04/29/2025
$OKE Q4 2023 AI-Generated Earnings Call Transcript Summary
The ONEOK Fourth Quarter 2023 Earnings Conference Call and Webcast took place with the operator welcoming participants and introducing the Vice President of Investor Relations. The call included statements about the company's expectations and predictions, and the executives discussed the strong financial performance and recent acquisition. The call also featured a reminder for the Q&A portion and the availability of other executives to answer questions. Overall, 2023 was a year of growth and transformation for ONEOK.
The momentum from ONEOK's operations in 2023 is expected to lead to further growth in 2024, as seen in their recent earnings release. The company has reported double-digit growth in NGL and natural gas processing volume, as well as continued fee-based earnings growth. They have also provided 2024 guidance and expect double-digit adjusted EBITDA growth. Over the past 10 years, ONEOK has experienced consistent growth in adjusted EBITDA and has significantly increased dividends. They have also set numerous volume records in the Rocky Mountain region and expanded their asset portfolio.
ONEOK has prioritized safety and sustainability, earning a AAA rating from MSCI. Their fourth quarter and full year financial performance showed strong results, with net income of $688 million and $2.7 billion respectively. Adjusted EBITDA totaled more than $1.5 billion in the fourth quarter and more than $5.2 billion for the full year. The company had no borrowings outstanding and extinguished $1.3 billion of long-term debt. They increased their quarterly dividend by 3.7% and announced a $2 billion share repurchase authorization.
The ONEOK program is expected to have a target of 75%-85% of forecasted cash flow from operations after capital expenditures, and their capital allocation strategy prioritizes maintaining financial flexibility and taking advantage of growth opportunities. The 2024 guidance includes a net income midpoint of $2.8 billion and an adjusted EBITDA midpoint of $6.1 billion, with expected synergies of $175 million in 2024 and $125 million in 2025. The company also plans for additional synergies in 2026 and beyond, with a total of $1.85 billion in capital expenditures for growth and maintenance.
The company expects to make significant investments in projects to support producer activity and growth in the near future, but these expenditures are expected to decrease after 2025. In 2023, the company saw strong volume growth in natural gas processing and NGL volumes, particularly in the Rocky Mountain region. The Natural Gas Pipeline segment exceeded its financial guidance and the Refined Products and Crude segment had a successful first quarter of operations since an acquisition.
The performance of this segment was driven by tariff increases, longer haul shipments, and steady crude oil transportation volumes. The company's optimization and marketing activities also contributed to strong margins and volumes. For 2024, the company expects higher earnings due to stable producer activity, production efficiency improvements, and strong natural gas and NGL volumes. Despite lower assumptions for incentivized ethane recovery and a contract expiration, the company still expects higher NGL volumes. The demand for ethane from the petrochemical industry and wide gas-to-oil ratios are expected to have a positive impact on NGL markets in 2024. The company plans to expand the Elk Creek pipeline to increase NGL capacity and support future growth.
The company expects volume growth in the Rocky Mountain and Mid-Continent regions due to higher well connections and consistent producer activity levels in 2023 and 2024. The extreme weather experienced in January had a temporary impact on volumes, but they have since recovered. Record natural gas production has been driven by high gas-to-oil ratios and longer laterals in the Williston Basin. In the Mid-Continent region, there are currently 45 rigs operating and the company expects processing volumes to grow by 3% in 2024. Increased rig activity will also result in more NGLs being processed.
In 2024, the Natural Gas Pipelines segment is expected to have strong demand for storage and transportation services, with a majority of capacity already contracted. Expansion projects are underway, including the reactivation of previously idled storage and increased injection capabilities. In the Refined Products and Crude segment, healthy business fundamentals and fee-based earnings are expected to drive consistent performance. Higher tariff rates and volumes, as well as synergy-related opportunities, are also expected to contribute to earnings. The company's growth and transformation in 2023 would not have been possible without the hard work of its dedicated employees.
The company has been focused on integrating the acquired assets and maintaining a high level of service. They have made progress in reducing greenhouse gas emissions and prioritizing safety. The operational platform has provided opportunities for growth and value. The risk-weighted synergies have increased to $400 million, and the company has seen an increase in commercial examples driving this upward revision. The initial synergy range of $200 million to $800 million may have some upside potential.
Sheridan Swords and Kevin Burdick discuss the potential synergies and cost savings that will result from their merger. They mention that they have already realized the majority of these savings and will see the full impact in 2024. They also mention their updated return on capital framework, which includes a 3-4% dividend growth and a payout ratio of 75-80%. They suggest that in 2025 or 2026, with lower leverage and excess cash from existing projects, there could potentially be an increase in buybacks.
In response to a question about the company's plans for M&A and other projects in 2025 and 2026, Walt Hulse explains that they were able to pay off over $1.3 billion in debt in 2023 and will begin a share repurchase program in 2024. They also plan to retain 15-25% of their free cash flow for high-return capital projects. In terms of third-party frac costs, they expect to spend around $30 million per quarter in 2024 and the MB-6 project, which will have a significant impact on these costs, is scheduled for the first quarter of 2025.
The speaker addresses a question about the potential for butane blending synergies and declines to give specific details due to commercial sensitivities. The next question is about consolidation in the industry, and the speaker emphasizes that their primary focus is on integrating the Magellan acquisition and creating value for shareholders. They will continue to be disciplined in their approach to mergers and acquisitions, considering how they can strengthen their competitive position.
