ONEOK Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
March 1, 2022

There are 19 speakers on the call.

Operator

Good day, and welcome to the 4th Quarter 2021 ONEOK Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Andrew Ziola, Vice President of Investor Relations and Corporate Affairs. Please go ahead, sir.

Speaker 1

Thank you, Jennifer, and welcome everyone to ONEOK's 4th quarter year end 2021 earnings call. We issued our earnings release and presentation That includes 2022 guidance after the markets closed yesterday and those materials are on our website. After our prepared remarks, we'll be available to take your questions. Statements made during this call that might include ONEOK's expectations or predictions should be considered forward looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 1934. Actual results Could differ materially from those projected in forward looking statements.

Speaker 1

For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. Just a reminder, before we turn it over to the conference coordinator for Q and A, we ask you that you limit yourself to one question and one follow-up in order to

Speaker 2

fit in as many of you as

Speaker 1

we can. With that, I'll turn the call over to Pierce Norton, President and Chief Executive Officer. Pierce?

Speaker 3

Thanks, Andrew, and good Good morning, everyone. We appreciate your interest and investment in ONEOK. Thank you for taking the time to join us. We've got a lot to cover today. With me on the call today is Walt Hulse, Chief Financial Officer and Executive Vice President, Strategy and Corporate Affairs And Kevin Burdick, Executive Vice President, Chief Operating Officer.

Speaker 3

Also available to answer your questions are Sheridan Swords, Senior Vice President, Natural Gas Liquids and Chuck Kelley, Senior Vice President of Natural Gas. Yesterday, we announced Strong Q4 and full year 2021 performance, recording our 8th consecutive year of adjusted EBITDA growth. That equates to a 13% annual growth rate during that 8 year period, highlighting the stable And resilient earnings power of our assets despite various economic and commodity cycles. In 2021, during a year of continued economic recovery and lingering pandemic related challenges, We grew adjusted EBITDA 24% compared with 2020, continued to strengthen our balance sheet And achieve record natural gas and NGL volumes on our Rocky Mountain region assets. 2021 provided And other milestones as well, including our announcement of a greenhouse gas emissions reduction target, receiving an upgraded AA ESG G rating from MSCI and once again receiving a perfect score in the latest Human Rights Campaign Corporate Equality Index.

Speaker 3

These are only a few of the many great things we're doing as a company to ensure ONEOK remains a great workplace, Community Partner and Service Provider. With yesterday's earnings announcement, we also provided 2022 financial And volume guidance expectations. We expect increasing producer activity and improving market demand to drive strong volume and earnings growth across our operations. As we've said before, we are well positioned financially and operationally In 2022 and for many years to come. Before I hand the call over to the team for more details on 2022, I'd like to reiterate what makes ONEOK so uniquely well positioned for the long

Speaker 4

term. First,

Speaker 3

our extensive And integrated assets, which are located in some of the most productive U. S. Shale basins. Our customers are well capitalized With decades of proven reserves and many have announced plans to sustain and grow production levels in 2022. In the Williston Basin in particular, steady crude oil production still means NGL and natural gas growth for ONEOK Due to rising gas to oil ratios.

Speaker 3

2nd, our dedication to safe, reliable and environmentally responsible operations. Our commitment to safety and the environment is a core value for ONEOK. It's critical for us To be safe and reliable service provider and we strive to be a good partner in the areas where we operate. Our ESG related performance It's a source of pride for ONEOK, and we're committed to continuing to make progress. 3rd, our strong balance sheet and investment grade credit ratings, Which provides significant financial flexibility.

Speaker 3

We've reduced our leverage to below 4 times and continue to drive that lower, Providing optionality for the future cash flows and investor returns. 4th, our built in operating leverage and proven track A disciplined and intentional growth. After completing more than $5,000,000,000 of capital growth projects prior to the pandemic, Our systems have significant capacity to grow alongside the needs of our customers. And because of our large infrastructure projects are complete, We now have opportunities for short cycle bolt on type projects at attractive returns. 5th, The resilient and increasing demand for natural gas and NGLs.

Speaker 3

We deliver energy products and services That are vital to an advancing world, and we believe these resources will play an important role in the energy transformation. And finally, the depth and experience of this management team who have a proven track record and extensive experience. This team has been through commodity cycles, adapted business models and adopted significant changes in technology and innovation over the years. This team continues to grow our core business and advance our company forward. It is because of these factors and the segment specific drivers the team will discuss in a moment that I have such confidence and excitement for ONEOK's future.

Speaker 3

With that, I'll turn the call over to Walt for a discussion of our financial performance.

