ONEOK (OKE) faces a big contract cliff in 2028 on West Texas NGL, the company’s NGL pipeline system in the Permian Basin. The company can mitigate that risk with a strategic acquisition – East Daley has one candidate in mind.
Re-contracting risk on Permian-based NGL pipelines has been a hot topic on 2Q24 earnings calls. Several projects are under construction that will expand pipeline takeaway from the basin, raising risk of an overbuilt market in 2025. East Daley recently highlighted efforts by Phillips 66 (PSX) to mitigate risk exposure on its own Sand Hills pipeline.
Like PSX, OKE is short NGL production and long NGL pipeline capacity, which means it relies on volumes from third-party processing plants to fill its West Texas NGL system (refer to the map below; OKE’s pipe is in pink). 
ONEOK does not own G&P assets in the Permian, yet the company is expanding NGL pipe egress capacity from 190 Mb/d to 380 Mb/d as early as 4Q24. It’s a bold strategy. OKE sources a significant chunk of NGLs from EnLink Midstream’s (ENLC) plants, including Midmar, Deadwood, Phantom, Riptide, and Bearkat. Not all the NGL production from ENLC’s plants are moved by OKE; several plants have optionality to connect with Energy Transfer’s (ET) Lone Star pipeline as well (refer to the green pipeline on the map).
On its 2Q24 earnings call, ENLC Chief Commercial Officer Dilanka Selmon noted that contracts for 220 Mb/d of NGL production from its own Permian plants – 150 Mb/d of which EnLink controls – will begin to expire in 3-4 years (refer to the figure showing NGL production by plant, available in EDA’s Energy Data Studio). Since we know most of the volumes under contract expire “toward the back end of that range,” this puts the timeline for the contract risk at around mid-2028.
From a contracting perspective, the NGL market will be much more supportive of higher rates in mid-2028 than the overcapacity we anticipate in 2025. Pipeline egress utilization rates will increase to mid-80% by 2028, according to East Daley’s NGL Hub Model. Time is on ONEOK’s side, and that is one mitigating factor.
Another way ONEOK could mitigate contract risk is to acquire EnLink’s plants and the associated NGL production. This would not be a unique approach – midstream has been rapidly consolidating in the Permian in a scramble to secure NGL barrels. The dealmakers include Enterprise Products (EPD; Navitas), Targa Resources (TRGP; Lucid Energy), ET (West Texas Gas), Kinetik (Durango Midstream), and PSX (Pinnacle).
A deal for ENLC would have several advantages for ONEOK. Not only would OKE own G&P assets and associated NGL production to fill its expanded NGL pipeline, but the company would also acquire 150 Mb/d of equity barrels it could use to backstop an LPG facility near Houston that it has eyed since 2019.
To learn more about the state of the Permian NGL market, join East Daley this Wednesday, August 28 for our next webinar. – Rob Wilson, CFA Tickers: ENLC, EPD, ET, KNTK, OKE, TRGP.
Join East Daley’s Next Webinar - NGLs Heading into a Super-Volatility Cycle
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- NGLs & commodity ties: Gas, NGLs and Crude - One constraint will constrain all
- Permian back on the board in 4Q24 and what it means for supply
- Activity afoot in the Bakken – Double H impact to the NGL market & the long game
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