ONEOK Chalks Up Solid Growth in Natural Gas, NGL Businesses in Fourth-Quarter, Full-Year 2011

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Researched by Industrial Info Resources (Sugar Land, Texas)--ONEOK Incorporated (NYSE:OKE) (Tulsa, Oklahoma), a leading diversified energy company, was boosted by strong earnings in its largest segment during fourth-quarter and full-year 2011, riding on increased volumes, stronger pricing, and positive results in the integrated midstream natural gas and natural gas liquids (NGL) assets. Net income was reported to be $115 million for the quarter, a 38.43% increase from fourth-quarter 2010, and $360.59 million for the year, a 7.76% increase from 2010.

Total revenues stood at $4.07 billion for the quarter, a 24.12% increase from the same period in the previous year, and $14.81 billion for the year, a 16.78% increase from 2010. Among the biggest factors in the year's gains was a $363.6 million increase in the NGL business, which was attributed to favorable NGL price differentials and stronger NGL fractionation and transportation capacity between the Mid-Continent and Gulf Coast markets. The company also saw higher natural gas volume processing and stronger condensate prices during 2011. However, the Energy Services had significantly weaker results due to lower storage and marketing margins, and lower transportation margins.

"Our Energy Services segment continues to struggle with the results of challenging market conditions: narrow seasonal and location differentials, low natural gas prices and volatility, moderate weather conditions, and an oversupply of natural gas," said John W. Gibson, the chairman and chief executive officer of ONEOK, in a conference call.

In the fourth quarter, ONEOK benefited from higher NGL price differentials and volume growth, as well as higher natural gas volume growth. Increased drilling activity in the Williston Basin, which is in Montana, the Dakotas and Saskatchewan, boosted the company's average for gathered natural gas to 1.06 trillion British thermal units per day during the quarter, while the total amount of natural gas processed averaged 758 billion British thermal units per day, which was a 13% increase from fourth-quarter 2010.

Industrial Info is tracking more than $2 billion in active projects involving ONEOK, including the $140 million expansion of an NGL fractionator in Bushton, Kansas. Currently, the fractionator is capable of recovering 150,000 barrels per day (BBL/d) of NGL from 1 billion cubic feet per day of natural gas, and the expansion is expected to add 60,000 BBL/d of capacity. The project is expected to be completed in August 2012.

ONEOK recently sold its retail natural gas marketing business to Constellation Energy Group Incorporated (NYSE:CEG) (Baltimore, Maryland) for $22.5 million.

Although gains were exceptionally strong for ONEOK Partners, in which ONEOK owns 42.8%, the other two major segments reported overall losses for the fourth quarter and the year:

• The ONEOK Partners segment reported a net margin of $494.3 million for the quarter, a 59.66% increase from fourth-quarter 2010, and $1.58 billion for the year, a 37.78% increase from 2010. Operating income stood at $317.5 million for the quarter, compared with $159.7 million in the same period in the previous year, and $939.5 million for the year, a 60.24% increase from 2010.
• The Natural Gas Distribution segment reported a net margin of $203.6 million for the quarter, a 0.44% decrease from fourth-quarter 2010, and $751.8 million for the year, a 0.41% decrease from 2010. Operating income stood at $54.5 million for the quarter, a 12.1% decrease from the same period in the previous year, and $197.6 million for the year, a 12.22% decrease from 2010.
• The Energy Services segment reported a net margin of $600,000 for the quarter, compared with $27.4 million in fourth-quarter 2010, and $48.7 million for the year, compared with $159.7 million in 2010. The segment reported an operating loss of $5.5 million for the quarter, compared with operating income of $19.8 million in the same period in the previous year, and operating income of $23.8 million for the year, compared with $130.7 million in 2010.

For 2012, ONEOK executives are increasing their expectations for net income to between $360 million to $410 million, compared to the previous estimate of between $355 million and $400 million. As with 2011, the company is predicting stronger earnings in the ONEOK Partners segment and weaker results in the Energy Services segment. Specifically, higher earnings are expected in the NGL business, which is likely to be offset by lower earnings in the natural gas gathering and processing business. Capital expenditures in 2012 are expected to be about $2.3 billion, about $2 billion of which is to come from ONEOK Partners.

"Our growth projects are on-time and on-budget, and we continue to increase volume commitments for these projects," Gibson said in the conference call. "Our Garden Creek gas processing plant in the Williston Basin is operational, allowing producers the ability to capture additional value, while reducing the amount of flaring occurring in the Bakken Shale."

For more information, visit Industrial Info's North American Oil and Gas Production Project Database.

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