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

Seeking Alpha: Oneok Partners Still Looking At Significant Growth Opportunities

Growth capex is one of the major trends in the energy MLP space, and ONEOK Partners, L.P. (OKS) is no exception. Already a top player in gas gathering and processing and NGL fractionation in the Mid-Continent and Rockies, ONEOK still has over $2.5 billion of growth projects on the docket as well as up to $4 billion in unannounced projects - much of which will go towards gathering and processing the growing output of the Williston and Powder River basins.

ONEOK Partners offers good distribution coverage and double-digit cash flow growth potential, though actual distribution growth is likely to be more in the mid-to-high single digits as the general partner ONEOK Inc (OKE) takes a sizable cut and the partnership issues additional units to fund its growth targets. ONEOK Partners still offers some upside in a somewhat expensive MLP space, but it's no longer notably cheap.

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Oneok Partners Still Looking At Significant Growth Opportunities

Seeking Alpha: Amidst Rate And Commodity Worries, Oneok Partners Looks Interesting

Master limited partnerships (MLPs) aren't like most stocks. You don't generally buy these stock (technically, units) for multi-bagger appreciation potential, but rather for meaningful distributions (dividends) that also typically come with significant tax advantages. While I don't suggest that ONEOK Partners, L.P. (OKS) is one of those aforementioned multi-baggers, I do believe the shares are at least 20% undervalued today. What's more, the company's sizable natural gas and natural gas liquids capacity is tough to match, and multiple ongoing growth projects should lead to greater distributions down the road.

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Amidst Rate And Commodity Worries, Oneok Partners Looks Interesting

Investopedia: Should November's Rail Data Encourage Investors?

In many respects, November's rail carload data (as reported by the Association of American Railroads (AAR) in its monthly Rail Time Indicators report) is more of the same, only more so. United States railroads continue to see an ongoing erosion of coal business, but underlying industrial demand continues to be relatively positive. Although a host of U.S. industrial companies continue to express caution about demand for the first half of 2013, carload traffic suggests that there may not be as much downside risk as feared.

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Investopedia: ONEOK Backs Off The Bakken

A strange thing has happened in the ongoing development of the Bakken oil producing region of the United States. While more than a few writers and analysts have talked about producers in the Bakken region suffering from too little takeaway capacity, a large pipeline operator has canceled plans to build a pipeline that would have carried crude from the Bakken region down to the Cushing, Oklahoma hub. 

No Thanks, We're Fine

ONEOK Partners (NYSE:OKS) had planned to build the Bakken Crude Express Pipeline to connect multiple points in the Williston Basin (part of the Bakken formation) in Montana and North Dakota, a top oil producing state, to Cushing. The pipeline would have been about 1,300 miles long, carried about 200,000 barrels per day and covered much of the same territory as the Bakken NGL Pipeline project that is underway at a cost of around $1.7 billion.

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http://www.investopedia.com/stock-analysis/2012/ONEOK-Backs-Off-The-Bakken-OKS-ENB-UNP-HES1130.aspx

Investopedia: Growth And Quailty Don't Come Cheap At Oneok Partners

As one of the lower-yielding master limited partnerships (MLPs) (on a relative basis), investors may just pass over Oneok Partners (NYSE:OKS) in favor of other partnerships with more impressive yields. That could be a mistake. While Oneok Partners carries a higher premium than most of its comparables, it also has one of the best systems, growth profiles and stories in its group. While paying up for a company like this has its risks, growth seldom comes cheap in this space.

A Premier System
Oneok Partners is an MLP that engages in the business of gathering, transporting, fractionating, and processing of natural gas and natural gas liquids. Oneok Partners' system connects robust supply from the Mid-Continent and Rockies (and soon the Bakken as well) to key markets centers. Not only does Oneok Partners' system handle about one-fifth of the gas that the U.S. imports from Canada, but it also supplies major petrochemical companies like Dow (NYSE:DOW) and Exxon Mobil (NYSE:XOM). (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)

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http://stocks.investopedia.com/stock-analysis/2012/Growth-And-Quality-Dont-Come-Cheap-At-Oneok-Partners-OKS-OKE-DOW-XOM0320.aspx