• 2024 Net Income Midpoint: Increased to $2.88 billion.

• Adjusted EBITDA Midpoint: Raised by $75 million to $6.175 billion.

• 2024 Capital Expenditure Guidance: Unchanged at $1.75 billion to $1.95 billion.

• Q1 2024 Net Income: $639 million.

• Q1 2024 Earnings Per Share: $1.09.

• Q1 2024 Adjusted EBITDA: $1.44 billion.

• Debt-to-EBITDA Ratio: Run rate at 3.8x as of March 31.

• Share Repurchase Program: Committed to $2 billion over the next 4 years.

• NGL Volumes: Increased 12% year-over-year in the Rocky Mountain region.

• Refined Product Volumes: Increased compared to Q1 2023.

• Natural Gas Processing Volumes: Increased 9% year-over-year in the Rocky Mountain region.

• Warning! GuruFocus has detected 7 Warning Signs with OKE.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ONEOK Inc (NYSE:OKE) reported strong first quarter 2024 earnings with increased full-year financial guidance.

• Higher year-over-year volumes in the Rocky Mountain region and contributions from the Refined Products and Crude segment drove solid results.

• Management highlighted successful integration efforts following the acquisition of Magellan, with synergy goals for 2024 on track to be exceeded.

• Continued demand for NGLs and refined products across the system, with favorable commodity prices supporting growth.

• Significant capital allocation towards high-return projects, dividend growth, debt reduction, and a $2 billion share repurchase program.

Negative Points

• ONEOK Inc (NYSE:OKE) experienced higher consolidated operating costs due to planned maintenance turnarounds and increased property insurance premiums.

• The temporary acute cold and excessive wind during the quarter caused deviations from normal operations, impacting volumes temporarily.

• The first quarter saw the Refined Products and Crude segment allocated its full share of corporate costs, increasing operating expenses for this segment.

• Potential challenges in fully realizing the projected benefits from AI-driven data center power demand increases due to infrastructure and market dynamics.

• Uncertainties in natural gas pipeline capacity expansion necessary to meet future power generation demands, which could involve significant investment.

Q & A Highlights

Q: Can you provide details on the guidance increase for 2024, particularly the components contributing to this uplift? A: Sheridan C. Swords, EVP of Commercial Liquids and Natural Gas Gathering & Processing, explained that the guidance increase is largely driven by strong volume recovery post-winter, particularly from the Bakken region. Additionally, the refined product segment is performing well, especially with the El Paso market expansion. Synergies from the company's integration efforts are also surpassing initial expectations, contributing further to the positive outlook for 2024.

Q: How do you see the potential impact of AI-driven data centers on natural gas demand, and are there specific geographic areas where this impact might be more pronounced? A: Pierce H. Norton, President and CEO, noted that the rise in AI-driven data centers could significantly increase electricity demand, with natural gas being a quick solution for additional power generation. Discussions are ongoing with utilities and other stakeholders to determine the infrastructure needs, which could be significant across various regions of ONEOK's operations.

Q: Regarding the synergy targets post-acquisition, are there new opportunities emerging that could potentially enhance these synergies beyond the initial projections? A: Sheridan C. Swords mentioned that as the team continues to integrate and optimize operations, they are identifying additional synergies across various business segments, including logistics savings and optimized storage. This ongoing discovery is increasing confidence in achieving and possibly exceeding the synergy targets.

Q: With major projects concluding in early 2025, how should we think about ONEOK's capital expenditure moving forward? A: Walter S. Hulse, CFO, suggested that post-2025, the capital expenditure is expected to trend downwards as the major projects conclude, leading to a more manageable and high-return opportunity environment. This aligns with the company's strategy of disciplined and high-return investments.

Q: Can you discuss the operational impact and strategic rationale behind the small Saddlehorn acquisition? A: Sheridan C. Swords highlighted that the acquisition was strategic, as ONEOK operates the pipeline and sees growth potential in the crude segment from that region. The acquisition aligns with the company's operational strengths and market growth expectations.

Q: What are the expectations around the impact of incentivized ethane recovery on NGL volumes and the associated financial performance? A: Sheridan C. Swords addressed that incentivized ethane recovery is a significant factor influencing NGL volumes. The pricing dynamics and demand for ethane, particularly from petrochemical facilities, are expected to support strong NGL volume throughput, positively impacting financial performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.