Speaker 5

Thank you, Pierce. ONEOK's 4th quarter and full year 2021 net income totaled $379,000,000 $1,500,000,000 respectively. Adjusted EBITDA for the same periods totaled $847,000,000

Speaker 3

$3,380,000,000

Speaker 5

respectively, representing year over year increases of 14% for the 4th quarter and 24% for the full year. Our December 31 net debt to EBITDA was just below 4x, passing through an important marker in our continued deleveraging strategy. We continue to prioritize reducing leverage below 4 times and view 3.5 times or lower as our long term aspirational debt to EBITDA goal. In 2021, we reduced our total outstanding debt more than $600,000,000 by proactively paying off nearly $550,000,000 of maturing debt on November 1st With cash on hand and being opportunistic with open market repurchases earlier in 2021. We currently have no debt maturities due before the Q4 of 2022.

Speaker 5

4th quarter results reflect volume growth in our Rocky Mountain region that was offset by higher operating costs. These higher costs were driven by discretionary employee related benefit costs and expenses related to planned O and M maintenance projects completed in the 4th quarter in our natural gas liquids and our natural gas pipeline segment. As Pierce mentioned, with yesterday's earnings announcement, we provided 2022 financial guidance, Including a net income midpoint of $1,690,000,000 and EPS of $3.76 We also provided an adjusted EBITDA range of $3,500,000,000 to $3,800,000,000 With $3,620,000,000 as our midpoint, representing a 7% increase compared with 2021. We expect double digit earnings growth at the midpoints for both the natural gas liquids and natural gas gathering and processing segments, Driven by higher volume expectations across our operations. Kevin will provide more detail on our volume outlook.

Speaker 5

In our Natural Gas Pipeline segment, we expect earnings to be stable year over year When adjusting for winter storm Yuri in the Q1 of 2021. Our 2022 guidance Assumes producer activity associated with WTI crude oil prices in the low $70 range. Sustained higher prices could lead to more activity and a quicker volume ramp, which could drive earnings towards expenditures of approximately $975,000,000 which includes growth and maintenance capital. This midpoint reflects the investments necessary to keep up with the expected increase in producer activity and volume expectations, Including investments to complete Demicks Lake III in early 2023 and MB5 in mid-twenty 23. Our routine growth capital accounts for a higher number of well connects and other high return routine growth projects such as pump stations, Compression expansions and other debottlenecking projects to meet our customer needs.

Speaker 5

Our guidance also assumes the impact of inflation. As we've mentioned previously, we have escalators on many of our natural gas liquids And gathering and processing contracts. These are typically tied to either CPI or PPI indexes And provide protection from rising costs. We expect these types of escalators to keep pace or exceed inflationary costs as we move forward. I'll now turn the call over to Kevin for an operational update.

Speaker 6

Thank you, Walt. 4th quarter volumes continued to show strength, particularly in the Rocky Mountain region, where processed volumes increased 5% NNGL volumes increased 6% compared with the Q3 of 2021. Natural gas Processed volumes in the Mid Continent increased in the 4th quarter compared with the 3rd quarter as we've seen as we've continued to see more activity in the region, While NGL volumes in the Mid Continent decreased due to some reduced third party volumes and lower ethane recovery levels. Overall, for 2021, natural gas and NGL volumes saw significant increases from 2020 levels. We saw record natural gas and NGL volumes on our Rocky Mountain region assets with significantly higher activity in rising gas to oil ratios.

Speaker 6

In the Q4 alone, our team connected 130 wells, nearly doubling the amount from the 3rd quarter For a total of more than 320 in 2021, a great accomplishment for our team in meeting the needs of our customers and Continuing to provide momentum into 2022. Now taking a closer look at 2022. At the midpoint, our volume guidance would result in an 8% increase in total NGL volumes And an 11% increase in total natural gas processing volumes compared with 2021. These higher expectations are supported by increasing producer activity, volume growth from recently completed ONEOK and third party projects, Rising gas to oil ratios in the Williston Basin and ethane recovery opportunities across our NGL system. With the recent completion of our Bear Creek plant expansion, we are already seeing increasing volumes from Dunn County And we expect the plant will continue to ramp up over the next 2 to 3 years.

Speaker 6

However, with activity levels In the area consistently outpacing our expectations, we could be looking at an even quicker ramp. In the Natural Gas Liquids segment, we expect continued volume growth from our existing customers and from new third party plant connections. In the Williston Basin, volumes are expected to increase compared with 2021, supported by higher activity levels and recently completed and expanded processing The Mid Continent also continues to pick up, particularly from private producers with very recent activity levels Providing potential tailwinds not fully factored into our guidance expectations. Our NGL system is connected to more than 90% of the natural gas processing plants in the Mid Continent. So any increased producer activity in the region Is likely to provide NGL volume to ONEOK, regardless if the activity is on our gathering and processing dedicated acreage.