Pierce Norton mentions that growth CapEx is likely to decrease in 2025 and beyond. He asks Walt and Sheridan to provide more insight on the growth CapEx needs for combined ONEOK, and Walt mentions that they have excess cash available for high-return projects. Walt also states that after completing major projects in 2024, there are no large identified projects for 2025. Routine growth expenditures will continue, and they will focus on smaller projects that can be funded through free cash flow. Michael Blum asks if FID for Saguaro in mid-2024 would impact the 2024 CapEx number or if most of it would fall into 2025 and 2026.
Pierce Norton thanks employees for getting the permit approved for Saguaro and states that the project is economically viable. He also clarifies that their financial involvement will be based on the value it brings to shareholders. Walt Hulse adds that the capital associated with the project will not have a material impact on 2024 and that they expect a reduction in CapEx in 2025 and beyond. They also announce an expansion for Elk Creek and state that the ramp in volumes will be gradual.
Sheridan Swords discusses the expected volume increases and ramp up for the Elk Creek expansion in the Bakken region. He mentions the importance of the pipeline coming online in the first quarter of 2025 and the potential for growth in the basin due to incentivized ethane and increased drilling activity. He also addresses the efficiency of producers and the potential for reduced capital expenditures in the future. Michael Blum asks a question about this topic and then Vrathan Reddy asks about Northern Border.
In response to a question about the dynamics of the energy market and the impact of the Coastal GasLink pipeline on Northern Border's volume, Chuck Kelley explains that the pipe will remain full due to long-term contracts and there is potential for relief through other projects. Another question is asked about the initial return multiple and EBITDA ramp for the three major projects coming online in the first quarter of 2025, to which Sheridan Swords responds that MB-6 will have a high operating rate and a good multiple.
Sheridan Swords, the CEO of a company, talks about the West Texas expansion and the Elk Creek expansion. He says that they will continue to contract more volume on the West Texas expansion to have an acceptable return with a significant amount of upside. The Elk Creek expansion will probably have the lowest multiple and if they have a high utilization rate, the multiple will be well below 1. When asked about the synergies, Sheridan says that they will have to develop new infrastructure to achieve them, such as storage tanks and connections within the systems. The next question is about Northern Border, and Chuck Kelley responds that he stands by what he has said before.
The speakers in this paragraph are discussing the potential growth in natural gas production in the Bakken area and the potential for increased demand for ethane. They believe that the current infrastructure can handle the expected growth and there are no near-term restrictions on gas takeaway. They also mention the possibility of using ethane for natural gas capacity if needed. There may be some risk of ethane rejection in the future, but overall they feel confident in the opportunities for continued growth in the Bakken.
The speaker discusses the potential for increased ethane recovery in the Mid-Continent region, but notes that it will likely be lower than the rates seen in the Bakken. They also mention the high utilization rates of petrochemical plants and the impact on their operations in 2024. In response to a question about potential risks for the Saguaro project, the speaker states that they feel good about trains one and two post-FID, but the pause may impact the approval for train three. The speaker also briefly mentions the potential for entering the LPG export business and the options they are considering.
The speaker discusses the company's LPG exports and their current strategy of looking at all alternatives, including a greenfield site and potential synergies with Magellan assets. They see LPG exports as a potential enhancement to their integration, but not a necessity as they are able to move their barrels through other facilities with export capabilities. The next question asks about opportunities for using the Sterling system to ship products and potential earnings from long-haul movements, but the speaker declines to comment on specific pipelines and only mentions that NGL pipelines have moved refined products in the fourth and first quarter. They also note the opportunity for longer haul tariffs on their refined products system due to the price differences between the Gulf and the Mid-Con region.
Sheridan Swords, speaking about the butane blending synergies and the RVP requirements, mentions potential opportunities for isobutane volumes as a feedstock for alkylate. However, the decision to use isobutane will depend on the amount of propylene run through the alkylate unit. The question then shifts to the timing and progress of the decision to utilize the WesTex expansion for crude, refined product, or NGLs, and how quickly the transition can be made.
Sheridan Swords discusses the possibility of shifting the NGL service to another product, but they are leaning towards keeping it for servicing downstream assets in the Mont Belvieu area due to good growth in the Permian. Walt Hulse mentions that with the three major projects coming off in 2025, the capital return is expected to ramp up and produce a meaningful amount of free cash flow, allowing for more opportunity for shareholder return.
The speaker responds to a question about what drives the company's EBITDA, mentioning that filling existing capacity, prioritizing and executing on additional connectivities, and quicker recognition of synergies can lead to higher EBITDA. However, factors like weather and user activity can also impact the volume and affect the company's performance. When it comes to NGL, the company is seeing demand from both Midland and Delaware areas, and they are not necessarily taking market share from other pipelines.
The company has seen some positive feedback from customers and believes there is potential to source NGLs in both basins. The timing for the batching upside is spread out over the next few years and the company sees opportunities for it throughout their system. The MMP acquisition does not affect the Medford frac site and the company is currently focused on expanding their existing fracs to address bottlenecks in the system.
The speaker discusses the potential for growth in fractionation capacity in Medford, noting that only certain parts of the facility were damaged by a fire and could be brought back up at a low cost. They do not expect the MMP acquisition to have a significant impact on this growth. When asked about synergies, the speaker says they expect to see most of the $100 million in G&A benefits in 2024, but are being conservative on the commercial side. They also mention that the 9% growth in the Rockies in 2024 is partially due to lower incentivized ethane from the Bakken.
The company will no longer be receiving volume from the Overland Pass contract, which has a low margin and high volume. This was expected and has been planned for some time. The growth on G&P and NGLs will be affected by this. The company has not yet decided on market-based rate adjustments, but they are looking at the market and having conversations with customers before making a decision. The quiet period for the first quarter will begin in April and details for the earnings conference call will be provided at a later date.
This summary was generated with AI and may contain some inaccuracies.