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ONEOK Partners L.P. (OKS - Analyst Report) reported second-quarter 2013 earnings per unit of 62 cents, beating the Zacks Consensus Estimate by 8 cents. However, the earnings decreased by 10.1% year over year primarily due to narrower natural gas liquids (NGL) price differentials and continuous decline in NGL optimization margins.

Total Revenue

ONEOK Partner's revenues were $2768.2 million, surpassing the Zacks Consensus Estimate by $260.2 million and year-ago level by $643.2 million.

Operating Results

In second-quarter 2013, cost of sales and fuel increased 41.2% year over year to $2.4 billion.

ONEOK Partner's total operating expenses were $182.2 million, up 4.5% year over year primarily due to higher depreciation expenses and increase in general taxes.

The partnership's operating income increased 0.8% year over year to $230 million. This was primarily due to a rise in natural gas volumes gathered and processed and NGL volumes gathered as a result of the completion of several projects.

Equity earnings from investments were down by 10.6% year over year to $26.4 million primarily due to decrease in NGL volumes on Overland Pass Pipeline.

Segment Analysis

Natural Gas Gathering and Processing: Segmental quarterly operating income increased 18.8% year over year to $55.5 million. Improvement in operating income was primarily driven by increase in volumes from the Stateline I and Stateline II natural gas processing plants at the Williston Basin, and higher natural gas volumes gathered, compressed, processed, transported and sold as a result of increase in well connections.

Natural Gas Pipelines: The segment operating income was $31.9 million, down 2.1% year over year. The decline was mainly attributable to a decrease in natural gas storage margins as a result of lower contracted capacity.

Natural Gas Liquids: The segment reported operating income of $142.7 million compared with $149.1 million a year ago. This decrease was primarily due to a decline in optimization and marketing margins, and the impact of ethane rejection.

Financial Condition

ONEOK Partners had cash and cash equivalents of $6.2 million as of Jun 30, 2013 versus $537.1 million as of Dec 31, 2012. Decline in cash balance was primarily due to a rise in capital expenditure and increased borrowing of notes payable.

Long-term debt as of Jun 30, 2013 was $4,800.3 million versus $4,803.6 million as of Dec 31, 2012.

Cash provided by operating activities during the first six months of 2013 was $383.5 million, lower than $430 million in the year-ago comparable period.

In second-quarter 2013, ONEOK Partners' capital expenditures were $481.4 million, up 35.6% from the year-ago comparable period due to investment in numerous projects at the NGL and natural gas gathering and processing segments.

Guidance

ONEOK Partners reaffirmed its net income and distributable cash flow guidance for 2013 in the range of $0.79 billion to $0.87 billion and $0.91 billion to $1.0 billion, respectively.

The partnership also guided that subject to its board’s approval it will increase the average annual distribution rate by 8%-12% between 2012 and 2015.

ONEOK Partners intends to invest $2.4 billion under its full-year 2013 capital spending program.

Other Company Releases

Exxon Mobil Corporation (XOM - Analyst Report) is slated to release its second quarter earnings on Aug 1. The Zacks Consensus Estimate is at $1.89.

Magellan Midstream Partners LP (MMP - Analyst Report) is slated to release its second quarter earnings on Aug 1. The Zacks Consensus Estimate is at 53 cents.

Plains All American Pipeline L.P. (PAA - Analyst Report) is slated to release its second quarter earnings on Aug 5. The Zacks Consensus Estimate is at 53 cents.

Our View

We believe ONEOK Partners' strong project line-up and its completion of several important projects will allow the partnership to meet the increasing demand. In addition, installation of these pipelines will enable the partnership to strengthen its presence in the region, which will subsequently improve future performance.

Tulsa, Okla.-based ONEOK Partners is engaged in gathering, processing, storing and transporting of natural gas in the U.S. The partnership currently has a Zacks Rank #3 (Hold).

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