Speaker 6

In the Permian Basin, we expect double digit NGL volume growth on our West Texas NGL pipeline compared with 2021, driven by increased volumes in the Midland and Delaware Basins. The volume growth is Switching to ethane. Demand continues to increase with more than 300,000 barrels per day of incremental demand Our NGL volume guidance assumes full ethane recovery in the Permian Basin and partial midcontinent recovery throughout the year. We've assumed no full rate Rocky Mountain region recovery. However, we do anticipate opportunities to incent some recovery.

Speaker 6

This opportunity will fluctuate throughout the year, but a conservative amount is assumed in our 2022 guidance. Moving on to the Natural Gas Gathering and Processing segment. We expect volume growth this year in both the Rocky Mountain and Mid Continent regions. In the Rocky Mountain region, we expect process volumes to grow 15% at the midpoint compared with 2021 And average nearly 1,500,000,000 cubic feet per day in 2022. Just 5 years earlier in 2017, Volumes totaled 830,000,000 cubic feet per day.

Speaker 6

That's an approximately 12% annual growth rate over the last 5 years, While crude oil production has increased in the low single digits. Accordingly, GORs have increased nearly 70% During that same time period, the Williston Basin remains resilient and highly productive. Producers continue to gain efficiencies as they drill in this proven and highly economic region. And the core of the basin is expanding. The North Dakota Pipeline Authority recently estimated that in the last 2 years alone, more than 7,000 drilling locations have been added to inventory that are profitable at $60 per barrel.

Speaker 6

This is consistent with what our customers are telling us, As most of them still have decades of inventory remaining. There are currently 33 rigs and 10 completion crews operating in the basin With 15 rigs and 5 completion crews on our dedicated acreage. This is more than enough activity to grow gas production on our acreage and we expect that as DUCs are completed through the spring, rigs across the basin will increase. As we've said previously, approximately 14 to 15 rigs, which can drill around 300 wells per year is enough to maintain 1,400,000,000 cubic feet per day of production on our system. Any additional rigs, Combined with the rising gas to oil ratios of wells already connected to our system would provide additional volume growth.

Speaker 6

Additionally, more than 475 DUCs remain basin wide with more than 250 on our dedicated acreage. We expect to connect 375 to 425 wells in the region this year. In the Mid Continent region, activity continues to increase. We expect processing volumes in the region to increase compared with 2021, And we expect to more than double our well connections in 2022 to 30 to 50 wells compared with 15 last year. In the Natural Gas Pipelines segment, we expect transportation capacity to be approximately 95% contracted And earnings to remain nearly fully fee based in 2022.

Speaker 6

Following a successful open season in 2021, We're in the process of expanding our Texas natural gas storage capacity by 1,100,000,000 cubic feet, Which will increase our total system wide storage capacity to more than 53,000,000,000 cubic feet. We continue to work with customers seeking additional long term Pierce, that concludes my remarks.

Speaker 3

Thank you, Kevin, and thank you, Walt. Strong financial and operating results in 2021 have provided momentum For another year of growth. We continue to benefit from our interconnected systems, built in operating leverage, And the ability to incrementally grow with our customers. We continue to invest in our core businesses, remaining focused on optimizing our assets And staying dedicated to operating responsibly and reliably. Service is another one of ONEOK's core values, And it is something that our more than 2,800 employees know very well.

Speaker 3

Through 2021, they worked tirelessly Through severe weather events like winter storm Yuri to serve our customers and continue delivering the vital energy products necessary For the global economy to run. Our employees' dedication to meeting customers' needs while operating safely and responsibly Enabled our strong 2021 performance and has set us up for another year of growth in 2022. With that, operator, we're ready to answer questions.

Operator

Thank And our first question today comes from Michael Blum with Wells Fargo.

Speaker 7

Thanks. Good morning, everybody. I wanted to go back to the comments on incentivized ethane recovery in 2022. Can Can you just give us a sense of what's going to drive that? And have you changed the rates directionally that you're charging on that incentivized asset?

Speaker 8

Michael, this is Sheridan. What we as we said before, what drives that It's the difference between natural gas prices in the Bakken compared to ethane prices in Mont Belvieu. And so what's going to drive that rate higher is if we see that Spreads continue to wide, we will incentivize more ethane out of the Bakken to capture that spread. So it's not we're not putting out a new tariff or Reducing TNF fees, we're actually literally capturing gas price to ethane prices, which today is widened out wider than what we saw in 2021.

Speaker 7

Okay, great. I appreciate that. And then just Maybe a related question. Can you give us your latest thoughts on the some of the proposed, including your own natural gas pipeline Expansion projects out of the Bakken, do you think we're getting closer to a place where we're going to need some more gas capacity? Thanks.

