In response to lower commodity prices coupled with a slowdown in drilling and an anticipated corresponding reduction in natural gas growth, Oneok Partners is mothballing three major projects it has in the works, one of which is the Tulsa-based midstream’s 200 million cubic feet per day Demicks Lake gas processing plant south of Watford City in McKenzie County, North Dakota.
The other two growth projects Oneok Partners is putting on hold are gas processing plants in the Powder River Basin of Wyoming and the South Central Oklahoma Oil Province in Oklahoma.
“Our track record of disciplined growth continues and we are adjusting capital spending to reflect our customers’ needs and their reduced volume growth expectation,” Chief Executive Officer Terry Spencer said in a Feb. 24 conference call with industry analysts. “We expect no more spending on these capital growth projects until market conditions improve, and when they do, we will quickly reestablish completion dates.” All three projects were originally scheduled for completion by the end of 2016.
With those three projects on hold, Oneok Partners 2015 capital expenditures have been revised from a previous guidance range of $2.6 billion to $3 billion down to a range of $1 billion to $1.4 billion.
Since 2010, Oneok has invested more than $4 billion in midstream infrastructure in the Williston Basin.
Williston Basin capacity
Even without the 200 mmcf per day capacity the Demicks Lake plant would provide, Oneok still has more than 600 mmcf of processing capacity in the Williston Basin with 200 mmcf of additional capacity that will come online when the Lonesome Creek plant is completed at the end of the year “that will be able to handle the continued drilling and completions that are being worked in the first half of ’15 and will give us headroom for growth on into ’16 as well,” said Kevin Burdick, Oneok’s vice president for natural gas gathering and processing.
In addition, Oneok is increasing field compression to take advantage of increased processing capacity at its three Garden Creek and two Stateline plants. Along with Lonesome Creek, that additional processing capacity is expected to come online by the end of 2015. “This additional 300 million cubic feet per day in processing capacity is expected to help meet the flaring targets of 23 percent by January 2015 and 15 percent by January 1, 2016,” Spencer said.
Citing December North Dakota production data, Spencer said the state was flaring approximately 360 mmcf per day. With an estimated 750 wells awaiting completion in the state, he said Oneok expects the company’s 2015 natural gas gathering volumes in the Williston Basin to increase 39 percent over 2014. That estimate, Spencer said, is only 3 percent below the company’s previous projections.
Revised EBIDTA guidance
In addition to putting three growth projects on hold, Oneok has also lowered its 2015 financial guidance as a result of lower commodity prices. In November, the company originally set 2015 earnings guidance - adjusted earnings before interest, taxes, depreciation and amortization or EBIDTA - from $1.77 billion to $1.99 billion.
“Since then, natural gas liquids prices are lower by nearly 40 percent, natural gas is down 13 percent, and crude oil is down nearly 38 percent,” Spencer said. “This reduced commodity price environment has significantly impacted our producer customers’ 2015 capital expenditure programs and has created less clarity into 2016 and beyond.”
Consequently, Oneok Partners has revised its 2015 adjusted EBITDA downward to $1.51 billion to $1.73 billion based on anticipated composite natural gas liquids price of 54 cents per gallon, a natural gas price of $3.50 per million British thermal units, and a West Texas Intermediate crude oil price of $50 per barrel.
