ONEOK, Inc. announced higher second quarter 2023 results and increased full-year 2023 financial guidance.
Second Quarter 2023 Results, Compared With Second Quarter 2022:
• 13% increase in net income to $468 million, resulting in $1.04 per diluted share.
• 10% increase in adjusted EBITDA to $971 million (includes $31 million of third-party fractionation costs and $9 million related to the pending merger transaction).
• 26% increase in Gulf Coast/Permian region NGL raw feed throughput volumes.
• 14% increase in Rocky Mountain region NGL raw feed throughput volumes.
• 17% increase in natural gas volumes processed.
Increasing 2023 Guidance - ONEOK Stand-Alone Basis:
• Net income increased to a midpoint of $2.49 billion compared with a previous midpoint of $2.41 billion.
• Earnings per diluted share increased to a midpoint of $5.54 compared with a previous midpoint of $5.36.
• Adjusted EBITDA increased to a midpoint of $4.675 billion compared with a previous midpoint of $4.575 billion.
ONEOK increased 2023 net income guidance to a range of $2.39 billion to $2.59 billion, compared with the previously announced range of $2.26 billion to $2.56 billion. Adjusted EBITDA guidance increased to a range of $4.575 billion to $4.775 billion, compared with ONEOK's previously announced range of $4.425 billion to $4.725 billion.
These midpoints and ranges exclude the impact of the pending merger with Magellan Midstream Partners and future merger-related costs, to be comparable with the original guidance provided on Feb. 27, 2023.
The increase in financial guidance reflects continued volume strength across ONEOK's operations, higher average fee rates in the natural gas liquids and natural gas gathering and processing segments, lower than expected third-party NGL fractionation costs and higher transportation and storage services in the natural gas pipelines segment.
ONEOK expects total capital expenditures, including growth and maintenance capital, of approximately $1.575 billion in 2023. The increase in expected capital expenditures in 2023 reflects the impact of strong producer activity and includes purchases of long-lead time components for capital-growth projects, initial activities for the expansion of Elk Creek Pipeline to 400,000 barrels per day (bpd) and activities to fully loop West Texas NGL Pipeline, which will more than double ONEOK's NGL capacity out of the Permian Basin.
"Continued strength in volumes across our operations, particularly in the Rocky Mountain region and Permian Basin, resulted in higher second quarter results and positive momentum entering the second half of 2023," said Pierce H. Norton II, ONEOK president and chief executive officer. "Operational outperformance through the first six months of 2023 enabled us to increase our financial guidance for the year.
"As we work toward the successful closing of our pending merger transaction with Magellan, we also remain focused on the fundamentals of ONEOK's business that have gotten us where we are today," added Norton. "We look forward to the strategic opportunities ahead of us through the combined companies, including opportunities to grow our existing legacy operations and further diversify our company through Magellan's refined products and crude operations, providing compelling long-term value for our stakeholders."
SECOND QUARTER 2023 FINANCIAL HIGHLIGHTS
HIGHLIGHTS:
• In May 2023, ONEOK announced an agreement to acquire all of the outstanding common units of Magellan Midstream Partners in a cash-and-stock transaction.
• In May 2023, ONEOK entered into a $5.25 billion bridge facility related to the merger transaction. Prior to the close of the transaction, ONEOK expects to issue senior unsecured notes and terminate the bridge facility undrawn.
• In July 2023, ONEOK declared a quarterly dividend of 95.5 cents per share, or $3.82 per share on an annualized basis.
• Capital-growth projects:
• In April 2023, ONEOK's 125,000 bpd MB-5 fractionator in Mont Belvieu, Texas, was completed.
• In May 2023, ONEOK completed a project to expand the injection capabilities of its Oklahoma natural gas storage facilities, allowing an additional 4 billion cubic feet (bcf) of storage capacity to be utilized.
• In June 2023, ONEOK redeemed $500 million of 7.5% senior notes due September 2023.
• As of June 30, 2023:
• 3.25 times annualized run-rate net debt-to-EBITDA ratio.
• No borrowings outstanding under ONEOK's $2.5 billion credit agreement.
SECOND QUARTER 2023 FINANCIAL PERFORMANCE
ONEOK's higher second quarter 2023 net income and adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), compared with the second quarter 2022, benefited primarily from increased NGL volumes in the Rocky Mountain region and Permian Basin, higher natural gas processing volumes in the Rocky Mountain and Mid-Continent regions, and increased storage services in the natural gas pipelines segment. Net income for the period also benefited from higher interest income due to higher cash balances and interest rates.
