ONEOK Gains From Fee-Based Earnings and Strategic Investments

ONEOK Inc. OKE continues to benefit from increased fee-based earnings and capital expenditures. Its expansion efforts and pipeline additions are intended to strengthen its position in high-production regions and boost its performance.

However, this Zacks Rank #3 (Hold) company is exposed to risks like strong competition in its pipeline business.

Positive Drivers for OKE

ONEOK is poised to gain from long-term fee-based commitments across all three of its segments — Natural Gas Gathering and Processing, Natural Gas Liquids, Natural Gas Pipelines and Refined Products and Crude. More than 88% of its 2024 earnings were fee-based. Over 90% of the company's 2025 revenues is expected to be derived from fees. Over the past five years, the annual growth rate for natural gas liquid volumes from the Rocky Mountain region was more than 20%, while that for natural gas processing volumes was 10%.

ONEOK is continuing to invest in organic-growth projects to expand into existing operating regions and offer a wide variety of services to crude-oil and natural-gas producers. According to the company, capital expenditures in 2025 are expected to range between $2.8 billion and $3.2 billion.

In February 2025, ONEOK and MPLX LP inked definitive agreements to form joint ventures to construct a new large-scale 400,000 barrel-per-day liquefied petroleum gas export terminal in Texas City, as well as a new 24-inch pipeline connecting ONEOK's Mont Belvieu, TX, storage facility to the new terminal. To accommodate the rising demand in the area, ONEOK is looking into extending its storage assets in Texas.

Headwinds for OKE

ONEOK does not own all of the land on which its pipelines are located. The company runs the risk of incurring higher costs related to the necessary land usage. If the company fails to renew current land rights and obtain new rights to lay down pipelines, it will have an impact on the company's operations and profitability.

The natural gas and natural gas liquid pipeline industries are projected to stay extremely competitive. Aside from established pipeline companies, this midstream area has recently seen many energy companies forming master limited partnerships to launch pipeline services. The partnership's assets are well spread out but its capacity to resist competitive pressures will be determined by the efficiency, quality and dependability of the services it offers.

OKE Stock Price Movement

In the past year, OKE shares have risen 6.1% compared with the industry’s growth of 14.1%.

Stocks to Consider

Some better-ranked stocks from the same sector are Energy Transfer ET, RGC Resources, Inc. RGCO and Oceaneering International OII, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Energy Transfer's long-term (three to five years) earnings growth rate is 21.4%. The Zacks Consensus Estimate for 2025 earnings per unit is pegged at $1.44, which indicates a year-over-year rally of 12.5%.

RGCO delivered an average earnings surprise of 34.85% in the last four quarters. The Zacks Consensus Estimate for fiscal 2025 earnings per share is pinned at $1.25, which indicates a year-over-year rise of 7.8%.

The Zacks Consensus Estimate for OII 2025 sales is pinned at $2.74 billion, which indicates a year-over-year rally of 3.1%. The Zacks Consensus Estimate for 2025 earnings per share is pegged at $1.79, which indicates year-over-year growth of 57%.

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This article originally published on Zacks Investment Research (zacks.com).

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