ONEOK Q2 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, and welcome to the ONEOK Second Quarter 2024 Earnings Conference Call and Webcast. [Operator Instructions]

I would now like to turn the conference over to Andrew Ziola, Vice President of Investor Relations. Please go ahead.

[Andrew J. Ziola, Vice President of Investor Relations at ONEOK]

Thank you, Dave, and good morning, and welcome to ONEOK's Second Quarter 2024 Earnings Call. We issued our earnings release and presentation after the markets closed yesterday, and those materials are on our website. After our prepared remarks, management will 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 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. [Operator Instructions]

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

[Pierce H. Norton, President and Chief Executive Officer at ONEOK]

Thanks, Andrew. Good morning, everyone, and thank you for joining us. On today's call is Walt Hulse, the Chief Financial Officer, Treasurer and Executive Vice President, Investor Relations and Corporate Development; and Sheridan Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing. Also available to answer your questions today are Chuck Kelley, our Senior Vice President of Natural Gas Pipelines; and Kevin Burdick, who is the Executive Vice President and Chief Enterprise Services Officer. Yesterday, we announced the second quarter 2024 earnings and affirmed our full-year 2024 financial guidance, with record Rocky Mountain region volumes, continued progress on acquisition-related synergies and solid demand on our products and services drove our strong second quarter performance and provide momentum into the second half of 2024.

Increasing volumes across our gathering and processing and natural gas liquids segments and the demand for our natural gas pipeline services, combined with the strategic opportunities in our refined products and crude oil segments continue to provide confidence in our long-term growth and highly attractive returns across our business. We continue to identify opportunities to expand and to extend our systems with recent announcements tied specifically to the commercial opportunities and synergy-driven growth in our natural gas liquids and refined products and crude segments. In June, we completed our acquisition of a system of NGL pipelines from Easton Energy. This acquisition was unique and that it made sense for ONEOK even before the acquisition of Magellan because of the ability to capture value downstream of our Mont Belvieu fractionation assets.

Now adding the legacy Magellan assets, and the value creation and return potential is even greater. In addition to acquisitions, we continue to see substantial organic growth opportunities. In July, we announced the expansion of our refined products pipeline to the Greater Denver area. This project will provide additional needed capacity for various transportation fuels, including aviation and sustainable aviation fuel to support increasing demand from the significant future expansion of the Denver International Airport. Also in July, we received our first shipment of sustainable aviation fuel at our Galena Park Marina terminal in Houston, facilitating growth with sustainable fuels in this market. These opportunities are all in addition to our previously announced NGL-related growth projects, including our MB-6 fractionation and expansions of our Elk Creek and West Texas NGL pipelines.

Sheridan will provide a more detailed explanation of those projects and timing and more to that shortly. Long-term volume commitments, strong operating performance and a proven track record of supporting our customers with reliable capacity gives us the confidence in our future growth. And we remain committed to investing alongside our customers. Less than a year after the Magellan acquisition, we're already seeing significant synergies and discovering new growth opportunities that wouldn't have been possible for either company on its own. Our integrated assets are proving their value and our potential for additional growth remains.

With that, I'll turn the call over to Walt.

[Walter S. Hulse, EVP, Chief Financial Officer, Treasurer, Investor Relations and Corporate Development at ONEOK]

Thank you, Pierce. ONEOK's second quarter 2024 net income totaled $780 million or $1.33 per share, representing an earnings per share increase of 28% compared with the second quarter of 2023 and a 22% compared with the prior quarter. Second quarter adjusted EBITDA totaled $1.6 billion. Results were driven primarily by higher NGL and natural gas processing volumes in the Rocky Mountain region, increased transportation services in the natural gas pipeline segment, the contributions from the refined products and crude segment. The sale of nonstrategic gathering and processing assets in Kansas contributed to a pretax net benefit of approximately $50 million during the quarter.

We expect the full-year net benefit from the sale to be approximately $40 million when considering the earnings of the assets would have provided through the remainder of the year. As Pierce mentioned, we affirmed our 2024 financial guidance after increasing it with our first quarter earnings announcement. That increased guidance range included an expected adjusted EBITDA midpoint of $6.175 billion, with the high end at $6.325 billion. We continue to expect to meet or exceed our midpoint of $175 million in cost and commercial synergies in 2024 and expect additional annual synergies to meet or exceed $125 million in 2025. As of June 30, we had no borrowings outstanding under our $2.5 billion credit agreement. During the quarter, we extended the maturity of our revolving credit facility to June of 2028.

