Seeking Alpha: ONEOK Partners Looks Undervalued, But There Are Reasons Why

A lot of things have gone wrong with ONEOK Partners, LP (NYSE:OKS), but not all of them are management's fault. Constructing a business model with meaningful commodity price risk was a choice (or gamble, depending upon your point of view) that looked better when NGL prices were stronger, but few were calling for the sharp decline in energy prices that occurred over the past year. A bigger concern now is whether ONEOK (NYSE:OKE) will offer any relief to the high incentive distribution rights that are depleting cash flow and distribution coverage, particularly as ONEOK Partners will almost certainly need to issue more units to fund its growth projects.

ONEOK Partners is basically a leveraged bet on natural gas, with a particular focus on the Williston Basin (the Bakken) and NGL prices. A sharp turnaround in gas prices and drilling activity in the Bakken would help ONEOK Partners more than most, but then there is the real risk that this MLP's distribution growth will lag its peers due to low coverage today and the need to fund additional growth projects. It's a more speculative call within MLPs and as is the case with Enbridge Energy Partners (NYSE:EEP), there are reasons why the yield stands out on the high side.

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ONEOK Partners Looks Undervalued, But There Are Reasons Why