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Tepid Demand, ONEOK Halts Project

PAA OKS

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ONEOK Partners, L.P. (OKS - Analyst Report) has announced to halt its Bakken Crude Express Pipeline project due to disappointing response from the recently concluded open season for this project.

The partnership announced an open season process, from September 21, 2012 to November 20, 2012, for this pipeline project. This season offered the prospective shippers a chance to enter into long-term transportation agreements with ONEOK Partners for priority crude oil transportation facilities.

The Bakken Crude Express Pipeline would have been a 1,300-mile long pipeline, having a transportation capacity of 200,000 barrels per day (“bpd”) of light-sweet crude oil from the Bakken Shale and Three Forks at the Williston Basin in North Dakota to the market hub at Cushing, Oklahoma. The partnership intended to invest $1.5 billion - $1.8 billion till completion of this project in the middle of 2015.

Bakken Shale is situated in Western North Dakota, Eastern Montana, and Saskatchewan and Manitoba in the Williston Basin. As per a U.S. Geological Survey, Bakken Shale has 4.3 billion barrels of crude oil and 2.0 trillion cubic feet of gas and another 150 million barrels of natural gas liquids.

Apart from ONEOK Partners, another pipeline major Plains All American Pipeline, L.P. (PAA - Analyst Report) also intends to expand its operations in this natural energy-rich region and has started construction of a cryogenic gas processing plant in this area.

Though inadequate contracts have compelled ONEOK Partners to stop its crude oil pipeline project, it does not deter the partnership to carry on with its other development projects in Bakken Shale. Although the partnership decreased its 2013 capital expenditures estimate to $2.2 billion from $2.6 billion, it still has projected investment plan of $4.2 billion - $4.8 billion for natural gas and NGL projects. Many of these in-progress projects are based in the Bakken Shale.

ONEOK Partners remains committed to provide infrastructure and transportation related services to the Williston Basin producers. The partnership has started another open season for its Bakken NGL Pipeline from November 19, 2012 to December 17, 2012. The partnership still expects its future growth to primarily come from the Bakken Shale and the Mid-Continent region.

Despite a set back in the Bakken Crude Express Pipeline, ONEOK Partners expects to increase its earnings before interest, taxes, depreciation and amortization (“EBITDA”) by an average of 17% to 21% annually between 2012 and 2015 compared with its earlier projection of 2012 EBITDA. In addition, the partnership’s estimated average annual distributions to unitholders are expected to increase by 10% to 15% between 2012 and 2015.   

Tulsa, Oklahoma-based ONEOK Partners, L.P. is one of the largest publicly traded master limited partnerships and a leader in gathering, processing, storage and transportation of natural gas in the U.S. Currently, the partnership has a market capitalization of $12.90 billion and has short-term Zacks #3 Rank (Hold rating).

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