ONEOK, Inc. (OKE)

NtscrbEnergy (93.10) Submitted: 6/7/2007 12:55:26 AM : Start Price: $46.29 OKE Score: +10.35

Good times ahead for ONEOK, as its organic and inorganic growth strategy showed signs of paying-off. The company purchased the remaining general partner stake of Oneok Partners LP and sold its midstream natural gas assets to the partnership, thus leveraging claim on the master limited partnership’s future distributions. Further, the company has announced four new organic growth projects, which includes two new pipeline construction projects at Arbuckle and Piceance Basin and two facility expansion projects at Powder River basin and Grasslands. These projects are expected to be in service from the year 2008-2009 would help in revenues expansion.

The US natural gas consumption in the first quarter of 2007 increased 10% Y/Y on account of colder weather conditions, while the total consumption of natural gas is expected to rise by 3.4% in 2007 and by 0.9% in 2008. However, production of natural gas mostly from the onshore region of the lower-48 States grew by just 1.3% Y/Y for the first quarter of 2007. On an annual basis, production of total dry natural gas is projected to increase 0.9% in 2007 and 1.4% in 2008. The higher and continued demand of natural gas will help ONEOK to generate stable revenues streams, as US accounts for most of the inflows.

For the first quarter of 2007, ONEOK reported 18.1% Y/Y increase in net income to $152.9 million or $1.36 per diluted share, resulting from improved results from distribution, energy services and ONEOK Partners. The company has provided earnings guidance to be in the range of $2.35 to $2.75 per diluted share for 2007 and to be primarily driven by ONEOK Partners that will provides the company with a strong platform for future growth. With positive industry synergies, organic growth projects and higher expected earnings from partnership business, ONEOK represents a good investment opportunity.