Yahoo Finance ONEOK, Inc. (NYSE:OKE) Q1 2024 Earnings Call Transcript
ONEOK, Inc. (NYSE:OKE) Q1 2024 Earnings Call Transcript May 1, 2024
ONEOK, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the ONEOK First Quarter 2024 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Andrew Ziola, Vice President of Investor Relations. Please go ahead.
Andrew Ziola: Thank you, Megan and welcome to ONEOK’s first quarter 2024 earnings call. We issued our earnings release and presentation after the markets closed yesterday and those materials are on our website. After our prepared remarks, management will be available to take your questions. Statements made during this call that might include ONEOK’s expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provision of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. [Operator Instructions] With that, I’ll turn the call over to Pierce Norton, President and Chief Executive Officer. Pierce?
Pierce Norton: Thanks, Andrew. Good morning, everyone, and thank you for joining us. On today’s call, is Walt Hulse, the Chief Financial Officer, Treasurer and Executive Vice President, Investor Relations and Corporate Development; and Sheridan Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing. Also available to answer your questions are Chuck Kelley, Senior Vice President of Natural Gas Pipelines; and Kevin Burdick, our Executive Vice President and Chief Enterprise Services Officer. Yesterday, we announced first quarter 2024 earnings and increased our full year 2024 financial guidance. Solid results during the first quarter were supported by higher year-over-year volumes in the Rocky Mountain region and contributions from the Refined Products and Crude segment.
The efforts of our employees were highlighted once again as we were able to effectively manage through the winter weather during the quarter. Heating degree days were actually higher than normal in January, but it was the temporary acute cold and excessive wind that caused a deviation from normal operations. Volumes have rebounded across our systems, and we are continuing to see volume trends higher, providing additional confidence in our expectations for the remainder of the year. Our increase to 2024 financial guidance was driven by two primary key factors: first, favorable industrial fundamentals across our systems, which is supply and demand that are contributing to volume growth and providing significant momentum for the remainder of 2024 and into 2025.
And second, the continued confidence in our ability to realize meaningful commercial and cost synergies. We remain focused on the integration efforts following the acquisition of Magellan last year our management team has spent the past several months meeting with employees and visiting assets across all of our operations. Our employees see the value of our combined businesses and are excited about the opportunities ahead. Through collaboration between business segments and the innovation of our employees, we are on pace to exceed our 2024 synergy goals, while most importantly, putting safety first. We also see growth across our systems from producer productivity, favorable commodity prices and continued demand for our products and services or as we previously mentioned favorable industrial fundamentals.
One potential significant source of future natural gas demand is expected to increase in power generation required to serve AI-driven data centers. ONEOK like other natural gas pipeline operators will play a role. We have already had conversations with several of our large electric power generation customers and power developers, who anticipate the need for additional natural gas transportation to address this future AI data center-related power demand. As the need for future power generation increases, domestic natural gas demand is projected to increase. This is going to affect the entire midstream value chain, and ONEOK is positioned to play a meaningful role. Today, we serve numerous natural gas-fired power plants across our system, and many of those customers are looking to expand, some related to AI and others to address general power demand.
We also continue to see supportive demand and fundamentals for the NGLs and refined products across our system. Ethane remains a highly preferred feedstock for the petrochemical facilities, NGL export strengths continue and a seasonal refined product demand for travel and agriculture is picking up. We remain focused on expanding and extending our systems in ways that align with our customers and the market’s needs. ONEOK now larger in scale will continue to support our efforts to help address domestic and international energy demand contribute to the energy security of our nation and maintain our critical role in the long-term energy transformation. With that, I’ll turn the call over to Walt.
Walt Hulse: Thank you, Pierce. As Pierce mentioned, we increased our 2024 financial guidance expectations. We increased our 2024 net income midpoint to $2.88 billion and increased our adjusted EBITDA midpoint by $75 million to $6.175 billion. This new guidance also brings up the low end of our original range, reflecting the strong fundamentals across our businesses. We remain confident in our synergy expectations. Our updated guidance still assumes we will meet or exceed our midpoint of 1.7 – sorry, $175 million in cost and commercial synergies in 2024. We continue to expect that additional annual synergies will meet or exceed $125 million in 2025. Additionally, our total 2024 capital expenditure guidance remains unchanged at $1.75 billion to $1.95 billion.
Now for a brief overview of our first quarter financial performance. ONEOK’s first quarter 2024 net income totaled $639 million or $1.09 per share, and adjusted EBITDA for the period totaled $1.44 billion. Results were driven primarily by higher NGL and natural gas processing volumes in the Rocky Mountain region increased transportation services in the natural gas pipeline segment and contributions from the refined products and crude segment. We saw higher consolidated operating costs in the quarter primarily related to the timing of planned maintenance turnarounds, higher property insurance premiums and operational growth. Of note, this was the first quarter the refined products and crude segment was allocated its full share of corporate costs.