In addition, our run rate net debt-to-EBITDA ratio was 3.36 times at the end of the second quarter, in line with our long-term leverage target of 3.5 times. We have an approximately $480 million maturity due in September, which we expect to pay with cash, strengthening our balance sheet even further. This will position us well to continue returning value to our investors through a strategic and balanced capital allocation approach. Our approach remains and all of the above strategy, utilizing a combination of high-return capital projects, dividend growth, debt reduction and share repurchases.

I'll now turn the call over to Sheridan for a commercial update.

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Thank you, Walt. Beginning with the natural gas liquids segment. Volume growth from the Rocky Mountain and Mid-Continent regions of 17% and 16%, respectively, compared with the first quarter 2024 drove higher earnings in the second quarter. Rocky Mountain region growth was primarily from increased propane plus volume, with higher incentivized ethane also contributing. The Mid-Continent saw more ethane recovery compared with the first quarter, as well as contributions from overall NGL growth sequentially. In the Permian Basin, we had higher volumes committed short term in the second quarter of 2023 and the first quarter of 2024 than in the second quarter 2024. We since recontracted much of that capacity with the volumes committed for longer terms.

We continue to see opportunities to recover ethane across our system. Favorable ethane economics will continue to depend on natural gas values and ethane demand at petrochemical facilities. Dynamics through the remainder of the year could provide a tailwind to our modest ethane recovery assumptions and guidance. We've made significant construction progress on our capital growth projects, and now expect the West Texas NGL pipeline expansion and our MB-6 fractionator to be in service by the end of 2024. Our previous in-service estimates were the first quarter 2025 for both projects. On the West Texas NGL expansion, the full pipeline looping providing a capacity of 500,000 barrels per day is expected by year-end, with a few remaining pump stations to be completed to get to the full capacity of 740,000 barrels per day.

The Elk Creek pipeline expansion remains on track for the first quarter 2025 completion. Additionally, today, with our expanding need for fractionation capacity, we are announcing a project to rebuild our 210,000 barrels per day NGL fractionator in Medford, Oklahoma. The project is expected to cost approximately $385 million and be completed in two phases, with the first expected to be completed in the fourth quarter of 2026 and the second phase in the first quarter of 2027. Rebuilding at Medford provides a number of strategic benefits. It is the lowest cost per barrel expansion option for ONEOK to help address the expected increase in NGL production. Its location in the Mid-Continent will further increase the reliability and resiliency of ONEOK's fractionation capabilities and will allow our integrated system to accommodate volume growth from the Permian, Bakken and Mid-Continent.

The Medford fractionator will also produce additional butane and natural gasoline for incremental refined products and delivering blending opportunities in the Mid-Continent. As Pierce mentioned, we recently completed a strategic acquisition of NGL assets from Easton Energy in the Houston area. These assets will provide connectivity between our NGL and refined product systems and with key customers in the area. The acquisition came with associated earnings from existing volumes, and we expect to fill the additional capacity of this system, providing a very attractive return on the project through committed volumes we control. In addition to tariff earnings on the system, we also expect the acquisition to accelerate our commercial synergy opportunities primarily related to blending.

The close proximity of our NGL and refined products terminals to major refiners in the Houston area and now improved connectivity presents considerable opportunities to capture value downstream of our fractionation assets. We expect to complete connections from the legacy Houston asset to our Houston-based assets beginning in mid-2025 through the year-end 2025. Moving on to the refined products and crude segment. Gasoline and jet demand was strong in the second quarter, supported by the beginning of a robust summer travel season. As it relates to marketing and optimization, we were able to optimize our assets through forward sales to capture higher margins on our liquids blending activity. As Pierce mentioned, we recently announced the expansion of our refined products pipeline system from Kansas to the greater Denver area, including an additional direct connection with the Denver International Airport.

Total system capacity will increase by 35,000 barrels per day, with low-cost expansion opportunities available as demand continues to grow in these markets. Following a successful open season, the additional capacity is fully subscribed. The project is expected to cost approximately $480 million and be completed in mid-2026. Moving on to the natural gas gathering and processing segment. Rocky Mountain region processing volumes increased 10% year-over-year, averaging a record of more than 1.6 Bcf per day during the quarter. There are currently 40 rigs in the Williston Basin with more than 20 on our dedicated acreage. As we look to the remainder of the year, we are reaffirming our volume guidance due to the benefits we're seeing from the drilling of longer laterals and higher well performance on traditional laterals without the need for as many well connects.

