Analyst Note| Stephen Ellis |
Oneok reported strong first-quarter results mainly due to one-time benefits from winter storm Uri across its natural gas pipeline business. As a result, 2021 EBITDA guidance now stands at a midpoint of $3.2 billion compared with management's prior guidance of $3.05 billion and our $3.1 billion forecast. Most of this benefit is associated with the natural gas pipeline business, which sold over 5 billion cubic feet (bcf) of gas out of storage compared with 1.2 bcf last year, which contributed an incremental $105 million in EBITDA. Since we consider the boost one time in nature, we do not expect it to result in an increase in our fair value. We will maintain our $44 fair value estimate and narrow moat rating while we incorporate these results in our model.
Winter storm Uri also impacted Oneok's other businesses. The natural gas liquids segment benefited from higher marketing profits, which was more than offset by lower volumes and increased electricity costs. The gathering and processing business also saw a modest negative impact due to lower volumes. We expect the incremental Uri contributions to be deployed toward reducing leverage.
Aside from Uri contributions, Oneok continues to see strength in Rockies volumes. Rockies natural gas liquids volumes now stand at 253,000 barrels per day--up from 244,000 bpd last quarter and 161,000 bpd at the lows in the second quarter of 2020. Oneok earns about $100 million in EBITDA from every 25,000 bpd of new volumes and can handle up to 540,000 bpd in volumes if it expands its existing capacity at the Elk Creek pipeline.