ONEOK Partners: Earnings Preview

| About: ONEOK, Inc. (OKE)
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ONEOK Partners, L.P. (NYSE:OKE), a publicly-traded master limited partnership ("MLP"), is scheduled to report its second quarter 2012 financial results after the market closes on July 31, 2012.

First Quarter Recap

ONEOK's first quarter 2012 earnings came in at 91 cents per unit compared with prior-year earnings of 58 cents per unit. The year-over-year growth was driven by positive natural gas liquids ("NGL") price differentials and higher NGL volumes gathered and fractionated. Quarterly earnings were higher than the Zacks Consensus Estimate of 79 cents per unit.

Net revenue during the quarter increased 3.8% to $2.59 billion from $2.50 billion reported in the year-ago quarter. However, the top line fell short of the Zacks Consensus Estimate of $3.06 billion.

Guidance for 2012

ONEOK reaffirmed its 2012 net income guidance in the range of $810 million - $870 million. The partnership's distributable cash flow ("DCF") is expected to be in a band of $925 million - $985 million.

The partnership plans to deploy $4.7 billion - $5.6 billion in growth projects during the 2011 to 2015 timeframe. The investment will be used to build new pipelines and natural gas processing facilities and further develop its existing bases in its service areas.

Zacks Consensus

The Zacks Consensus Estimate for the second quarter 2012 is 70 cents per unit, higher than 67 cents recorded in the prior-year quarter. Currently, the Zacks Consensus Estimate for earnings ranges between 60 cents and 77 cents a unit.

For full year 2012, the Zacks Consensus Estimate stands at $2.91 per unit, lower than its full year 2011 earnings of $3.35 per unit. The current Zacks Consensus Estimate for full year earnings ranges between $2.72 and $3.25 per unit.

Estimate Revisions Trend


We have observed a few estimate revisions at this point. Of the 11 estimates, none of the estimates for the second quarter were revised upward while eight moved in the opposite direction in the last 30 days. In the last 7 days, none of the estimates moved upward whereas one moved in the opposite direction.

For full year 2012, out of the 13 estimates, two were revised upward while eight were lowered in the last 30 days. In the last 7 days, there were no estimate revisions.


The Zacks Consensus Estimate for the upcoming quarter inched down by 3 cents over the last 30 days. The last 7 days saw no revision to the estimates.

For full year 2012, the Zacks Consensus Estimate decreased by 9 cents over the last 30 days. In the last 7 days, the Zacks Consensus Estimates for full year 2012 remained unchanged.

Some of the analysts believe that the continuous decline in natural gas prices and the slow pace of economic recovery may mar the financial performance of the partnership in the second quarter and full year 2012.

Surprise History

With respect to earnings surprises, ONEOK Partners L.P. has topped the Zacks Consensus Estimate in the last four quarters in the range of 15.2% to 31.3%. The average surprise over the last four quarters remained a positive 24.4%.

Our Recommendation

We view ONEOK as an organization with geographically diversified gas assets in five distinctly different basins. This diversity enables the partnership to offset a decline in natural gas production in some of its operating basins and to serve a large number of customers. In addition, ONEOK strongly believes in organic growth. We expect the partnership's organic growth to primarily come from the Bakken Shale and Three Forks in the Mid-Continent region, where it owns and operates a vast majority of its gathering assets.

On the flip side, ONEOK's performance depends on natural gas, crude oil and NGL price fluctuations. The partnership generates a major part of its revenues from the payment of gathering, processing, transportation and storage services and from the sale of purified NGL products. Downward movement of commodity prices may result in lesser payments for ONEOK's products and services. This will significantly impact the partnership's financial results in the future.

Currently, we are maintaining a long-term 'Neutral' recommendation on ONEOK Partners L.P. The partnership retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Tulsa, Oklahoma-based ONEOK Partners L.P. is one of the largest publicly traded MLPs and a leader in the business of gathering, processing, storage and transportation of natural gas in the U.S. In addition, the partnership operates major NGL systems that connect NGL supplies in the Mid-Continent and Rocky Mountain regions with key market centers. The partnership competes with Plains All American Pipeline, L.P. (NYSE:PAA).