ONEOK Inc. is currently pursuing shorter-term synergies created by its recent acquisition of Magellan Midstream Partners, but still considers the construction of an LPG export terminal in the US Gulf Coast region as a high priority.
The Tulsa-based midstream firm is looking at near-term opportunities to create efficiencies in its newly merged operations with Magellan but says it has enough volume at its disposal to support the construction of a new dock.
“The export dock isn’t further down the list,” Sheridan Swords, ONEOK’s vice president of commercial liquids and gathering and NGL refined products, said during the company’s earnings call on Wednesday. “We still have conversations on it, but it’s a much longer-term project versus others in the synergy category.”
By contrast, shorter-term opportunities such as batching, blending, bundling and storage optimization would provide potential upside in the next one to four years.
The company sees the recently announced mergers of ExxonMobil with Pioneer Natural Resources and Chevron Corp. with Hess Corp.–companies that ONEOK does business with–as opportunities for the bundling of Permian Basin fields, Pierce Norton, president and CEO, said during the company’s earnings call.
The Magellan acquisition, which closed on Sept. 25, offers the company greater prospects to export crude, refined products, LPG and propane, officials said.
“What Magellan brings is expertise to operate and build docks and understanding of market dynamics for docks,” Norton said. With global demand expected to grow for numerous crude- and gas-derived products, the company is willing to work with customers interested in dock space.
In other developments, the company’s $520 million expansion of the remaining loop of the West Texas NGL pipeline to connect with ONEOK’s Arbuckle pipeline will increase capacity out of the Permian Basin to 740,000 b/d from its current rate of 430,000 b/d. Expected to start operations in the first quarter of 2025, the expanded pipeline will give ONEOK the option to use its legacy system for NGL, refined products or crude oil transportation service, Swords told analysts on the call.
The company has not faced challenges in contracting NGLs on the pipeline with buying or building a new plant but will consider these options if it makes sense.
ONEOK’s contracting success in the Permian Basin is driving this project, officials said. Since 2018, the company has added seven new third-party processing plant connections and two existing plant expansions. The company has long-term contracts in place for its nine Permian Basin plants, and anticipates very favorable returns, Swords said.
ONEOK also expects a final investment decision by year-end on its proposed Saguaro Connector Pipeline. The natural gas pipeline would originate at the Waha Hub, then run west to connect at the U.S.-Mexico border to a pipeline under development in Mexico for planned delivery to an export facility on Mexico’s west coast. The 155-mile, 48-inch diameter Saguaro pipeline would have an ultimate designed capacity for 2.8 billion cubic feet per day of natural gas.
The company recorded stronger net income for third quarter 2023 thanks to higher NGL volumes across its system, higher natural gas processing volumes in the Rocky Mountain and Midcontinent regions, and higher transportation and storage services in its natural gas pipelines segment.
ONEOK reported a 5% increase in net income to $454 million for the third quarter of this year from the second quarter, and an 11% increase in adjusted EBITDA to $1.001 billion.
The company also boosted its 2023 net income and adjusted EBITDA guidance midpoints by $120 million and $125 million respectively. During the third quarter, ONEOK saw its raw feed NGLs volumes rise by 18% in the Gulf Coast/Permian Basin region and by 6% in its Rocky Mountain region.
The Magellan acquisition added significant cash flow to ONEOK’s operations, mainly through fee-based earnings from the new refined products and crude businesses and expected tax synergies and sets up a solid foundation for ONEOK’s 2024 performance, Norton said in an Oct. 31 press release.
ONEOK anticipates that higher average transportation rates and strong butane blending margins will contribute to the company’s performance for the remainder of this year.
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–Reporting by Karen Boman, [email protected]; Editing by Jessica Marron, [email protected]
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