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Top Midstream Companies Based on the Correlation with Crude Oil

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Part 3
Top Midstream Companies Based on the Correlation with Crude Oil PART 3 OF 8

ONEOK Has the Second-Highest Correlation with Crude Oil

ONEOK versus crude oil

ONEOK (OKE), an S&P 500 midstream C corporation, has the second-highest correlation with crude oil among midstream companies. The correlation between crude oil and ONEOK was 0.49 as of February 6, 2018. In comparison, Kinder Morgan (KMI) and MPLX LP (MPLX) have a correlation of 0.31 and 0.40. 

ONEOK Has the Second-Highest Correlation with Crude Oil

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Similar to Targa Resources (TRGP), ONEOK is involved in natural gas processing and NGLs (natural gas liquids) businesses. The company’s involvement results in high commodity price exposure compared to most midstream companies. ONEOK’s high market liquidity could be one of the factors behind its higher correlation with crude oil.

ONEOK expects ~90% of its earnings from fee-based sources in 2018, ~5% from commodity prices, and ~5% from differential pricing. ONEOK’s gathering and processing segment is expected to generate ~80% of its earnings from fee-based sources in 2018 and ~20% from commodity prices. According to a recent investor presentation, ONEOK has “achieved increased fee-based contract mix by restructuring percent-of-proceeds (POP) contracts with a fee component to include a higher fee rate.”

In 2018, ~10% of the NGLs business is expected to be linked to differential pricing. Meanwhile, ~5% of the natural gas pipeline business earnings are expected to be linked to commodities in the next year. ONEOK expects NGLs to account for ~60% of the total adjusted EBITDA in 2018, ~25% of the Natural Gas Gathering and Processing segment, and ~15% of the Natural Gas Pipelines segment.

Analysts’ recommendations

For ONEOK, 52.6% of the analysts rated it as a “buy,” while 47.4% rated it as “hold.” ONEOK is trading close to the low range ($54) of analysts’ target price. ONEOK’s average target price of $61.7 has ~13% upside potential from the current price levels. ONEOK has seen several rating updates since the beginning of this year. To learn more, read It’s Raining Upgrades for This S&P 500 Midstream C Corporation.

Next, we’ll discuss the correlation between Williams Companies (WMB) and crude oil.

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