8-K: ONEOK to Sell Interstate Natural Gas Pipelines to DT Midstream for $1.2 Billion

ONEOK has agreed to sell three of its wholly-owned interstate natural gas pipeline systems to DT Midstream for $1.2 billion in cash.

Summary

• ONEOK has entered into a definitive agreement to sell its Guardian, Midwestern, and Viking natural gas pipeline systems to DT Midstream for $1.2 billion in cash.
• The sale is expected to close in the fourth quarter of 2024, subject to regulatory approvals and other customary closing conditions.
• The purchase price represents 10.8 times the previous 12 months EBITDA as of June 30, 2024, based on Federal Energy Regulatory Commission (FERC) filings.
• The transaction has been unanimously approved by the boards of directors of both ONEOK and DT Midstream.
• The net proceeds from the sale are expected to enhance ONEOK's financial flexibility and support its deleveraging trend toward a target of 3.5 times during 2026.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the strategic sale of assets, which is expected to improve the company's financial position and focus on core operations. The deal is at a reasonable multiple and is expected to close in the near term.

Positives

• The sale will provide ONEOK with $1.2 billion in cash, enhancing its financial flexibility.
• The transaction will help ONEOK deleverage towards its target of 3.5 times by 2026.
• The sale allows ONEOK to focus on its core integrated operating footprint.
• The deal was unanimously approved by both ONEOK and DT Midstream boards.
• The sale price represents a multiple of 10.8 times the previous 12 months EBITDA.

Risks

• The transaction is subject to regulatory approvals and customary closing conditions, which could delay or prevent the sale.
• There is a risk of potential adverse reactions or changes to business or employee relationships due to the transaction.
• The transaction could disrupt ONEOK's current plans and operations.
• Changes in domestic and foreign business, market, financial, political and legal conditions could impact the transaction.
• Economic downturns and declines in commodity prices could affect the company's performance.

Future Outlook

The company expects to complete the transaction in the fourth quarter of 2024 and use the proceeds to enhance financial flexibility and deleverage towards a target of 3.5 times during 2026.

Management Comments

• This transaction will align and enhance our capital allocation priorities within our integrated operating footprint, said Pierce H. Norton II, ONEOK president and chief executive officer.
• DT Midstream is the ideal owner of these FERC regulated interstate pipeline systems, with our employees sharing a similar culture of safety and reliability as they will continue to be excellent stewards of these assets providing essential natural gas transportation services.
• This strategic move to optimize ONEOKs asset portfolio reinforces our standing as one of the largest diversified energy infrastructure companies delivering essential products and services.

Industry Context

This transaction reflects a trend of midstream companies optimizing their asset portfolios and focusing on core operations. It also highlights the ongoing consolidation in the energy infrastructure sector.

Comparison to Industry Standards

• The sale of assets at 10.8 times EBITDA is within the range of recent midstream transactions, although specific multiples vary based on asset quality and market conditions.
• Companies like Kinder Morgan and Energy Transfer have also been actively managing their portfolios, selling non-core assets to improve financial positions.
• The focus on deleveraging is a common theme among midstream companies, as they seek to strengthen their balance sheets and improve investor confidence.

Stakeholder Impact

• Shareholders will benefit from the enhanced financial flexibility and deleveraging.
• Employees of the divested pipeline systems will transition to DT Midstream.
• Customers will continue to receive natural gas transportation services.

Next Steps

• The transaction is subject to regulatory approvals and customary closing conditions.
• The company expects to complete the transaction in the fourth quarter of 2024.

Key Dates

Keywords

ONEOK, DT Midstream, natural gas pipelines, asset sale, interstate pipelines, EBITDA, deleveraging, midstream, energy infrastructure