Speaker 2

Yes, Michael, this is Chuck. I do and we do. We believe that the Bakken will need some residue takeaway, Let's say in the next, call it, 3 years, either side of that. And as you may have heard on TC Energy's call, They said don't be surprised if you see an open season this spring. And frankly, I think all stakeholders, processors, pipelines And producers realize a decision probably needs to be made this year to effectuate that timeline.

Speaker 2

So, between Northern Border's Bison Express Pipeline And some underutilized pipelines in the Powder River Basin, I think we'll be able to go ahead and manage that egress.

Operator

And our next question will come from Jeremy Tonet with JPMorgan.

Speaker 9

Hi, good morning. Just wanted to pick up on the Bakken a little bit here. I guess, more thoughts about NBPL and heat content and given kind of the trajectory here, just wondering if you could walk us through, I guess, Procedurally, next steps, if it's viewed that the heat content would get too high and there would need to be adjustments in the rate or Less ethane accepted or just any thoughts you could share there?

Speaker 6

Yes, Jeremy, it's Kevin. Yes, that phenomenon still exists. If we rewind a little bit pre COVID, We were bumping up against those some BTU downstream challenges And there was a lot of discussion in the basin and Northern Border had proposed a new tariff that ultimately got denied and FERC asked the pipe to go back and work with shippers, work with markets to produce a little more information. COVID hit and it really reduced the volumes back to where it wasn't an issue. If you look at gas production or gas Capture in the Bakken today, we are back up to the pre COVID levels.

Speaker 6

So the only thing that's keeping that problem from Being persistent is the ethane that we're recovering on an incentivized basis, which is reducing the heat content. If that market turns around and we don't incent ethane, then that's going to raise the BTU content Back on border to the levels we were seeing pre pandemic. So absolutely, Northern Border continues To have those conversations, it's our understanding. They will go back to FERC with a recommendation sometime this year. But in the meantime, we've proven if we do end up with a heat content issue, we can always recover ethane To make that okay, the BTU spec back okay on the pipe.

Speaker 6

But if that's a forced ethane recovery because of a BTU limit, that would be at full rates.

Speaker 9

Got it. That's helpful context there. And maybe just kind of pivoting towards the guide for a minute here and thanks for kind of listing some of the Puts and takes, but just was curious, if we think about kind of the formation of the guidance, I imagine this was informed last night and it was And if you kind of overlay the world today as we see it, within how that applies to the Could you provide any color there? Would that put you guys kind of at the high end? Or any other thoughts on what's happening today and how that I guess where you could fall in the guidance range.

Speaker 3

Jeremy, this is Pierce, I think given our asset capacity that we have today And then given kind of the backdrop that you described, which is improved demand and improved commodity prices, It's really what's kind of driving this volumetric growth, and we all know that volume impacts us. I'd probably say that our outlook today is as good or better than our guidance midpoint.

Operator

And we'll hear next from Brian Reynolds with UBS.

Speaker 10

Hi, good morning, everyone. Maybe just a follow-up on the guidance and talking about the upper end of the guidance range, which we seem to be pointing towards. Just kind of curious if you can help me reconcile the upper end of the G and P growth versus the NGL throughput. It seems like GMP growth is a little bit higher. Just kind of curious if you can give a little bit more commentary around ethane recovery assumptions.

Speaker 10

Are you assuming a little bit Ethane rejection into 2022 or is that just kind of a conservative estimate with ethane recovery to the upside? Thanks.

Speaker 8

Brian, this is Sheridan. I think what they need to look at is on the G and P side, what we Noted in our release was that an increase in the Rocky Mountain region. On the NGL, the increase was across our regions. And one of the big contributors to that is the Mid Continent is growing less than 8%. So that's bringing down the average for For NGL segment.

Speaker 8

And also in our guidance, we have less incentivized ethane Then we did in 2021. So that's another reason that you brought it down a little bit as well.

Speaker 10

Great. I really appreciate that color. And as a follow-up, just on capital allocation, the high end of the guide kind of implies 22 leverage exiting near 3.5. Just Curious if you could talk about the evolution of the long term leverage target and how we should think about future opportunities around return to capital as we

Speaker 5

Well, we're very pleased with How we've progressed on our leverage metrics and that we broke through that 4 times and are heading in the direction that you mentioned. I think that as I said on the last call, we're trying to triangulate between a couple of different metrics and just not entirely focused On the debt to EBITDA metric, we're also focusing on a dividend payout ratio. As you see at the guidance, we're starting to break under 100% and That's trending again and also in the right direction. And we'd like to see that get some room under that 100% as we look And think about capital in the future. But there's no doubt that our flexibility as we move forward and these metrics get in line Continues to broaden and be a little bit more flexible, and we'll look at that as the year Going into 'twenty three, progress.

Speaker 10

Great. Appreciate the color. Have a great day, everyone.

Operator

And our next question comes from Theresa Chen with Barclays.