In the Mid-Continent region, we are currently seeing 35 rigs in Oklahoma, with six operating on our acreage. With current commodity prices, we expect producers to continue concentrating activity in the oilier and NGL-rich region -- areas in the region. And as natural gas prices strengthen towards the remainder of the year, we could see rig activity increase in the gassier regions. In the natural gas pipelines segment, we benefited from higher firm and interruptible transportation rates in the second quarter. The demand for natural gas storage remains high.

Progress continues to be made on our current expansion projects in Texas and Oklahoma, which we both have -- which both have firm contracts extending beyond 2030. In the second quarter, we completed two Bcf of the Texas project and expect the remaining one Bcf to be in service next month. Our Oklahoma project is expected to be completed in the second quarter of 2025.

Pierce, that concludes my remarks.

[Pierce H. Norton, President and Chief Executive Officer at ONEOK]

Thank you, Sheridan and Walt, for those updates. Before we conclude, I'd like to express my deep appreciation to our Houston-based employees for their incredible dedication through Hurricane Beryl and its aftermath. Despite challenging weather conditions and persistent power outages, they remain committed to ensuring the safe and reliable operations of our assets in the area. Many also faced impacts to their own homes, yet they continue to demonstrate resilience and professionalism. So I want to thank you personally for your dedication and the efforts that you showed during this aftermath of this event. ONEOK employees have consistently demonstrated dedication to responsible operations and doing things in the right way.

As our business has grown, we have continued our commitment to our company-wide sustainability program and practices. This dedication has been recognized with the MSCI AAA rating and being named as one of America's Greatest Workplaces in 2024 by Newsweek. As we close our prepared remarks, we published our 16th Corporate Sustainability Group Report last week, highlighting our safety, environmental and governance programs. This report details our efforts and progress in these crucial areas as we continue to deliver the energy the world needs while innovating for the future.

Operator, we're now ready for questions.

Questions and Answers

[Operator]

[Operator Instructions] Our first question comes from Spiro Dounis with Citi. Please go ahead.

[Spiro Dounis, Analyst at Smith Barney Citigroup]

Thanks, operator. Morning, team. First one, maybe just to start with the guidance. Walt, if you just go back over some of your comments and guide for the year, you maintain the range, but I think in some of your comments there, you seem to mainly make reference to the midpoint and high end that if I combine that with Sheridan's comments around ethane being a tailwind in the back half of the year, seems to suggest like coming below the midpoint is getting a little bit more remote here. So one, am I kind of reading through some of those comments correctly? And if you think about that second half of the year, what needs to go right here to kind of beat the midpoint?

[Pierce H. Norton, President and Chief Executive Officer at ONEOK]

So Spiro, this is Pierce. Walt mentioned in his comments that we did raise guidance in the first quarter during that analyst call. Personally, I like, the team likes where we are and where we're trending to. And it does give us a lot of confidence in the back half of the year. So we're going to take a look at this guidance again as we come to you guys with some additional information in the third quarter. So that's the way I'd answer your question.

[Spiro Dounis, Analyst at Smith Barney Citigroup]

No problem, we'll be patient on that one. Second one, maybe just going to double-ish. Of course, one of your peers has announced the conversion to an NGL pipeline up in the Bakken, where you've sort of enjoyed a lot of the market share there. So curious how you're assessing the risk to your Bakken position at this point? And is there a scenario where you actually see some of these volumes flow on OPPL and maybe into a ONEOK frac?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Well, Spiro, this is Sheridan. What I would say is we were aware of this pipeline is to be considered as an alternative for NGL takeaway out of the region. And don't expect a material impact on our business. We have long-term contracts in the basin with a very small amount of NGLs in the Williston are up for contract renewal in the next five years. The average life on our contracts in the Williston Basin today is over nine years. We think we provide a superior service, both with dual pipeline offerings, redundancy and reliability to our customers. And a seamless service from the Bakken to market centers in Conway and Mont Belvieu on one system with the overall best value through our integrated system.

As we talk about volumes moving on -- could volumes move on OPPL, currently today, OPPL is on is full and on allocation. We control over 70% of that allocation. And I think if you think about volume coming on to OPPL, people must be assuming that when we complete the Elk Creek pipeline, we will move volume off of OPPL and that is not a foregone conclusion.

