The ONEOK Second Quarter 2023 Earnings Conference Call and Webcast was opened by Andrew Ziola, Vice President of Investor Relations, who discussed the company's forward-looking statements and SEC filings. Pierce Norton, President and Chief Executive Officer, then took over the call and discussed the company's increased financial guidance for the full year 2023, which was mainly driven by higher volumes in the Rocky Mountain region and Permian Basin.

The pending merger between Magellan and the company is progressing and two milestones have been achieved. Furthermore, the companies have identified synergy opportunities that will provide immediate financial benefits and growth. These opportunities have been organized into four commercial categories and are outlined in the earnings presentation.

ONEOK and Magellan have both been using operational techniques such as batching and blending which can be used to realize value on a larger scale. With the exception of bundling, the 3 remaining commercial categories are within 100% of their control, allowing them to pursue opportunities that make commercial and economical sense. There is potential value in the near term, and with the combined teams, there are many opportunities to improve services and return value to investors. With their recent earnings announcement, ONEOK increased their 2023 financial guidance expectations.

ONEOK reported strong financial performance in the second quarter of 2023, with net income totaling $468 million and adjusted EBITDA totaling $971 million. This was driven by higher guidance expectations, volume growth, higher average fee rates, and lower-than-expected third-party NGL fractionation costs. In June, ONEOK redeemed $500 million of their senior notes and had a net debt to EBITDA ratio below their long-term target. Moody's also upgraded ONEOK's credit rating to Baa2.

Walt discussed the rating agencies' recognition of the increased scale, earnings diversity and growth opportunities of the pending Magellan acquisition. Kevin provided an update on the Natural Gas Liquids segment, which saw double-digit volume increases in the Rocky Mountain and Permian Basin regions. The Mid-Continent region also saw an 8% increase in volumes, driven by increased ethane recovery. Despite recent volatility in ethane prices, they remain at a level that is driving recovery in most basins, and the company remains confident in its ethane recovery assumptions included in their updated guidance.

ONEOK has taken steps to increase their NGL capacity out of the Permian Basin, including expanding the Elk Creek pipeline to 400,000 barrels per day. In the Rocky Mountain region, they have connected more than 280 wells in the first half of the year and are on track to reach the high end of their 475-525 well-connect guidance range for the year. In the Mid-Continent region, processed volumes increased 12% year-over-year and recent decreases in STACK and SCOOP activity have been offset by increased activity in Western Oklahoma.

This paragraph discusses the various transactions and projects that the company is currently undertaking. It mentions the 9 rigs on its dedicated acreage in the Mid-Continent, the expansion of its natural gas storage capabilities in Oklahoma, and the Saguaro connector pipeline project. It also mentions the potential LNG export project and the ONEOK pipeline. Finally, it mentions the potential for synergies through liquids pipelines, which would allow the company to move natural gas liquids and refined products through the same product pipelines.

The acquisition of Magellan by Delek US Holdings has the potential to increase the value of their combined assets by blending products and offering a wider variety of services. This would result in an annual increase of $100 million from 100,000 barrels per day at $0.07 per gallon, $75 million from 25,000 barrels per day at $0.20 per gallon, and $40 million from 25,000 barrels per day at $0.10 per gallon. Additionally, there is potential for incremental storage and optimization activities, as well as leveraging Magellan's marine export expertise. Synergies are estimated to be at least $200 million, with the potential to exceed $400 million.

ONEOK is confident in achieving $200 million of near-term synergies through batching and blending products on their combined pipeline systems and offering bundled services to customers. They have a strong track record of customer service, reliability, innovation, and safety. They plan to publish their 15th Annual Sustainability Report, which will detail their environmental, safety, health performance, targets, employee initiatives, and economic progress. They are looking forward to the merger of Magellan, which will bring two companies with proud histories together for an even more promising future.

Pierce Norton discussed the potential of commercial synergy opportunities to be around $800 million, with the original estimate being $200 million when the deal was announced. He noted that the list of opportunities is lengthy and that the $200-$400 million range is a risk-weighted assumption. Norton also addressed Brian Reynolds' follow-up question about the size and scope of potential growth synergy opportunities, such as downstream.

