas Gathering and Processing segment to include a higher fee rate, has significantly reduced its commodity price sensitivity, and made it a major contributor to the partnership's fourth-quarter results.

In 2016, the segment’s average fee rate increased nearly 73% to 76 cents per Million British Thermal Units (MMBtu) from the year-ago level of 44 cents. The partnership expects an average fee rate of nearly 80 cents in 2017.

ONEOK Partners, L.P. Price

ONEOK Partners, L.P. Price | ONEOK Partners, L.P. Quote

On the flip side, ONEOK Partners’ operations are subject to extensive federal, state and local laws governing the discharge of materials and protection of the environment. These regulatory bodies have already rolled out several laws related to air emissions and discharge of wastewater. Violation of these laws is subject to administrative, civil and criminal penalties, including fines, injunctions or both.

The partnership’s operations are also subject to weather fluctuations. Severe weather in December adversely impacted volumes in natural gas liquids and natural gas gathering and processing segments in both the Williston Basin and the Mid-Continent.

Key Picks

A few favorably placed stocks in the Oils-Energy sector include SemGroup Corporation SEMG, Tallgrass Energy Partners, LP TEP and Plains GP Holdings, L.P. PAGP.

SemGroup’s estimates for the current year have increased from 97 cents to $1.19 in the last 60 days. The stock carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tallgrass Energy, a Zacks Rank #2 (Buy) stock, has seen estimates rise from $2.34 to $3.02 in the last 60 days for the current year.

Plains GP Holdings has seen current-year estimates rise from $2.66 to $2.78 in the past 30 days. The stock carries a Zacks Rank #2.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?

Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ONEOK Partners, L.P. (OKS): Free Stock Analysis Report
Semgroup Corporation (SEMG): Free Stock Analysis Report
Plains Group Holdings, L.P. (PAGP): Free Stock Analysis Report
Tallgrass Energy Partners, LP (TEP): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research