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We reiterate our recommendation on ONEOK Partners, L.P. (OKS - Analyst Report) to Neutral primarily due to unpredictable commodity prices, volatile equity and credit markets, stringent regulations and uncertain weather conditions, which may significantly impact the partnership’s forthcoming financial performance.   

We know that ONEOK Partners earns a significant portion of its revenues from payment of gathering and processing, and transportation and storage of natural gas, and natural gas liquids (“NGL”), and the sale of purity NGL products at its NGL business. A decline in prices for these commodities may result in lesser payments for ONEOK’s products and services, which will significantly impact the partnership’s future cash flow.

In addition, prevailing volatility and disruption of equity capital and credit markets might impact ONEOK’s financial and operational results. Equity capital markets face downward stress on equity values, which gradually reduces credit-worthiness of the partnership.

ONEOK’s ability to grow could be limited if it does not have regular access to equity and credit markets. This kind of market condition may have an adverse impact on the partnership as it will not be able to attain necessary financing to acquire new assets while expanding its existing facilities.

We know that ONEOK strongly follows internal growth strategy. In 2011 - 2015, the partnership plans to invest $5.7 - $6.6 billion in several internal growth projects. ONEOK expects its future growth to primarily come from the Bakken Shale and Three Forks in the Mid-Continent region. The partnership expects these facilities to provide a reliable and cost-effective means of transportation compared to other alternatives, which subsequently curtail ONEOK’s cost of operation.

There are several other positive catalysts like capital structure rebalancing strategy and steady increase in cash distribution, which might fuel ONEOK’s future financial performance.

ONEOK Partners, L.P. currently retains a short term Zacks #3 Rank (Hold Rating).

Tulsa, Oklahoma-based ONEOK Partners, L.P. is one of the largest publicly traded master limited partnerships and a leader in gathering, processing, storing and transporting of natural gas in the U.S. The partnership competes with Plains All American Pipeline, L.P. (PAA - Analyst Report).

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