Therefore, compared with the fourth quarter 2023, we saw an increase in operating costs for that segment and a decrease in operating costs for the other business segments as they received a lower allocation of corporate costs. As of March 31, we had no borrowings outstanding under our $2.5 billion credit agreement and our run rate net debt-to-EBITDA ratio was 3.8x. As it relates to capital allocation, we remain focused on delivering long-term value for our stakeholders through a balanced combination of high-return capital projects, dividend growth, debt reduction and share repurchases. As previously discussed, we continue to see share repurchases as an important part of our capital allocation strategy and remain committed to utilizing our $2 billion share repurchase program over the next 4 years.
We have significantly delevered our business in recent years, while still completing high-return capital growth projects and successfully closing a transformational acquisition. We are well positioned to continue returning value to Investors through a strategic and balanced capital allocation approach. I’ll now turn the call over to Sheridan for a commercial update.
Sheridan Swords: Thank you, Walt. Beginning with the Natural Gas Liquids segment. First quarter NGL volumes increased 12% in the Rocky Mountain region year-over-year, including the effect of the mid-January winter weather. Volumes fully recovered in February and have it continued to accelerate. April volumes averaged more than 400,000 barrels a day from the region, driven by record propane plus volumes on our system and modest ethane recovery levels. The Elk Creek pipeline expansion remains on track for an early first quarter 2025 completion increasing ONEOK’s total NGL capacity from the basin to 575,000 barrels per day, enabling continued volume growth and provided needed NGL takeaway capacity. Mid-Continent region NGL volumes reflect the effects of first quarter winter weather in a full quarter without the low-margin volumes from the contract expiring in November of 2023.
We expect to continue replacing the expired contracts volume with barrels at market-based rates ramping through 2024. Wide gas to crude ratios remain making ethane the most preferred feedstock of the petrochemical industry, and ethane exports remain highly utilized. These dynamics could provide tailwinds for ethane recovery throughout the remainder of the year. Our current guidance includes modest incentivized ethane recovery in the Rocky Mountain region. Moving on to the Refined Products and Crude segment. We continue to see healthy business fundamentals and consistent performance. First quarter refined product volumes increased compared to the first quarter of 2023. From a liquids blending perspective, volume and margins were in line with our expectations for the quarter.
With gasoline and diesel demand typically lower in the first quarter, we expect volumes to ramp in the coming months as we see a pull from agriculture activity and summer driving demand. Refined product volumes will also benefit from our pipeline expansion to El Paso, which is now fully complete. The majority of the 30,000 barrels per day expansion is contracted under firm long-term agreements. Moving on to the Natural Gas Gathering and Processing segment. Rocky Mountain region processing volumes increased 9% year-over-year, including the effect of winter weather during the quarter. By the end of January, volumes had recovered to levels achieved prior to the extreme cold. Since then, our process volumes have continued to increase, averaging nearly 1.6 Bcf per day in April.
There are currently 38 rigs in the Williston Basin with 20 on our dedicated acreage. We expect additional rigs to return as we are now into spring and for the trend of drilling longer laterals to continue. Stable rig activity and longer laterals coupled with continued strength in our gas-to-oil ratios and additional producer efficiencies provide a compelling backdrop for significant Rocky Mountain region volume growth in 2024. In the Mid-Continent region, we were currently seeing more than 40 rigs in Oklahoma with 6 operating on our acreage. With current gas prices we expect producers to continue concentrating activity in the oilier and NGL-rich areas in the region. In the Natural Gas Pipelines segment, we benefited from higher equity natural gas sales and increased firm and interruptible transportation in the first quarter.
Natural gas storage continues to be in high demand. Our current expansion projects, including reactivating 3 Bcf of previously idled storage in Texas and further expanding our injection capabilities in Oklahoma, enabling us to market an additional 4 Bcf of working capacity. The Texas project will be fully in service in the third quarter of 2024, and the Oklahoma expansion will be completed in the second quarter of 2025. Both projects have firm contracts extending beyond 2030. Pierce that concludes my remarks.
Pierce Norton: Thank you, Walt and Sheridan. As you have heard, strength across our businesses is indicating a solid 24% and already providing momentum into 2025. Before we take questions, I want to once again acknowledge our employees for your continued dedication and exceptional performance in the first quarter. Specifically, I’d like to recognize those of you who responded to the winter weather across our operations in January and our employees in Texas and Oklahoma, who were personally affected or helped, respond to the Texas Panhandle Smokehouse Creek fire in late February and early March. Our focus on reliable and responsible operations and on supporting our communities is particularly highlighted during the events like these.
I’m proud to work with individuals and teams who demonstrate a service mentality by being ready and willing to rise to the challenge. We’re looking forward to the rest of 2024 and beyond. And with that, operator, we are now ready for questions.
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