[Spiro Dounis, Analyst at Smith Barney Citigroup]

Got it. Appreciate all the color there. Thank you, gentlemen.

[Operator]

And the next question comes from Jeremy Tonet with JPMorgan. Please go ahead.

[Jeremy Tonet, Analyst at JPMorgan Chase & Co.]

Hi. This is Jeremy Tonet with JPMorgan. Just wanted to pick up with synergies, if I could. Following the Easton acquisition, wondering if you could provide a bit more color on what you see this unlocking specifically for your platform, especially post Magellan acquisition? Just wondering if you could provide a bit more color on what could be accomplished.

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Sure, Jeremy. This is Sheridan. When you go back -- the Easton acquisition, we had our eyes on the Easton acquisition for a period of time because we saw that as a way to continue to move our product downstream of our frac directly through pipelines to end users. In fact, a lot of the product today that's on Easton comes from our fractionation complex in Mont Belvieu. But with the Magellan acquisition came up, what we saw was an opportunity to buy Easton to create a more capital efficient and faster way to connect our NGL and refined products systems, thus accelerating our commercial synergies through this acquisition instead of doing new builds which would take longer. So really, we're going to capture the synergies that we thought before. We're just going to capture it at a lower capital cost and faster.

[Jeremy Tonet, Analyst at JPMorgan Chase & Co.]

Got it. That's very helpful there. And then just moving along, I guess, with producer activity, as you see it right now, wonder if you could provide a bit more color on how things are shaking out, particularly given Bakken well connects year-to-date versus your guide. Just wondering any thoughts you could share there.

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Well, I would just say that on the volume side, we still are -- reaffirmed our guidance on volume. What we are seeing is, as we have talked earlier about, longer laterals. And so the wells are producing more and more efficient. And so we see that we don't need as many well connects to reach our volume guidance that we have in there, and that's been a pleasant surprise this year. We knew we'd see some of it, but it's even more a pleasant surprise. So even you see that our well connects seem to be a little bit down. We're still very confident in our volumes in the remainder of this year and going into 2025.

[Jeremy Tonet, Analyst at JPMorgan Chase & Co.]

Got it. That's very helpful. I'll leave it there. Thanks.

[Operator]

The next question comes from Theresa Chen with Barclays. Please go ahead.

[Theresa Chen, Analyst at Barclays]

Morning. I'd love to get your thoughts on the strength in the refined products and crude segment. Just puts and takes on what's driving that? Is it largely seasonal? Are you realizing the synergies ahead of schedule? And as we look to the second half of the year and kind of touching on the broader discussion of where you're going to land within your guidance, within this segment, as we see downtime in the Chicago area and the product margins as well as regional product spreads spike as a result, would it reasonable to think that would increase your earnings in the segment above what you typically budget year in and year out?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Theresa, this is Sheridan. I think if you start off, it's kind of all of the above. We are seeing our synergy capture coming in very nicely and very strong, and that will accelerate through the remainder of the year. So we are very confident, as we said, that we will be it the cost and commercial synergies at or above the $175 million that we have outlined. We are seeing a little bit of seasonality, a little bit more volume in the summer months. But remember, as we get into the back half, the third quarter will -- our blending activity will ramp up. So we will see a growth in that time as well. And the issues we have in Chicago are creating a little bit of tailwinds for us right now. But we always anticipate we will see some refinery turnarounds throughout the year. So we're -- we feel very comfortable where we're sitting at today on both our synergies and where the refined products and crude segment is going to end the year at.

[Theresa Chen, Analyst at Barclays]

That's helpful. And then on your expansion project into Denver, can you help us think through the economics related to that expansion? And if there are additional opportunities as you assess the landscape within the segment to expand your infrastructure based on committed volumes to additional inland premium markets?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Well, let's say, Theresa, on the expansion, this is a five times multiple project on -- on 35,000 barrels a day. Obviously, we laid a 16-inch -- we're laying a 16-inch line into Denver, and that's why we say we have very cheap expansion capability on that pipeline as we anticipate volume to continue to grow. And if volume continued -- I mean if demand continues to grow and we need more volume on that pipeline system, we will go out for a subsequent open season.

[Theresa Chen, Analyst at Barclays]

Thank you.

[Operator]

The next question comes from Tristan Richardson with Scotiabank. Please go ahead.

