ONEOK Inc. (OKE): A Leading Midstream Player Delivering Energy Vital to an Advancing World

Published on March 15, 2025 | Ticker: OKE

ONEOK Inc. (OKE) is a premier midstream service provider, delivering energy products and services that are vital to an advancing world. The company has transformed itself in recent years, significantly expanding its integrated operations, geographic diversity, and scale to solidify its position as a dominant player in the energy infrastructure space.

Intentional and Disciplined Growth Strategy

ONEOK's journey began in 1906 as a small natural gas utility serving the Tulsa, Oklahoma area. Over the following decades, the company gradually expanded its natural gas gathering, processing, transportation, and storage operations across the central United States. A significant milestone occurred in 1980 when ONEOK entered the natural gas liquids (NGL) business through the acquisition of Lear Petroleum, allowing it to diversify beyond just natural gas and into the processing and fractionation of NGLs. The company continued to grow its NGL business through additional acquisitions and expansions of its pipeline and fractionation infrastructure in the following years.

In 2007, ONEOK made a strategic decision to spin off its regulated natural gas distribution business into a separate public company called ONE Gas, enabling it to focus solely on its midstream energy operations. This move set the stage for ONEOK's continued expansion and growth in the midstream sector. Over the past two years, ONEOK has executed on an intentional and disciplined growth strategy, completing several transformative acquisitions that have reshaped the company. In 2023, the company acquired Magellan Midstream Partners in a cash-and-stock transaction, significantly bolstering its refined products and crude oil transportation and storage capabilities. This was followed by the 2024 acquisitions of EnLink Midstream and Medallion Midstream, which further expanded ONEOK's natural gas gathering and processing operations, as well as its crude oil gathering infrastructure in the prolific Permian Basin.

These strategic moves have meaningfully increased ONEOK's scale, diversified its product and service offerings, and enhanced its connectivity to key supply basins and demand centers across its now approximately 60,000-mile pipeline network. The company's expanded footprint has strengthened its resilience and positioned it to thrive across various market cycles. Throughout its history, ONEOK has faced challenges common to the midstream energy industry, such as fluctuating commodity prices, changes in regulations, and competition from other pipeline and processing companies. However, the company has demonstrated resilience by diversifying its asset base, controlling costs, and maintaining a strong financial position.

Financials

Robust Financial Performance and Outlook

ONEOK's financial performance has been equally impressive, with the company reporting strong results in 2024. For the full year, the company generated net income of $3.11 billion, or $5.17 per diluted share, on revenues of $21.7 billion. Adjusted EBITDA, a key profitability metric, reached over $6.7 billion, up substantially from the $3.62 billion reported in 2022. Operating cash flow for 2024 was $4.89 billion, while free cash flow reached $2.87 billion.

In the fourth quarter of 2024, ONEOK reported revenue of $7 billion and net income of $923 million, representing year-over-year increases of 33.7% and 33.1%, respectively. These significant improvements were primarily driven by the full-year impact of the Magellan Acquisition in 2023, as well as contributions from the EnLink Controlling Interest Acquisition and Medallion Acquisition completed in 2024.

Looking ahead, ONEOK's 2025 financial guidance points to continued robust growth. The company expects an 8% increase in earnings per share to a midpoint of $5.37, excluding one-time items, and a 21% increase in adjusted EBITDA to $8.225 billion, excluding approximately $50 million in transaction costs. This growth is underpinned by the full-year contribution from recent acquisitions, volume increases, and the realization of additional synergies. ONEOK expects to realize approximately $250 million of incremental commercial and cost synergies related to their acquisitions in 2025, in addition to what they've already realized through 2024.

Moreover, ONEOK's 2026 outlook is equally promising, with the company projecting greater than 15% earnings per share growth and adjusted EBITDA growth approaching 10% compared to the 2025 guidance midpoint. This momentum is expected to be driven by the continued ramp-up of recently completed projects, such as the Elk Creek and West Texas NGL pipeline expansions, as well as the completion of synergy initiatives and a full year of earnings from completed projects.

Liquidity

Strong Financial Position and Shareholder-Friendly Capital Allocation

ONEOK maintains a solid financial position with a debt-to-equity ratio of 1.88 as of December 31, 2024. The company had $733 million in cash on hand and access to a $2.5 billion credit agreement, of which there were no outstanding borrowings at year-end. ONEOK's current ratio stood at 0.90, while its quick ratio was 0.74, indicating a reasonable level of short-term liquidity.

The company has also demonstrated a strong commitment to returning capital to shareholders. In 2024, ONEOK returned nearly $2.5 billion through dividends and share repurchases, including $172 million in the fourth quarter. The company's Board of Directors recently approved a $2 billion share repurchase program, underscoring management's confidence in the business and its ability to generate significant cash flow.

Furthermore, ONEOK has a long history of dividend growth, having paid increases for 11 consecutive years. In January 2025, the company raised its quarterly dividend by 4% to $1.03 per share, or $4.12 on an annualized basis, reflecting its strong financial position and the expected continuation of its earnings growth trajectory.

Business Overview

A Diversified Midstream Portfolio

ONEOK's business operations are organized into four reportable segments: Natural Gas Gathering and Processing, Natural Gas Liquids, Natural Gas Pipelines, and Refined Products and Crude.

The Natural Gas Gathering and Processing segment gathers, treats, processes, and markets natural gas across the Rocky Mountain region, the Mid-Continent region, the Permian Basin region, and the North Texas region. In 2024, this segment's adjusted EBITDA was $1.48 billion.

The Natural Gas Liquids segment gathers, transports, fractionates, and markets NGLs, generating $2.54 billion in adjusted EBITDA during 2024.

The Natural Gas Pipelines segment provides transportation and storage services for residue natural gas, reporting $900 million in adjusted EBITDA for 2024.

The Refined Products and Crude segment, which includes crude oil gathering activities from recent acquisitions, focuses on the transportation, storage, and distribution of refined products and crude oil. This segment contributed $1.89 billion to ONEOK's adjusted EBITDA in 2024.

Across all four segments, ONEOK's consolidated adjusted EBITDA for 2024 was $6.82 billion. The company's earnings are primarily fee-based, with approximately 90% of consolidated earnings coming from fee-based sources, providing stable and predictable cash flows.

Industry Trends and Outlook

The midstream industry has experienced a compound annual growth rate (CAGR) of approximately 5-7% over the past five years, driven by increased production and demand for natural gas, NGLs, and crude oil. ONEOK is well-positioned to capitalize on these trends with its extensive pipeline network across key supply areas and demand centers in the United States.

Looking forward, ONEOK's 2025 capital expenditure guidance ranges from $2.8 billion to $3.2 billion, including growth and maintenance capital. This investment in infrastructure and expansion projects is expected to support the company's continued growth and market leadership in the midstream sector.

Conclusion

ONEOK's transformation over the past two years has solidified its position as a leading midstream player in the energy infrastructure space. The company's intentional and disciplined growth strategy, robust financial performance, and shareholder-friendly capital allocation have positioned it well to continue delivering energy products and services vital to an advancing world. With a promising outlook, strong execution track record, and a diversified portfolio of assets, ONEOK remains an attractive investment proposition for investors seeking exposure to the dynamic midstream energy sector.

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