Speaker 11

Good morning. I was wondering if you wouldn't mind Providing some incremental color on your production outlook, on the production outlook in your areas of service Into 2022 and maybe beyond as well as the GOR outlook.

Speaker 6

When you say production, Teresa, are you talking about the crude production

Speaker 9

as we see it or

Speaker 1

By our customers?

Speaker 6

Yes. I mean, we think about crude yes, we think about crude production in the flat excuse me, in the Bakken, it's Going to be we believe it will grow slightly. We don't think it's going to grow at 10%, but we do believe there will be some level of growth Based on what our customers are telling us and the completions that we see on schedules, etcetera, with That crude production growth, we obviously then believe our gas production is going to grow at the percentages that we've outlined previously. So I guess that's how we're thinking about that. STACK, SCOOP, going down

Speaker 12

the Mid

Speaker 6

Continent, this is one that We've been saying flat to slightly declining. However, with the recent activity pickup, we're probably looking at it in a slight increase Type environment, I think that's consistent with what some others have said on their calls as well with some of the recent information. And obviously, the Permian is going to grow and has shown growth. And we believe we'll continue to get our fair share With both our West Texas LPG asset and our OWT system out there. So we believe we can participate in that growth in the Permian.

Speaker 11

Got it. And would you mind just sharing what kind of commodity price Assumptions underlie your 2022 guidance?

Speaker 6

Well, that's where Walt mentioned as we look at activity levels and things like that, we were using a low 70s type number For crude for 2022. As we think about the rest of the commodities, we've driven so much exposure of the commodity exposure out of our business And with how we contract, we really that doesn't have a huge impact to us. I mean, it is A little bit of a tailwind right now at these prices, but it was definitely back if you think of crude in that $70 environment, that would be the associated NGLs and gas prices that we would have been looking at.

Speaker 13

Thank you.

Operator

And we'll hear next from Colton Bean with Tudor Pickering Holt and Company.

Speaker 13

Good morning. So I think you may have just touched on this, but with the 2022 G and P guidance, it looks like EBITDA per Mcf is Effectively flat year on year. I know fee rate is guided to a similar range. So it sounds like part of that Well, I guess just broadly, could you walk us through why unit margins would be flat if the Bakken is comprising a greater share of volumes? And then it sounds like commodity margin, That may be skewed a bit by a price deck, but it seems like for both hedged and unhedged volumes, you'd have a better outcome there.

Speaker 6

Colton, are you talking specifically about G and P or are you talking about

Speaker 13

Just the G and P segment.

Speaker 14

I'm not sure we followed

Speaker 6

exactly what you're asking.

Speaker 13

Yes. Looking at the G and P segment, if I just take

Speaker 12

a look at the

Speaker 13

G and P EBITDA versus volumes, it looks like EBITDA per M, so on a unit basis is Kind of flattish, but I would have thought that the fee rate would have seen some escalation with the Bakken growing as quickly as it is. And then on the commodity side, it sounds like that may be partially attributable to a difference in price deck.

Speaker 2

One thing excuse me, Colton, this is Chuck. One thing I would add is You've seen our volume guidance or obviously our volumes are up year over year. And as part of that, we do have some percentage of proceeds Exposure is roughly, call it, 15%, 18%. And at these volumes and these prices, you have a larger Commodity piece contribution to our EBITDA, so the $1 to $1.05 average fee rate is across our segment. Obviously, the Bakken is higher.

Speaker 2

So I'm not necessarily following your question.

Speaker 6

Colton, I think another thing that's factored in there is just we've seen that fee rate Bounce around periodically quarter to quarter. So we're giving you we're doing our best to give you the average for the year. That fee rate can move around depending on specific producer characteristics. So if a producer That has a more of a POP contract with a lower fee, all of a sudden completes a bunch of wells in one given quarter, That can actually move that fee rate down. So what you're getting there is a blend, but it's going to bounce around quarter to quarter.

Speaker 13

Yes. No, understood. You can follow-up to that. I think looking at it from a high level, it just looks like the EBITDA per M Is relatively flat. So with both commodities and Bakken growing, I was a bit confused there, but can follow-up on that.

Speaker 13

And then just On the OpEx side of things, I know you mentioned compensation factored into that. So can you give us an idea of how you'd expect that Progress relative to Q4 levels?

Speaker 6

Well, I think Q4, obviously, as Walt mentioned, had a couple of anomalies with the higher employee costs that were discretionary And the timing on some of our expense projects, if you think about 'twenty two relative to 'twenty one and look at a run rate, You're going to have a full year Bear Creek 2 from and you'll see increased costs just with increased volumes, Which we will see and then lastly, you will see some level of Sorry,

Speaker 5

I just lost my train of thought here.