[Tristan Richardson, Analyst at Scotiabank]

Hey, good morning, guys. Could you talk a little bit about ethane across the basin, seemingly strong recovery in the Mid-Con and in the Rockies? But this is ethane trending better than maybe you were thinking at the beginning of the year? And then just how you see the second half looking?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Tristan, this is Sheridan. Ethane is going to be volatile. It's going to be up and down, as we said, it's going to be dependent on natural gas prices. That's why we've always put just a very modest amount of ethane recovery into our guidance as we look forward. Right now, we are seeing the Permian is in full recovery. The Mid-Continent at this time is in rejection. We do have -- have already locked in some incentivized ethane through the third quarter and into the fourth quarter. So we see that going, and we'll just have to watch and see how the ethane market evolves as it changes. We do see that the petrochemicals are having a very wide spread -- ethane and ethylene, it's very wide right now. So they're wanting to run at high utilization rates. And so we anticipate that we will see some recovery in the ethane markets as we finish the remainder of the year.

[Tristan Richardson, Analyst at Scotiabank]

Appreciate it, Sheridan. And then maybe, Walt, curious you haven't offered anything on '25 capex yet. But just given that you've pulled some projects forward, and you've said in the past, you really expect a downtrend in '25 versus '24 capex. Curious if we should see that maybe amplified with some of the projects pulled forward into '24?

[Walter S. Hulse, EVP, Chief Financial Officer, Treasurer, Investor Relations and Corporate Development at ONEOK]

Well, Tristan, we were going to be finishing up those projects in '25. So clearly, the capital that was associated with the tag-in of those projects is going to move forward into '24, and that will be a positive for our capex in '25. We've added the Denver project spread over a couple of years that isn't really a material increase to our capital. So I think the trends we've talked about in the past continue to be true. And we're getting to that point, we're going to enjoy the operating leverage we have built into our system. And as we fill that demand, we're going to see that drop to the bottom line.

[Tristan Richardson, Analyst at Scotiabank]

I appreciate it. Well, thank you guys very much.

[Operator]

Next question comes from Keith Stanley with Wolfe Research. Please go ahead.

[Keith Stanley, Analyst at Wolfe Research]

Hi. Good morning. Several of your producer customers in the Bakken have announced mergers, Conoco and Marathon, Devon and Grayson Mill. Any thoughts on what you think that could mean for Bakken production and your business over time?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Keith, this is Sheridan. One thing I'd tell you is, all those producers, all those on both sides of the acquisition up in the Bakken, we have very good relationships with them, not only in the Bakken, but also in other areas as well. And we think that they will -- as we've talked to them a little bit, we think that it's not going to have an impact on what's going on up there. They're going to continue their cadence of they do as drilling. There may be even some upsizing to the right as they go to the more better areas or more in the core areas and drill those a little bit faster. So we are feeling very good about the consolidation that's happened up there going into the hands of strength, and they will want to be producing up there for the long period of time.

[Keith Stanley, Analyst at Wolfe Research]

Great. And I wanted to follow up just on the Denver project. So I mean, the whole Magellan business has historically been viewed as a lower growth, kind of high return on capital business. But the Denver project is pretty material when you think about it. Are there other material opportunities across refined products besides Denver that you could pursue other areas of the system that are getting tight on capacity, you're seeing more of a demand inflection?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Absolutely. We continue to look for those areas as well. We think there are some other opportunities. We continue to -- one is we can continue to think El Paso showed some strength as well as we have completed our expansion into El Paso, and it is running -- running full. We've actually had an open season on a little smaller expansion on there that was fully subscribed. So we're already seeing a little bit more growth in that area. And we're encouraged about that continuing to grow. And then our teams are continuing to look for different areas, synergies or growth that we can expand our system as well. So we are excited about the growth in the refined products and system that we think we will see it at a higher rate than has been typically seen in that business.

[Keith Stanley, Analyst at Wolfe Research]

Thank. You.

[Operator]

The next question comes from Michael Blum with Wells Fargo. Please, go ahead.

[Michael Blum, Analyst at Wells Fargo & Company]

Thanks. Good morning, everyone. Wondering if you have any updates on potential AI data center-related projects on the -- in the gas pipeline segment?

[Charles M. Kelley, Senior Vice President, Commercial Natural Gas Pipelines at ONEOK]

Michael, this is Chuck. Yes, since we last spoke last quarter, as I mentioned then, we had 15 projects, potential projects across our footprint. Of those, there were three that specifically stated AI. Since then, we've -- our number is up about to 17 on the potential power plants, and of which five are AI demand specifically. Approximately across our footprint, these five are right in the neighborhood of a Bcf per day. So again, early stages, but more to come.

