ONEOK Partners Riding High On Contract Restructuring Efforts

On Aug 17, 2016, we issued an updated research report on ONEOK (NYSE:OKE) Partners, L.P. (NYSE:OKS) . The partnership’s contract restructuring efforts, organic growth projects and strategic acquisitions are expected to drive earnings going forward. However, volatility in commodity prices, increasing competition and stringent regulations remain the major concerns.

Recently, the partnership reported second-quarter 2016 earnings of 54 cents per unit, beating the Zacks Consensus Estimate of 53 cents by 1.9%. Quarterly earnings also surged 22.7% year over year.

On the other hand, quarterly revenues came in at $2,133.6 million, marginally ahead of the Zacks Consensus Estimate of $2,105 million. Quarterly revenues were also up from $2,127.5 million in the year-ago quarter.

ONEOK Partners has been actively pursuing strategies to convert percent-of-proceeds-based contract to fee-based contract to reduce exposure to the commodity pricing environment and drive margins. Restructuring percent-of-proceed contracts in the Natural Gas Gathering and Processing segment to include a higher fee rate has significantly lowered the segment's commodity price sensitivity, and made it a major contributor to the partnership's second-quarter results.

The segment’s average fee rate increased to 76 cents per Million British Thermal Units (MMBtu) from 37 cents in the year-ago period. The partnership further expects fee-based earnings to increase to more than 85% this year from 66% in 2014.

Nonetheless, ONEOK Partners’ operations are subject to extensive federal, state and local laws governing the discharge of materials and protection of the environment. These regulatory bodies have already rolled out several laws related to air emissions and discharge of wastewater. Violation of these laws is subject to administrative, civil and criminal penalties, including civil fines, injunctions or both.

Zacks Rank & Key Picks

ONEOK Partners currently carries a Zacks Rank # 3 (Hold). A few better-ranked stocks in the same space include Archrock Partners, L.P. (NASDAQ:APLP) , Boardwalk Pipeline Partners, LP (NYSE:BWP) and CONE Midstream Partners LP (NYSE:CNNX) , each carrying a Zacks Rank #2 (Buy).