Speaker 6

Those are the 2 big drivers we'll And then but from a timing perspective, historically, our expenses, you'll see that kind of grow over the year, Just related to the timing of a lot of the expense projects we'll do in the summer, fall and then trying to get them done by the end of the year. That help you.

Speaker 13

It does. Yes. Thank you.

Operator

And our next question comes from Jean Ann Salisbury with Bernstein.

Speaker 15

Hi, good morning. I had a question about MidCon guidance. It looks like you're projecting Basically flattish gathering and processing volumes in 2022 versus 2021 in the Mid Con, but you're connecting many more wells than you did in 2021. Are you expecting much more oil directed drilling or is it a timing thing or am I totally missing something else?

Speaker 2

Jean, this is Chuck. We see an increase of I think our volume guidance came out roughly 2%. We actually I think that might be a little light, it might be more like 3% to 5%. So we did guide on volume slightly higher than our actuals from last year And we do have good line of sight to the 30 to 50 well count that we put out in guidance right now. We've got 4 rigs operating on our acreage, Well capitalized publics behind that with a couple of privates coming in Q2 and early Q3.

Speaker 2

So I would say that our Mid Continent volumes will be up obviously relative to 2021.

Speaker 15

Okay. That's helpful. Thanks. And then, how are you thinking about the timing of Elk Creek expansion? Would you need both Bakken pipes to be approaching full or just Elk Creek to be Basically full and Bakken doesn't have to be full to pursue it.

Speaker 8

Dan, this is Shervin. When we think about Elk Creek expansion, really, we do look at it both together. So we both look at Elk Creek and The Bakken pipeline to understand when we need to expand. And really the next expansion on Elk Creek will come On what we call the East West portion, as we see sustainable volume that has to be delivered to OPPL And as we optimize that, we may decide to increase the pumps on that east west section so that we can move on back off OPPL to optimize our earnings. So That's kind of what we look at when we are going forward.

Speaker 8

So right now, we feel with the Bakken OPPL connection and Elk Creek, we have plenty capacity to meet our customers' needs and it's just going to be an optimization when we expand.

Speaker 15

Great. Thanks. That's all for me.

Operator

And our next question comes from Michael Lapides with Goldman Sachs.

Speaker 4

Hey, guys. Thank you for taking my questions. Just curious, cost of everything in the world is up, meaning commodity

Speaker 1

Michael, we could barely hear you.

Speaker 4

Hey, guys. Can you hear me now?

Speaker 6

There you go.

Speaker 4

Hey, guys. Perfect. Thank you. Real quick, Costs everything is up. Inflation is rough out there, steel, labor, etcetera.

Speaker 4

Can you talk about That trend that's impacting kind of all industries and whether that's had an impact on your capital budget. So if we look at your CapEx forecast, are you seeing changes at all in which your original expectations for either MB5 or Dimex were Or the average cost for every new well connect relative to what it cost in maybe 2021 or 2020?

Speaker 6

Michael, it's Kevin. Not significantly and those numbers are baked into the guidance As we think about it, related to Bear Creek 2 and Demicks Lake 3, we were so far down the road on those projects When you think about steel and a lot of the materials, a lot of that stuff was already purchased, bought on-site, in many cases, Installed at the site. Since that time, we've gone out and recontracted We bid everything and we're not seeing anything that would cause us to deviate from where we're what we articulated from a cost standpoint. We are seeing probably a little tick up as everybody else is on just kind of your general materials and services. But so far nothing that would be outside of what we would consider norms that and the philosophies developed when we put the guidance together.

Speaker 4

Got it. Meaning you're not seeing a lot of pressure in the cost to do new well connects relative to what you've seen over the last couple of years?

Speaker 6

No. I mean, there may be a minor uptick in some of the prices, again, of the materials. But again, all that's baked into what we've got from our growth and maintenance capital budget.

Speaker 4

Got it. And then when we think about the capital budget for this year, really the impact of MB5, is the bulk of the spend on that frac In this year and there's just a little trickle into next year or is it more evenly weighted across the years?

Speaker 6

Well, I think it will be your heavier spend will be this year and early next year. We do believe Both MB5 and Demicks Lake III will be completed early in the quarters that we provided out there and we're doing everything we can to Accelerate them even more, because we'd like to have that capacity available, and some of that's factored into the guidance

Operator

And we'll go next to Craig Shere with Tuohy Brothers.

Speaker 16

Hi. Congratulations on

Speaker 6

With regards to

Speaker 16

The realized NGL pricing, I'm sorry if I missed it, but it seemed like the Rockies was just $0.01 lower sequentially. And I was wondering to what degree that's just random fluctuation or it reflects the level of Incentivized ethane or does it impact maybe some volumes actually starting to increase out of the PRB?

