Analyzing ONEOK Partners’ 2Q15 Earnings and Recent Unit Sale
Natural Gas Gathering and Processing segment
We discussed the performance of ONEOK Partners’ (OKS) Natural Gas Liquids segment—its largest—in the previous part of this series.
OKS’s Natural Gas Gathering and Processing segment contributes ~21% of the firm’s total EBITDA (earnings before interest, tax, depreciation, and amortization). The segment’s EBITDA declined 23% in the second quarter of 2015 compared to the same quarter a year ago. Lower commodity prices are largely to blame, despite the greater volumes of natural gas that were gathered and processed during the quarter.
OKS’s commodity price exposure
OKS’s Natural Gas Gathering and Processing segment’s percent-of-proceeds contracts expose it to commodity price risks. Read more about these contracts and risks in ONEOK Partners: How Gas Gathering, Processing Segment Makes Money.
According to the MLP, it wants to convert its percent-of-proceeds contracts to fee-based contracts, or to increase the fee component of such contracts. OKS recorded an $11.5 million increase in the segment’s year-over-year operating income in 2Q15, primarily thanks to changes in contract mix.
The segment recorded significant volume growth in 2Q15 stemming from new growth projects in midcontinental areas and the Williston Basin. The above graph shows the segmental contributions to ONEOK Partners’ EBITDA in 2Q15 and 2Q14.
American Midstream Partners (AMID), Boardwalk Pipeline Partners (BWP), DCP Midstream Partners (DPM), and EQT Midstream Partners (EQM) are some of the other MLPs involved in natural gas gathering and processing.
EQM forms 1.2% of the First Trust North American Energy Infrastructure Fund (EMLP).
Natural Gas Pipelines segment
ONEOK Partners’ Natural Gas Pipelines segment contributes ~14% of its total EBITDA. The segment transports and stores natural gas. These activities are regulated by the Federal Energy Regulatory Commission. The segment’s EBITDA in the second quarter of 2015 was flat compared to its EBITDA in the same quarter of last year.
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