On Nov 22, 2016, we issued an updated research report on ONEOK Partners, L.P. . Conversion to fee-based contracts will likely provide more visibility to its earnings. However, failure to renew lease contracts for its operational sites and stringent regulations remain as major concerns.
Recently, ONEOK Partners reported third-quarter 2016 earnings of 59 cents per unit, beating the Zacks Consensus Estimate of 58 cents by 1.7%. Quarterly earnings also surged 31.1% year over year. In the quarter under review, ONEOK Partners reported total revenue of $2,357.4 million, outshining the Zacks Consensus Estimate of $2,136 million by 10.4%.
ONEOK Partners has been actively pursuing strategies to convert percent-of-proceeds-based contracts to fee-based contracts to reduce exposure to the commodity pricing environment and increase margins. Restructuring of percent-of-proceed contracts in the Natural Gas Gathering and Processing segment to include a higher fee rate has significantly reduced the segment's commodity price sensitivity, and made it a major contributor to the partnership's third-quarter results.
The segment’s average fee rate increased 77% to 76 cents per Million British Thermal Units (MMBtu) from the year-ago level of 43 cents. The partnership expects fee-based earnings to increase to more than 85% in 2016 from 66% in 2014.
ONEOK Partners expects capital growth projects and strategic acquisitions to boost its cash for distribution. Over the 2006–2016 period, the partnership completed acquisitions and growth projects worth $9 billion.
Nonetheless, ONEOK Partners does not own all of the land on which its pipelines and facilities are located. The partnership attains rights to build and operate its pipelines and allied facilities on land owned by third parties and government agencies for a specific period. Sometimes, the partnership loses these rights because of its failure to renew contracts on acceptable terms or incurs higher costs to renew the same contracts. Loss of rights and higher renewal expenses may affect ONEOK Partners’ future performance.
Zacks Rank and Key Picks
ONEOK Partners currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Archrock Partners, L.P. (APLP - Free Report) , TC PipeLines, LP (TCP - Free Report) and CONE Midstream Partners LP .
Archrock Partners has seen one upward estimate revision for 2016 over the last 60 days. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
TC PipeLines, another Zacks Rank #2 stock, has seen one upward estimate revision for 2016 over the last 60 days.
CONE Midstream has seen two upward estimate revisions for 2016 over the last 60 days. The stock carries a Zacks Rank #2.
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