Speaker 6

No. Craig, this is Kevin. That realized NGL Pricing, I think you're referring to on the G and P side. That's just a function. It does include our hedges in there, which is what Is what pulled that down slightly from Q3, I think is what you're referring to.

Speaker 6

So it's Just a function of all our hedges getting lumped in with what's going on, on the prices. It's got nothing to do with the SG and A.

Speaker 16

I was talking about the SG and A. A. Lowe:] versus the $0.24

Speaker 6

On the Elk Creek or the Rockies rate, Yes. That is a function of the incentivized ethane. So that drop in a penny has nothing to do with anything contractually that's going on. It's Purely the incentivized ethane.

Speaker 16

Got you. And you all have been talking about For some time, 25 rig connections or well connections amount 300 a year in the Williston, Pretty much holding volumes flat, but you've kind of been saying that over a couple of quarters, the volumes have been increasing. And at the same time, GORs, GPNs and overall well productivity keeps improving. If we're thinking about overall 1.5b year end run rate, do you think What are the prospects that an even more subdued rate of well connect, Say 300 versus the 4 22 guidance could keep that higher level of production flat versus what we had seen in the 3rd quarter?

Speaker 6

Yes. Craig, this is Kevin. I do think that's possible. We continue to be surprised. I think As I said in my remarks, producers continue to get better and better.

Speaker 6

So as each well It gets more prolific and as the gas to oil ratios continue to increase that just means you're going to need fewer wells to hold production flat. Now we'd like to see obviously the same capital deployed and grow production. But at the pace we're going on right now, that's been a trend over the last several years is each year it seems like the same number of wells Will allow us to stay flat even though the baseline keeps getting larger. So that trend could absolutely continue.

Speaker 16

Great. Thank you.

Operator

And next question comes from Tristan Richardson with Truist Securities.

Speaker 14

Hi, good morning guys. Just one for me. Just thinking about 2023 and beyond and your large projects, clearly, there's a lot of cost advantages in resuming these projects. And if you think about The volume ramp on projects once online, can you talk about maybe the return on capital advantages or Incremental return on capital for this year's budget maybe relative to previous returns on capital or historical returns on capital.

Speaker 5

Tristan, there's no doubt that we continue to see an upward trend in our return on invested And that really comes back to the operating leverage that we're seeing growth and we don't have to put capital meaningful capital into Our pipeline assets that we built, obviously, a pump station here or there as volume grows, but That operating leverage is year over year continues to fall to the bottom line and We have enjoyed and expect to continue to enjoy increasing return on invested capital going forward.

Speaker 14

Helpful. Appreciate it. Thank you.

Operator

And our next question comes from Sunil Sabal with Seaport

Speaker 12

Yes. Hi. Good morning, folks, and thanks for all the clarity. Just a couple of follow ups. First of all, it seems like the well completion activity in Rocky Mountain was very strong in Q4.

Speaker 12

I was curious if you kind of can talk about what kind of cadence we should see in volume growth In that region, especially considering that typically Q1 also see some weather events. So should we be thinking of A little bit of a subdued growth in Q1 despite this strong well completions and then a ramp up or should we be expecting some other trends?

Speaker 2

Sunil, this is Chuck. What I'd say about our well connect cadence for 2022, In some ways, it resembles 2021. We had, as you said, a lot of momentum, 130 plus well connects coming out of Q4. 2022 is more back weighted to Q2 and Q3 just as it was in 2021. We did have some momentum obviously carry into here In the Q1 of

Speaker 1

this year,

Speaker 2

Q2 typically it's a little dip every year because of frost laws and the weather spring. But so the cadence would be more back weighted to Q3 and Q4. Volumes associated with that would probably resemble the WellConnect activity.

Speaker 12

Got it. And then one follow-up on the cost issue. I realized that Q4 seems like sequentially the costs were up about $25,000,000 or so versus Q3. What's a good way to kind of think about that breakdown in one time costs versus kind of ongoing costs?

Speaker 5

Well, like I said, if we just I guess the way

Speaker 6

to think about it, if we look at kind of the full year 2021, I do think our costs We'll be up a little bit in 2022, just overall. I mentioned Before, you'll see a full year of Bear Creek 2. The other item I forgot to mention earlier was taxes. You'll see we'll have an increase in our Advilarum taxes in 'twenty two versus 'twenty one. So those types of things.

Speaker 6

And then just the ongoing volumetric Costs that are associated with the volumetric growth, which we'll see with the growth we're seeing across our system.

Speaker 12

Got it. Thanks for the color, folks.

Operator

Our next question comes from Michael Cusimano with Pickering Energy Partners.

Speaker 17

Hey, good morning, everyone. Most of my questions have been answered, but if you can just talk about the Progress that you've made in adding plant connections in the Permian. And then maybe what you view as your competitive advantage there and That's a growth area from here. And then lastly, just if you've looked at any acquisitions in order to, I guess, inorganically grow your footprint there?