Higher second quarter 2023 results reflect $31 million of third-party fractionation costs and $9 million of costs related to the pending Magellan merger transaction. Second quarter 2023 net income also reflects approximately $9 million in interest expense related to merger transaction financing.
UPDATE ON ACQUISITION OF MAGELLAN MIDSTREAM PARTNERS
On May 14, 2023, ONEOK announced an agreement to acquire all of the outstanding common units of Magellan Midstream Partners in a cash-and-stock transaction. Each common unit of Magellan will be exchanged for a fixed ratio of 0.667 shares of ONEOK common stock and $25.00 in cash.
In June 2023, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired, which satisfies one of the conditions to the closing of the transaction.
In July 2023, ONEOK filed definitive proxy materials with the U.S. Securities and Exchange Commission (SEC) in connection with the pending acquisition. The ONEOK Special Meeting of Shareholders related to the transaction is scheduled to take place on Sept. 21, 2023. All shareholders of record as of the close of business on July 24, 2023, will be entitled to vote their ONEOK shares.
The pending merger transaction is expected to close during the third quarter of 2023, subject to the approval of both ONEOK shareholders and Magellan unitholders, and other customary closing conditions.
BUSINESS SEGMENT RESULTS:
Natural Gas Liquids Segment
The increase in second quarter 2023 adjusted EBITDA, compared with the second quarter 2022, primarily reflects:
• A $64 million increase in exchange services due primarily to higher volumes in the Rocky Mountain region and Permian Basin, offset by
• A $31 million increase in third-party fractionation costs resulting from the Medford incident, which partially offsets the settlement gain recognized in the first quarter 2023;
• A $15 million decrease in optimization and marketing due primarily to lower earnings on sales of purity NGLs held in inventory. ONEOK expects an earnings benefit of approximately $13 million on the forward sales of inventory over the next two quarters; and
• A $15 million increase in operating costs due primarily to higher employee-related costs due to the growth of ONEOK's operations, and higher property insurance premiums.
The increase in adjusted EBITDA for the six-month 2023 period, compared with the same period last year, primarily reflects:
• A $702 million increase related to the Medford incident, due to the settlement gain of $779 million, offset partially by $77 million of third-party fractionation costs,
• A $93 million increase in exchange services due primarily to:
• A $113 million increase from higher volumes primarily in the Rocky Mountain region and Permian Basin,
• A $40 million increase from lower costs, primarily fuel and power costs, partially offset by
• A $32 million decrease related to narrower commodity price differentials and lower related volumes, and
• A $14 million decrease related to lower earnings on unfractionated NGLs held in inventory; offset by
• A $40 million increase in operating costs due primarily to higher employee-related costs and higher outside services costs due to the growth of ONEOK's operations, and higher property insurance premiums.
Natural Gas Gathering and Processing Segment
The increase in second quarter 2023 adjusted EBITDA, compared with the second quarter 2022, primarily reflects:
• A $66 million increase from higher volumes due primarily to increased producer activity in the Rocky Mountain and Mid-Continent regions and the impact of severe weather in the Rocky Mountain region in the second quarter 2022; and
• A $16 million increase due primarily to higher average fee rates, offset partially by lower realized NGL prices, net of hedging; offset by
• A $16 million increase in operating costs due primarily to higher materials and supplies expense due primarily to the growth of ONEOK's operations and higher employee-related costs.
The increase in adjusted EBITDA for the six-month 2023 period, compared with the same period last year, primarily reflects:
• A $97 million increase from higher volumes due primarily to increased producer activity in the Rocky Mountain and Mid-Continent regions, and the impact of severe weather in the Rocky Mountain region in the second quarter 2022; and
• A $65 million increase due primarily to higher average fee rates, offset partially by lower realized NGL prices, net of hedging; offset by
• A $28 million increase in operating costs due primarily to higher employee-related costs and materials and supplies expense due primarily to the growth of ONEOK's operations.
Natural Gas Pipelines Segment
The increase in second quarter 2023 adjusted EBITDA, compared with the second quarter 2022, primarily reflects:
• A $16 million increase in transportation and storage services due primarily to higher firm and interruptible transportation volumes and higher short-term storage activity; offset by
• An $8 million increase in operating costs due primarily to higher outside services and employee-related costs due to timing of maintenance activities and the growth of ONEOK's operations.
The increase in adjusted EBITDA for the six-month 2023 period, compared with the same period last year, primarily reflects:
• A $38 million increase in transportation and storage services due primarily to higher storage rates on renegotiated contracts, higher firm and interruptible transportation volumes, and higher short-term storage activity; offset by
• A $12 million increase in operating costs due primarily to higher employee-related costs and outside services due to timing of maintenance activities and the growth of ONEOK's operations.