TULSA — Past investments in pipeline and gathering infrastructure continues to drive growth at ONEOK Partners LP, which landed at No. 5 in this year's list of best-performing public companies in Oklahoma.
But the partnership isn't resting on its laurels. ONEOK Partners plans to spend between $5.7 billion and $6.6 billion between now and 2015 on infrastructure related to natural gas, natural gas liquids and crude oil.
“These projects, located primarily in the Bakken Shale in the Williston Basin, the Mid-Continent and the Texas Gulf Coast, enable us to continue to meet the needs of producers and customers, and deliver attractive returns to investors,” said John W. Gibson, chairman and chief executive officer of ONEOK Partners and ONEOK Inc.
The largest of those projects, the Bakken Crude Express Pipeline, is a 1,300-mile crude oil pipeline with the capacity to transport up to 200,000 barrels of oil per day. The pipeline, ONEOK Partners' first foray into crude oil transportation, will take light-sweet crude oil from North Dakota and Montana to the crude oil hub in Cushing. After regulatory approvals and permits, the pipeline is expected to begin construction in early 2014 and be finished by mid-2015, Gibson said.
As a master limited partnership, ONEOK Partners offers an attractive place for investors to manage risk amid volatile energy commodity markets. Unlike corporations, master limited partnerships pass along a higher percentage of their income to investors in the form of cash distributions, Gibson said.
ONEOK Partners ranked second among Oklahoma companies for its one-year total return of 32 percent, as tabulated by S&P Capital IQ for The Oklahoman.
Annual distributions paid per partnership unit increased steadily in the last five years, from $1.99 per unit in 2007 to $2.32 in 2011. That's expected to increase to $2.59 per unit in 2012, according to the company's latest guidance.
“In a still somewhat uncertain economic environment, master limited partnerships offer investors a diverse investment opportunity,” Gibson said. “Companies like ONEOK Partners have performed well over the past few years, relative to the S&P 500, with potential to grow.”
ONEOK Inc. holds a 43 percent stake in ONEOK Partners and serves as its general partner. That means success at the partnership also helps ONEOK, which has more than 2 million natural gas customers through its Oklahoma Natural Gas, Kansas Gas Service and Texas Gas Service utilities.
Lower prices for dry natural gas have led producers to areas with natural gas liquids and crude oil.
ONEOK Partners has benefited from higher transport volumes of natural gas liquids such as ethane and propane.
“Much of our completed and current investments are to build the necessary infrastructure for the growing supply of both natural gas and natural gas liquids,” Gibson said. “The value of these natural gas liquids is an important source of revenue to producers, particularly at a time when natural gas prices remain low due to abundant supply.”
Morningstar analyst Jason Stevens said ONEOK Partners has been on the right side of the natural gas liquids trade, in part because it has been able to exploit recent price differentials between natural gas liquids trading hubs in Kansas and Texas.
“While much of ONEOK's cash flows stem from fee-based transportation, gathering, processing and fractionation contracts, commodity price exposure has been the secret sauce for ONEOK for the past few years,” Stevens wrote in an August research update.
In Oklahoma, ONEOK Partners announced plans earlier this year to build a new natural gas processing plant and related infrastructure in the Cana-Woodford Shale. That includes a 200 million cubic feet per day natural gas processing facility in Canadian County. The plant, which will cost about $190 million, is expected to be operational by early 2014.
“This new infrastructure is necessary to accommodate increased production of NGL-rich natural gas in the Cana-Woodford Shale where we already have existing natural gas and natural gas liquids pipelines,” Gibson said. “We are also participating in the Mississippian Lime play with our existing natural gas gathering and processing and NGL assets in the area.”