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Bad News Bakken Bears

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The Daley Note: September 8, 2022

ONEOK’s (OKE) stock price jumped roughly 4% the day after its 2Q22 earnings release, and the unit price was up 7% as of Monday’s (Aug. 22) close ($63.50). Before the earnings announcement on August 8, the stock had struggled to maintain gains it made earlier in the year.

OKE’s pre-earnings release struggles are likely due to investors’ bearish sentiment surrounding the April freezing events in the Bakken, macro events, and the fire at the Medford, OK fractionator. The subsequent price spike could signal market participants’ realization that the freezing events had a less significant impact on OKE’s volumes than originally feared. East Daley subscribers however were well informed on the overall volume impacts of the freezing events, as well as possible impacts created by the Medford fire.Picture11

We highlighted the outlook for OKE during our 2Q22 Earnings Preview webinar discussion on July 26. Please reach out to sales@eastdaley.com to access a recording of that webinar or to request more information on our Earnings Previews & Reviews.

2Q20 was the last time Williston volumes were significantly disrupted, when producers shut-in wells in response to the pandemic and crashing commodity prices. The event was a major drag on OKE’s performance. OKE reported 2Q20 Adj. EBITDA of $534 million, a $167 million (24%) Y-o-Y decline from 1Q20, and significantly below consensus estimates at the time. Because of this past performance, investors were likely risk averse following the 2Q22 freezing events.

However, East Daley tracks processing plant meter points on interstate pipelines that provide insight into overall inlets. This data found that samples were only down by 4-5% Q-o-Q. OKE reported 2Q22 G&P volumes in the Rockies that roughly matched our forecasts; gathering and processing volumes in the Rockies were both reported within 0.2% of our 2Q estimates.

Regarding the Medford plant outage, OKE management also confirmed our hypothesis that NGLs would simply be rerouted from Medford to Mont Belvieu via the Arbuckle I & II pipelines. OKE will lose fractionation barrels, but will ultimately still be able to use its long-haul NGL transport pipelines.

This analysis was first published for subscribers in our weekly Data Insights on Friday, August 19. Please log in to access the full Data Insights report or contact sales@eastdaley.com for subscription information.

These factors, paired with FERC rate escalations for Mid-Con and the Bakken pipelines and increasing producer activity, should help boost OKE’s 2022 and 2023 EBITDA outlook. 

Williams Haynesville System Poised to Grow

Williams (WMB) now operates one of the largest gathering systems in the Haynesville after it combined the Springridge and Mansfields gathering systems acquired from Access Midstream in 2015. The system can gather ~1.8 Bcf/d, and WMB plans to expand its gathering capacity to 2.7 Bcf/d by 3Q23.

Chesapeake Energy (CHK) is the largest shipper on the WMB system. CHK has stated it has about 1.4 Bcf/d of (net) firm gathering commitments in the Haynesville currently, with those commitments set to increase to more than 2.0 Bcf/d by 2024, suggesting CHK is likely supporting WMB’s gathering expansion through minimum volume commitments.

East Daley estimates between 7-8 rigs were active on the WMB - Haynesville gathering system recently. If 8 rigs continue to drill in the next few years, the WMB system would remain full through 2024, which could possibly lead to additional expansions in 2024-2025 to support LNG export growth.

East Daley's Energy Data Studio is the new home for our industry-leading midstream data. Users now can access historical and updated Midstream Activity Tracker rig data on our Energy Data Studio platform, providing unmatched data functionality and visuals for easy analytics. Subscribers can log in to their existing account or request access to Energy Data Studio. 

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Subscribe to The Daley Note (TDN)“midstream insights delivered daily,” covers news, commodity prices, security prices, and EDA research likely to affect markets in the short term.  

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