Oneok, Inc. 2026 Q2 Earnings Call

Welcome to ONEOK's second quarter 2026 earnings call. We issued our earnings release and presentation after the markets closed yesterday, and those materials are available 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. With that, I'll turn the call over to Pierce Norton, President and Chief Executive Officer.

Thank you, Megan. Good morning, everyone, and thank you for joining us today. Joining me on the call are Walt Hulse, our Chief Financial Officer, Randy Lentz, our Chief Operating Officer, and Sheridan Swords, our Chief Commercial Officer. Yesterday, we reported second quarter earnings and raised our 2026 financial guidance for the second time this year, reflecting strong year-to-date performance and continued momentum heading into the back half of the year. Our second quarter results were driven by record NGL throughput volumes, strong refined products demand, and continued volume growth across our systems. The quarter highlighted the positioning of our asset footprint, the value of our integrated platform, and the outstanding execution of our employees. The broader energy backdrop remains constructive, but the more important point for ONEOK is that we're converting that backdrop into visible growth.

Our footprint connects key supply basins with domestic and international demand across natural gas, natural gas liquids, crude oil, and refined products. The connectivity across our business segments gives us multiple ways to grow earnings, optimize existing assets, and allocate capital toward opportunities with attractive returns. Importantly, these opportunities are not confined to a single commodity or region. Our integrated system enables us to create value across multiple demand drivers, a differentiator for ONEOK. Our confidence is reflected in our long-term outlook. We continue to target mid to high single-digit adjusted EBITDA growth over the next five to seven years, supported by three factors that are increasingly visible. Recently completed and soon-to-be-completed projects drive structural growth spanning Permian Basin processing capacity, Powder River processing capacity, Midcontinent fractionation capacity, refined products expansions, and natural gas transportation and storage capacity and LPG exports.

Operating leverage available across our assets, requiring little to no capital investment and allowing us to be flexible to customers' needs and timing. Finally, a growing pipeline of high-return organic projects, bolt-on acquisitions, and commercial optimization are creating additional investment opportunities across our system, where commercial discussions are improving our confidence in timing, scale, and returns. Our long-term strategy remains grounded in the same principles that have gotten us where we are today: operational excellence, financial discipline, and a value-driven approach to capital allocation. With that, I'll turn it over to Walt for a financial update.

Walt? Thank you, Pierce. As Pierce mentioned, our second quarter performance and strengthening outlook across our business supported a second increase to our 2026 financial expectations.

We now expect a 2026 net income midpoint of $3.6 billion, a diluted earnings per share midpoint of $5.68, and an adjusted EBITDA midpoint of $8.35 billion. This represents net income and adjusted EBITDA increases of $150 million and $250 million, respectively, compared with our original guidance provided in February. At the segment level, natural gas pipelines and refined products and crude continue to perform toward the upper end of the adjusted EBITDA ranges provided in our original guidance. Natural gas liquids and gathering and processing remain well-positioned through the balance of the year. Across the portfolio, organic volume growth, EBITDA from recently completed projects, and attractive hedging and commercial opportunities are providing momentum in the second half of the year and into 2027.

Our 2026 capital expenditure guidance remains unchanged at $2.7 billion-$3.2 billion. We expect capital spending to accelerate through the second half of the year as several major projects move towards completion, bringing us towards the upper end of our CapEx guidance range. Turning to the second quarter results. ONEOK reported net income of $965 million, or $1.53 per diluted share, a 13% increase year-over-year. Adjusted EBITDA totaled $2.12 billion, up 7%, driven by volume growth and strong segment-level performance. We continue to expect earnings to largely follow the normal seasonal cadence of our business as we move through the remainder of 2026. With the tailwinds I just mentioned supporting second half results, our overall financial position remains strong and continues to provide the flexibility to invest in the business, return capital to our shareholders, and pursue opportunities that create long-term value.

