Oneok Delivers Strong Q4 Results; Obtains Good Outcome on Medford Incident

Oneok’s OKE fourth-quarter results generally met our expectations. Full-year EBITDA was $3.62 billion compared with our $3.64 billion forecast. 2023 adjusted EBITDA guidance is set at a midpoint of $4.575 billion, including a net $539 million cash gain relating to insurance recoveries from the Medford incident. Removing the gain, adjusted EBITDA falls to $4 billion, close to our $4.1 billion forecast. 2023 growth is mainly being driven by a combination of higher gas and natural gas liquids volumes out of the Rockies, higher fee rates goosed by inflation-linked escalators, and higher earnings from gas storage contracts and expansions. Growth capital spending plans are set at around $1.1 billion, compared with our $1 billion forecast. At first glance, we maintain our $58 per share fair value estimate and narrow moat rating.

We also think deploying part of the Medford insurance monies (about $930 million) into a new Mont Belvieu fractionation facility that will add 125,000 barrels per day in 2025, which will only cost $550 million, is an attractive use of capital. The new facility is already permitted and can be built faster at Mont Belvieu than Medford, due to construction efficiencies from using similar designs to earlier fractionation plants. The demand for purity ethane has increased at the Gulf Coast recently, and much of the Medford’s plant ethane/propane mix was already being transported to Mont Belvieu to be split into ethane and propane already, so it also makes sense from a market perspective.