Kevin Burdick and Pierce Norton discussed the details of the merger and the opportunities it presents, while Walter Hulse discussed the desired leverage target of 3.5x. Jeremy Tonet asked for more information on the underlying business fundamentals and the operational momentum of the business.

Kevin Burdick and Walter Hulse discuss the numbers in the prospectus from September of 2022, which were used to plan for 2023. They explain that these numbers were not a forward projection for the future, but a good view of the current situation. They also mention that they are seeing activity levels across their footprint, particularly in the Bakken and Permian, which is indicating that volumes will continue to grow in 2024. They are unable to provide specific color on the inputs that drove the 2024 numbers, such as Bakken rig count, but will provide guidance for future years when they get to February.

Walter Hulse and Sheridan Swords discussed the economics of two projects in West Texas and Elk Creek. The West Texas project is a low cost per barrel of capacity loop and has contracts in place that will give a high return on the project. The Elk Creek project involves growing the pipeline, adding pumps, and making sure they don't get caught short of volume. Both projects are expected to have high returns and low multiples.

Sheridan Swords provides an example of batching opportunities with Sterling pipeline, which involves moving refined products between the Gulf Coast and the Mid-Continent region. The illustrative estimate of $0.07 per gallon is based on what is seen in the market. Additionally, there is potential for increased margins and volume with blending 25,000 barrels per day of incremental butane into the gasoline pool.

Walter Hulse explains that the 2023 CapEx guidance was based on the assumption that the Saguaro pipeline would be further along in its process, but since the timing has shifted, the capital has been revised. Kevin Burdick adds that the timeline for the Elk Creek expansion is still being worked on and they want to make sure they have the capacity for their customers. The cost of the project is still being determined.

Kevin Burdick discussed the trajectory of CapEx going into 2024, noting that it would be relatively consistent from routine activities. He also discussed the Saguaro pipeline expansion, noting that there have been some positive developments but that the focus is on getting to a Final Investment Decision (FID). He also mentioned that there has been some interest in the downstream LNG project and potential joint venture partners.

Kevin Burdick and Sheridan Swords discussed the volatility of ethane prices and the opportunities to incentivize ethane. They noted that the prices were still higher than they were in the beginning of June, allowing Mid-Continent to be in full ethane recovery. Walt was asked to talk about long lead time procurement in '23 and the proportion of a project that might be, but he did not provide any specifics.

Walter Hulse and Kevin Burdick discussed the Saguaro pipeline and the need to always be prepared in this environment. The gas pipeline segment is performing better than expected due to renegotiated storage rates, fuel and gas sales opportunities, and market dynamics. They are looking for more storage and expansion opportunities in Texas and Oklahoma.

Sheridan Swords discusses the factors behind the increased rate of $1.20 Mcf on the G&P side, which include inflationary factors and renegotiated contracts. He also mentions that the inflationary escalators have the biggest impact. Additionally, he touches on the commercial synergies with batching, blending, and bundling.

Kevin Burdick and Sheridan Swords answered a question from Keith Stanley about the blending synergies between Magellan and the merger. Burdick stated that the opportunities will be a mix of volumetric and rate, and Swords added that they also see opportunities in other blending of NGLs into different products. Stanley also asked about the progress of the Saguaro pipeline in Mexico, to which Burdick replied that they would stick to their earlier remarks.

The speaker is discussing potential synergies that may arise from combining two assets, and notes that they will be seen in the short-term but may be lumpy over a four-year period. They also mention that they do not want to discuss commercially sensitive areas such as crude transport and exports.

The speaker is Pierce Norton and he is being asked about what OK Group could do to accelerate growth in the future if the MMD transaction does not go as planned. He states that both companies are currently focused on the vote and that they will provide as much detail as possible without compromising any competitive advantages.

Magellan and ONEOK believe that their respective shareholders will see the value in the combined companies. Sunil Sibal asked a clarification question regarding ONEOK's shelf filing for additional equity, to which Walter Hulse explained that it was simply a renewal of their ATM plan that had not been used in the last five years and there were no plans to use it in the future. Andrew Ziola concluded the call by announcing that the quiet period for the third quarter would start when the books close in October and extend until earnings are released late in the month.

This summary was generated with AI and may contain some inaccuracies.