Company Information

ONEOK, Inc. is an energy midstream service provider in the United States. The Company owns and operates natural gas liquids (NGL) systems, and is engaged in the gathering, processing, storage and transportation of natural gas. THe Company's operations include a 38,000-mile integrated network of NGL and natural gas pipelines, processing plants, fractionators and storage facilities in the Mid-Continent, Williston, Permian and Rocky Mountain regions.

Executive Summary

Investment Thesis: 

Re-opening of the US economy will lead to higher demand for crude oil, rising the prices of the commodity and thus production. It is expected that natural gas will benefit from this as the production is of natural gas is correlated with crude oil production and demand. ONEOK shares, currently at $49.57, are still about 35% lower than it’s $77.06 per share price pre-Covid. With many stocks already surpassing their pre-Covid prices, ONEOK is well-positioned to catch up to its peers.

Investment Merits: 

Future Demand for oil: Natural gas prices are correlated with crude oil demand. Due to vaccine rollout, it is expected that travel will increase soon, causing a spike for crude oil. With an increase demand for crude oil, ONEOK is expected to benefit as it will be able to ramp up production.

Vertical Integration and acquisitions: ONEOK has a vertical integration where it has a network of natural gas gathering, processing, storage and transportation assets. Therefore, it has the numerous end points where it can build out its ecosystem to deliver natural gas, continue to grow, and operate more efficiently.

Dividend yield: ONEOK has a strong history of consistently paying dividends to shareholders. In 2020, it paid out $1.6B in dividends to shareholders, the most it has ever returned. Its strong EBITDA and continued growth, even during the COVID-19 pandemic, leads to the belief that shareholders can continue to expect returns in the form of dividends. In 2020, ONEOK yielded above the 13% marked based on its quarterly dividend.

Investment Risks: 

Increased Regulation: The Biden Administration has and continues to plan increased regulation to combat climate change. New regulation (e.g. The Clean Air Act and the Clean Water Act) raise restrictions on ONEOK, possibly leading to increased capital expenditures on air pollution-control equipment, increased difficulty in obtaining permits and approval for new sources to draw from, and higher cost on removal of pollutants discharged into bodies of water.

Litigation: Production growth may be negatively impacted by the litigation challenging the validity of an easement for the Dakota Access Pipeline (DAPL), which is used to transport crude oil from the Williston Basin to markets in the Mid-Continent region and Gulf Coast. If DAPL operations are suspended, production growth could be limited due to increased crude oil transportation costs and pipeline capacity constraints in the region, which could impact ONEOK due to the associated natural gas and NGLs

Reccomendation:

Buy at $35, 15 shares