Speaker 8

Michael, this is Sheridan. When we look at the Permian, we still continue to be very competitive because A lot of our competitive advantages, we have a pipe in place there today. We're connected to A lot of unintegrated players that want an alternative source. We also have cheap expansions on our system that we can continue to grow. We can continue to provide a competitive alternative to other people out in the basin and we see that because our volumes continue

Speaker 1

to grow.

Speaker 8

We're seeing as we mentioned, we're seeing double digit growth. We're also seeing growth from people we've already contracted. As the volume out there grows on their system, it And we have long term contracts in place as we do in every other place.

Speaker 3

So Michael, I'll weigh in that. This is Pierce. I mean, yes, we do Look at M and A opportunities in all of these basins, we kind of drop them into kind of 2 categories, a defensive kind of play This is a proactive look at it. As it relates to looking at these, when you look at, Especially in our NGL business, when you look at the length of our contracts in a lot of these places and you look at maybe the prices that you have to pay To get the G and T opportunities that feed the NGL business, then we just don't see that as being Maybe a place where we would deploy our capital when you look at it as A benefit to our shareholders. So yes, we look at them, but so far we haven't found anything that we think is attractive there.

Speaker 17

Great. Thank you.

Operator

And our next question comes from Alex Kania with

Speaker 4

Wolfe Research.

Speaker 18

Hi, good morning. Maybe two questions. The first is, So I was thinking about the headroom on the kind of your pipeline infrastructure out of the Rockies. And could you remind us maybe you said it, I might have missed it on the call, but You're at $335,000,000 in Q4. So what's the expectation of that going as you're assuming for 2022?

Speaker 18

And the second question would be if you can maybe talk a little bit just about the kind of commodity components of the POPs, kind of what price deck Are you assuming you're talking about kind of the outlook for the G and P business for this year? Thanks.

Speaker 8

Alex, this is Sheridan. As we think about capacity on Elk Creek and the Bakken, as I said, we think about them together. We currently have 440,000 barrels a day of capacity. As you said, we're running in The mid in the 3.30 to 3.50 range today. We see that we're having plenty of capacity for a period of time A lot of that we had incentivized ethane on there as well, so we're pulling that into that.

Speaker 8

So we think we have complete capacity on that Going forward for a period of time and we can take it up another 100,000 barrels a day pretty easily just adding some additional And we feel very comfortable with our capacity coming out of the Rockies.

Speaker 6

And Alex, on the question about the POPs, we provided that earlier. Again, we're thinking about it in a low $70 type crude environment. If you go back and look at what NGL prices were doing when crude was kind of in that range, that gets you in the ballpark. And then gas, kind of that same one. It would be in the upper $3 type The other thing to remember when you're thinking about the PLP is we are about 75% hedged when you look at it In the for those POP contracts in 2022.

Speaker 6

So there's really just not a lot of commodity exposure left when you factor in The impact of the hedges as well.

Speaker 13

Got it. Thanks for that.

Operator

And our last question today will come from Jeremy Tonet with JPMorgan.

Speaker 9

Hi, thanks for squeezing me back in here. Just a real quick question. Our conversations with Regulators in North Dakota leads us to see a lot of emphasis on the potential for carbon capture in state policy as well as really kind of support Development in North Dakota being only 1 of 2 states that has Class 6 primacy that allows CO2 wells To be developed at the pace the state sets there kind of sets them apart from others. And also you have the Summit pipeline pointing towards North Dakota in progress there. Just wondering Any updated thoughts that you have that ONEOK has on carbon capture?

Speaker 9

And could this be something that realistically enters At some point, do you have any visibility here?

Speaker 6

Yes, Jeremy, it's Kevin. Yes, this is something we are Actively involved in and in conversations with state officials, with other Private entities, etcetera, for opportunities. We've had a few conversations with them so far and we've got Conversation scheduled with them in the very near future to have discussions around that. I do think there's some opportunities when you look at That's what we do, right? We've got a lot of we know how to process things.

Speaker 6

We know how to build pipelines and we know how to store things. And So I think there's opportunities. It's just finding the right partners up there and getting the right opportunities before we'd Pull the trigger on something, but it's definitely something we're actively working on.

Operator

And this concludes our question and answer session. Mr. Ziola, I'd like to turn the conference back to you for any additional or closing remarks.

Speaker 1

All right. Thank you, Jennifer. Our quiet period for the Q1 starts when we close our books in April It extends until we release earnings in early May. We'll provide you details for that conference call at a later date. Thank you for joining us and the IR team will be available throughout the day.

Speaker 1

Thank you all.

Operator

And this concludes today's conference. Thank you all for your participation. You may now disconnect.

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Earnings Conference Call
ONEOK Q4 2021
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