As additional guidance on the application of the One Big Beautiful Bill Act and the Inflation Reduction Act of 2022 has become available, we've continued to evaluate the impact of the tax legislation, particularly as it relates to acquisitions and bonus depreciation. Based on our latest analysis, we now expect approximately $2.6 billion of cumulative cash tax benefits, compared with the approximately $1.5 billion we previously discussed. These additional benefits, combined with our existing tax attributes, are expected to defer meaningful cash tax payments until 2031, extending our cash tax runway by approximately two years and further enhancing future free cash flow generation. Higher earnings and improved free cash flow also support continued progress towards our long-term leverage target of 3.5 times debt to EBITDA. I'll now turn it over to Randy for an operational and large capital projects update.

Thank you, Walt. Our teams continued to execute at a high level throughout the second quarter while maintaining focus on safety, reliability, and customer service. Performance across the system remained strong, supported by increasing customer activity, improving asset utilization, and contributions from recently completed projects. As volumes grow across our footprint, we're seeing the benefits of the connectivity and scale of our assets. We continue to advance project portfolio, and as of August 1st, our Denver area refined products expansion was placed in service. This project adds 35,000 barrels per day of capacity into one of the fastest-growing markets in our footprint and provides a new direct jet fuel connection to Denver International Airport. In the Permian Basin, we continue to expand processing capacity to support growing producer activity.

Following our recently relocated 150 million cubic feet per day plant in the Midland Basin, we remain on track to complete 110 million cubic feet per day of Delaware Basin plant expansion projects during the third quarter. Additionally, based on production outlooks in the basin, we've increased the capacity of our Bighorn plant to 400 million cubic feet per day from an initial capacity of 300 million cubic feet per day. Bighorn remains on schedule for completion in mid 2027. Upon completion, our Permian processing capacity will increase to nearly 2.4 billion cubic feet per day. In addition, along with our initial 60 million cubic feet per day Cutter plant in the Powder River Basin, which was previously announced, we've begun construction on another 120 million cubic feet per day Cutter two plant, which we expect to be online in the first quarter of 2028.

Finally, phase one of our Medford Fractionation project remains on track for completion during the fourth quarter. Medford phase one will add 100,000 barrels per day of Midcontinent fractionation capacity, with phase two expected to be completed in the first quarter of 2027. Looking ahead, the projects entering service over the next several quarters are expected to add visible earnings, increase system utilization, and support our long-term growth outlook. With that, I'll turn the call over to Sheridan for a commercial update.

Thank you, Randy. Commercial activity remained strong during the quarter, supported by favorable fundamentals across all four of our business segments. We delivered solid volume growth across our integrated system, driven by increased customer activity, healthy domestic and international demand, and continued production growth in key producing basins. Starting with the natural gas liquid segment. Raw feed throughput volumes increased 7% year-over-year, with growth across all regions. Utilization continued to increase across the system, supported by improved seasonal demand and producer activity. The Gulf Coast Permian region led performance, increasing 15% year-over-year, driven by increased production volumes and the continued ramp up of recently connected third-party plants. In the Rocky Mountain region, NGL volumes increased year-over-year, even taking into account a contract roll effective at the beginning of the quarter, which was previously discussed and assumed in guidance.

This was more than offset by growth across the region and continued strength in ethane recovery. Higher NGL pricing and export demand continued to support ethane recovery across all regions, and we expect these dynamics to remain favorable into the third quarter. Global NGL demand remains strong, supported by growing petrochemical demand and continued interest in securing long-term access to reliable U.S. supply. We're pleased to announce that we've reached our targeted contracting threshold of 80% for our 200,000 barrels per day of LPG export capacity, which is currently under construction as part of our export dock joint venture. The capacity is supported by high-quality counterparties, and customer interest remains robust, including discussions that extend beyond the initial contracted period and into the next decade. This underscores both the growing demand for U.S.-sourced LPGs and the value of the terminal's advantage locations. Turning to the refined product and crude segment.