[Michael Blum, Analyst at Wells Fargo & Company]

Okay. Got it. And then just -- I was looking for an update on Saguaro. Any recent conversations and what's kind of the latest thinking there on timing of FID if that's going to happen?

[Charles M. Kelley, Senior Vice President, Commercial Natural Gas Pipelines at ONEOK]

Yes. I would just remind everyone, this really is a commercially strong project with world-class customers, and it makes great commercial sense. I mean you've got Permian supplies. LNG demand pull is competitively advantaged to the Asian markets. So MPL is working on the project financing to make their final investment decision. And at this time, we do not anticipate any material capital spend on our behalf here in 2024.

[Operator]

And the next question comes from Manav Gupta with UBS. Please go ahead.

[Manav Gupta, Analyst at UBS Group]

Good morning, guys. My first question is, can you talk a little bit about ethane? Can you also talk about any butane blending opportunities in your system at this point of time?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Yes, Manav, this is Sheridan. And we -- I mean, obviously, we have opportunities as we continue to integrate the refined products and NGL systems together that we are -- have the opportunity to take our butane and put it into our refined products instead of having to buy from a third party. So just from a sourcing and logistics savings, we're seeing that opportunity. And also, we continue to find ways to blend more butane into our refined products across our system by more automation and understanding, directing volumes through our system.

So we are very pleased with where we're sitting on our blending strategy at this time. And obviously, we have found some projects too that takes some capital that will be more into next year. We'll see Easton being one of them, but we'll see greater blending opportunities next year as we put some of these capital projects, small capital projects in service.

[Manav Gupta, Analyst at UBS Group]

Perfect. My quick follow-up is you kind of mentioned earlier or hinted to it that '25 capex obviously now would be lower than '24. So your growth projects are kicking in and the capex is lower. So the free cash flow next year would be higher. I'm just trying to understand if there is a preliminary plan and how should we think about those uses of the extra cash that is going to come out in 2025?

[Walter S. Hulse, EVP, Chief Financial Officer, Treasurer, Investor Relations and Corporate Development at ONEOK]

Well, as we stated before, back in January, the Board did give us an authorization to buy up to $2 billion worth of stock. We remain committed to our level of capital allocation. Our first goal is always to find high-growth projects that are extremely accretive to our shareholders. Then we want to maintain that balance sheet. We've clearly demonstrated that we have a very strong dividend that we've maintained through some very difficult times over time and continue to grow. And then if we have excess cash, that does provide the opportunity for stock repurchases.

We fully expect to complete that $2 billion program over the time frame -- time program that we had announced. And we haven't bought any today, as we mentioned on the first quarter call, because we do have this maturity coming up in September that we were going to focus our free cash flow on through that, and we will just allocate as appropriate as we get out in the coming quarters.

[Manav Gupta, Analyst at UBS Group]

Thank you so much.

[Operator]

And the next question comes from Neal Dingmann with Truist. Please go ahead.

[Neal Dingmann, Analyst at Truist Financial]

Hey, good morning, guy. I just want to approach the data center question from a different angle, not really on new projects. And this might be early, but has the downward market activity in the last month change the conversation side of this at all? I would assume they're not changing their demand forecast in real time, but have there been any maybe pauses in conversations or do some parties want to take a step back? Or is everything kind of steady as she goes?

[Charles M. Kelley, Senior Vice President, Commercial Natural Gas Pipelines at ONEOK]

I'm sorry, Neal, could you repeat the first part of that question? You said something about the past...

[Neal Dingmann, Analyst at Truist Financial]

Yes. Just the downward activity in the market over the past month, has that impacted the conversations at all? Or is everyone still looking so long term that maybe downward activity over the last month is just kind of a blip?

[Charles M. Kelley, Senior Vice President, Commercial Natural Gas Pipelines at ONEOK]

No. As a matter of fact, it hasn't impacted the discussions at all. As a matter of fact, we see even more activity here this month and then in the next several months. So the markets are looking long term. And when you're looking at having to add facilities to serve these markets, that takes time. That's understood both by the power generators and the commissions that they answer to. So no impacts at this time.

[Neal Dingmann, Analyst at Truist Financial]

That's helpful. And then the second one, on slide 10, you do a really good job of showing Williston Basin GORs and kind of how flaring has tailed off and maybe that relationship is related. But do you see that continuing? Is this more of an inventory just drifting with a higher GOR? Or -- or is there any other kind of plateaued on that trend?

[Pierce H. Norton, President and Chief Executive Officer at ONEOK]

I would say on the GOR question, we know that as wells age, the GOR goes up. So a little bit the movement in the GOR we see is more based on drilling activity as -- if you drill in an area that starts at a lower GOR, it may pull the overall GOR down for a little bit. But those wells, even wells have started lower will continue to grow. So we -- overall, we see the GORs increasing in -- as a general trend, increasing in the bottom.

[Neal Dingmann, Analyst at Truist Financial]

Appreciate the answers. Thanks.

[Operator]

And the next question comes from Neil Mehta with Bank of America. Please go ahead.

[Neil Mehta, Analyst at Bank of America]

Hi. Good morning. Thanks for taking my question. I wanted to touch on the share repurchase. I think the leverage level over the last 12 months has been 3.36 times, which you pointed out. Are you looking to buy back shares after the September debt maturity? Or are there other factors or criteria which you're waiting for to start executing on that $2 million program?

[Walter S. Hulse, EVP, Chief Financial Officer, Treasurer, Investor Relations and Corporate Development at ONEOK]

I think the plan is to allocate the capital as appropriate from the third quarter through the remainder of the program. So it's over several years. And we expect that to be executed in each of those years going forward. But it will obviously ebb and flow as we have opportunities to spend capital on high-growth projects in a particular quarter, then it will be allocated there. And other quarters, that will go in other directions. So -- but we are committed to completing the program over the time period that we have said, and I think on track with our plans with this maturity coming up in September.

[Neil Mehta, Analyst at Bank of America]

Okay. Perfect. My second question relates to the Medford rebuild. Could you talk about the decision to move forward with that? My understanding was that with the Magellan merger, you're able to batch NGLs up the refined pipes, so there was an ability to maybe replicate Medford with Mont Belvieu sending volumes up to Conway and then also with the Easton acquisition. So maybe you can kind of educate me on that, on the -- where I'm wrong or what's not connecting and how Medford benefits ONEOK?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Well, I think the first thing on Medford benefits ONEOK is if you just do the math on 210,000 barrels a day of fractionation capacity for $385 million, that is a very low cost per barrel capacity for fractionation. The second thing is what you're alluding to is could we take all our raw feed all the way down to Mont Belvieu and fractionate it and then turn around and take certain products and ship them all the way back up to the mid-continent and deliver them into the Mid-Continent. That is -- could be a possibility. This is a much more efficient way to do that, to have all those volumes not have to make that travel. And consume that variable cost will fractionate them in the Mid-Continent, be able to put them back into the Mid-Continent as we need it, but still have the ability to move them down into the Gulf Coast.

The third thing it also does is by not having to move all that raw feed down all the way down to Mont Belvieu to fractionally bring it up, we are actually creating capacity on our Arbuckle system to be able to source even more raw feed into our -- into the Mont Belvieu system. So we're moving that volume off of the Arbuckle system, fractionating it in net burden and putting on the Sterling system. So it's a much better way to balance our system as we go forward. So our system was really designed to have Medford where it is, and it runs more efficiently that way. So we're pretty excited about bringing this facility back up.

[Neil Mehta, Analyst at Bank of America]

Perfect. I appreciate all the detail.

[Operator]

And the next question comes from Craig Shere with Tuohy Bros. Please go ahead.

[Craig Shere, Analyst at Tuohy Bros]

Hi. Thanks for taking the question. Congratulations on the strong performance. I just have one question. It's obvious that you're finding ways to more than nickel and dime at very high return, stable contracting growth that is beyond what was originally guided with the MMP acquisition. But -- and this kind of relates to some of the questions that have already been asked. But it seems that apart from contracted stable, very high return growth that your asymmetric optimization opportunities between Y-grade or purely NGL transport with increased lending opportunities with the Easton acquisition and more that in any given year, I mean, it's not going to go down, but you have increasing asymmetric upside in a given year. Am I thinking about that wrong?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

No, Craig, I think you are thinking about that correct. Especially as we continue to put into place some of these low capital projects that I had mentioned about earlier, we are going to increase our blending opportunities, both with our blending our refined products, blending butane into gasoline that we do. But also with the Easton acquisition, we have customers at our terminals now that are also blending NGLs into their facilities. And this is going to really allow us to supply that -- those volumes into those locations and create a bundled service in there.

We're looking at the whole value chain that we'll be able to attract even more volume into our terminals on the Gulf Coast down there. So yes, I think you are seeing that we will continue to grow this, and this is an area that we saw when we bought the Magellan acquisition and has been -- we've been very pleased with how it's playing out.

[Pierce H. Norton, President and Chief Executive Officer at ONEOK]

This is Pierce. I want to add one thing to what Sheridan says as a big picture comment is, as this company has gotten more diversified, it is harder to point to one thing that maybe that will drive our numbers down, which is I think what you're kind of alluding to is that there's not maybe as much downside as maybe we've had in the past. So I think that's one comment I would make to your question.

[Craig Shere, Analyst at Tuohy Bros]

Great. That's very helpful. And in Sheridan's point, it's not just the optimization I mentioned but increasing bundled opportunities, which would seem to be even more stable long-term returns that get the icing on the cake potential with the optimization that all of it's happening at once as you take these expansion and attractive bolt-on opportunities.

[Operator]

The next question comes from Sunil Sibal with Seaport Global. Please go ahead.

[Sunil Sibal, Analyst at Seaport Global Securities]

Hi. Good morning, everybody. And thanks for all the color of the call. I'm not sure if I missed this, but could you talk a little bit about the economics on the Medford project? How should we think about returns on that project?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Well, on the -- incrementally on the Medford project, we are already -- even with MB-6 coming up online here at the end of this year, we still have need -- contracted need for more fractionation capacity. So what we took a look at is where was the cheapest fractionation capacity we could get and where is the best fit into our system. And also with the idea of bringing that much on with what we have contracted already today, we have a very nice project, and we do this a lot. We have a very nice project with a lot of upside on this capacity.

And that's why we're going back at Medford that we will be able to grow into this as we continue to see volume grow across our systems, be able to have that fractionation capacity online to be able to timely meet our customers' demands as they continue to grow their system as well. So basically, we're saying we're putting in -- we're once again, putting in a very low-cost option that allows us to compete in all basins across our footprint.

[Sunil Sibal, Analyst at Seaport Global Securities]

Okay. And then on the Bakken processing, it seems like a lot of commentary we hear is gas to oil ratios getting higher. And it seems like your processing system is running close to 85%, 90% capacity, but at least it was in Q2. How should we think about opportunities in terms of processing there in that region?

[Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing at ONEOK]

Yes, we continue our -- I think I understand your question. I mean, our facilities up in the Bakken are running at a pretty good utilization, but we still have -- we're running at about 1.6 Bcf today. We have 1.9 Bcf capacity. So we still basically have a plan to be able to grow into or be able to handle turnarounds on our system as well. We will continue to monitor production growth at that time. And at the right time, we'd need to, we'll put more capacity in that region as well to make sure we can be able to service our customers out there that they have a very reliable alternative to move the -- both the gas and the NGLs to make sure they can produce their crude oil. Because that's really what they're after. They're after the production of their crude oil, and they just need to make sure they have a very reliable and resilient outlet for their gas and NGLs.

[Sunil Sibal, Analyst at Seaport Global Securities]

Got it. Thanks for that.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Andrew Ziola for any closing remarks.

[Andrew J. Ziola, Vice President of Investor Relations at ONEOK]

Our quiet period for the third quarter starts when we close our books in October and extends until we release earnings in late October. We'll provide details for that conference call at a later date. Thank you all for joining us, and have a good day.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Andrew J. Ziola, Vice President of Investor Relations
• Pierce H. Norton, President and Chief Executive Officer
• Walter S. Hulse, EVP, Chief Financial Officer, Treasurer, Investor Relations and Corporate Development
• Sheridan C. Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing
• Charles M. Kelley, Senior Vice President, Commercial Natural Gas Pipelines

Analysts

• Spiro Dounis, Smith Barney Citigroup
• Jeremy Tonet, JPMorgan Chase & Co.
• Theresa Chen, Barclays PLC
• Tristan Richardson, Scotiabank
• Keith Stanley, Wolfe Research
• Michael Blum, Wells Fargo & Company
• Manav Gupta, UBS Group AG
• Neal Dingmann, Truist Financial Co.
• Neil Mehta, Bank of America Co.
• Craig Shere, Tuohy Bros
• Sunil Sibal, Seaport Global Securities