ONEOK has an aggressive capital growth plan totaling $3.5 billion in capital growth projects, among them critical infrastructure in the Bakken.
Among these is the 900-mile Elk Creek pipeline, to carry unfractionated natural gas liquids from eastern Montana to Kansas, and the Demicks Lake I and II gas plants in McKenzie County, each of which will process up to 200 million cubic feet per day of natural gas. Elk Creek is a $1.4 billion project, while the gas plants are about $410 million each.
Timing, of course, is everything. Delays in these projects would hurt the company’s growth prospects, as could downturns in oil and gas activity in the region.
President and Chief Executive Officer Terry Spencer took on both issues at the top of the company’s first quarter earnings call.
Cold weather in February caused a dip in activity, particularly in the Bakken. Despite that, Spencer said they are seeing an overall improvement in the oil and gas industry, as well as continued activity across all their operations. They are also on time and on budget with the projects they have proposed.
The southern leg of Elk Creek is on target for completion in the third quarter, and the entire pipeline should be finished by fourth quarter.
“Ending the year at the low end of our capital guidance range is less likely than it was in February,” Spencer said. “And to the extent that we may be above the guidance midpoint of $3.1 billion, we would be spending construction dollars in 2019 that were previously planned for 2020, and accelerating the inservice dates for some projects.”
If the projects can be accelerated, the company begins making money sooner, company officials pointed out later in the call. That would likely mean revising its forecast of 6 percent earnings growth upwards for 2019. Once the capital projects are complete, the company has forecast earnings growth of 20 percent.
The recent announcement of a Bakken NGL line in North Dakota in Williams County will be providing takeaway capacity in an area that has historically had few transportation options.
“We are reaching into a new area of the Bakken,” Spencer said. “And by doing so, we are enhancing our ability to provide potential NGL transportation services to more customers.”
Sheridan Swords, senior vice president natural gas liquids, said customers switched to ONEOK for transportation because they would get better returns for the increased volume.
“Their existing outlets are limited,” he said. “They need that extra capacity.”
The lateral could actually move up to 200,000 barrels per day — more than the company needs right now.
“We see today at the processing plants in the area that this pipeline goes by are producing 10,000 barrels a day, but, as we talk to people in the area, that 10,000 per day could grow to as much as 40,000 barrels a day in the near future.”
Right now, the Williston Basin is averaging more than 60 operating rigs, 25 of which are on ONEOK dedicated acreage.
“If crude prices sustain around $60 to $65 per barrel, we could see additional rigs move into the Basin once NGL takeaway capacity and anticipated gas processing capacity are completed this year,” Kevin Burdick, executive vice president and chief operating officer said.
He added that more than 250 million cubic feet per day of natural gas is being flared on ONEOK acreage, which shows a clear backlog of volume to fill Demicks Lake I when it begins service in the fourth quarter of this year.
“We expect additional flared natural gas and continued strong production to provide for a quick volume ramp of Demicks Lake two, which is expected to come online in the first quarter of 2020,” he said.
The two plants will each provide about 25,000 barrels per day of NGLs to Elk Creek, not including ethane recovery.
Elk Creek is likely to reach 100,000 barrels per day by the first quarter of 2020, which means it should reach revenue targets within the first few months of operation. Its volumes will continue increasing throughout 2020.
Additional contracts with natural gas processing plants in the region have already been acquired, Burdick added, raising the expected volumes from 170,000 barrels per day to 200,000 barrels per day.