U.S. Markets closed

Why the Natural Gas Gathering and Processing segment is growing

Avik Chowdhury

Assessing ONEOK Partners' 1st quarter earnings for 2014 (Part 3 of 7)

(Continued from Part 2)

ONEOK Partners’ investments

ONEOK Partners plans to invest $3 billion to $3.5 billion from 2010 through 2016 in the natural gas gathering and processing segment. Until the first quarter of 2014, projects totaling $1.8 billion have been completed. This includes the construction of seven new natural gas processing facilities, four of which have been completed, including two in 2013 and early 2014. In 2013, OKS connected around 1,160 natural gas wells to its gathering systems. From 2010 through 2013, the company’s processed natural gas volume has increased by more than 60%. In 2014, well connections are expected to increase 12% from 2013 to 1,300, majority of which will come from Rocky Mountain.

The primary recipient of OKS’s investments in the gas gathering and processing segment has been the Williston basin where volume has increased tremendously from the construction of the Stateline I and Stateline II gas processing plants. The company has 6,500 miles of pipelines at the Williston Basin, located in western North Dakota and eastern Montana. According to the North Dakota Industrial Commission (NDIC), crude-oil production in the Williston Basin was one million barrels per day in 2013 and is expected to double to two million bpd by 2025. Natural gas produced exceeded 1 billion cubic feet per day in 2013 at the Williston basin.

In 2014, the company expects to increase natural gas processing volume by ~29%, to 1.4 billion British thermal units from ~1.1 billion British thermal units in 2013. The growth will primarily be driven by active drilling in the Bakken Shale and Three Forks in the Williston Basin. Currently, approximately $1.3 billion to $1.5 billion of announced capital-growth projects are in various stages of construction. OKS is constructing a 100 million cubic feet per day natural gas processing facility in the Williston Basin in North Dakota, called the Garden Creek II plant. Expected to be complete in 3Q14, the plant has an estimated construction cost of $310 million to $345 million.

Construction of a third plant in the same area, Garden Creek III, has also been initiated for an estimated capital expenditure of $325 million to $360 million. The plant will add another 100-million cubic feet per day of natural gas processing capacity and is expected to come online in 1Q15. Lonesome Creek plant, a 200-MMcf/d natural gas processing facility in the Williston Basin is expected to be complete in 4Q15 for an estimated capital spending of $550 million to $680 million. In September 2013, OKS acquired the Sage Creek gas processing facility plant and related NGL infrastructure in the NGL-rich Niobrara Shale formation in Wyoming’s Powder River Basin. OKS plans to invest another $50 million for upgrading the plant. OKS expects to generate additional EBITDA of $40 million to $60 million from Sage Creek, between 2015 and 2018.

ONEOK Partners, L.P. (OKS) is a master limited partnership operating in the midstream energy space. OKS is also part of Alerian MLP ETF (AMLP), MLP ETF (MLPA), and Global X MLP & Energy Infrastructure ETF (MLPX). OKS is also a component of Alerian MLP Index ETN (AMJ).

Continue to Part 4

Browse this series on Market Realist: