ONEOK, Inc. (OKE) Earnings Call Transcript & Summary

Good afternoon, this is Bob Brackett at Bernstein. I am the senior analyst covering America's Energy and Transition. We are not expecting a fire drill. So if the alarms ring, please take it seriously. The primary exit is straight to my right at the door. You'll descend, you'll come out on the north side of the building, muster there, and wait for further instructions. If for whatever reason that avenue is blocked, you go out to the left, in the open area, there's a pair of a -- pardon me, stairwells that will take you down to the street as well. This is your fireside chat. You have on the screen, we'll be rotating the QR code to get to the app, the digital app, there it is. [Operator Instructions] While I'm waiting for your questions, I will ask questions from our guests, and we're going to follow a pyramid principle. So we'll start with kind of the macro, and we'll work our way down from there. And just to ensure that I get all of the names correct in the correct order. It is my pleasure to introduce Pierce Norton, President and CEO; Walter Hulse, EVP and CFO; and Ms. Sheridan Swords, EVP, Chief Commercial Officer of ONEOK. Thank you very much for coming.

Thank you.

I'll start. We've got companies here this week where a $1 move in gas or a $10 move in oil changes their cash flows by 40%. So they wake up. First thing they look on their screen is what's the price of my commodity, and they live and breathe by that. You all are extremely insulated from wild commodity price moves. Nonetheless, you're moving a lot of product across the various commodities we'll talk about. And maybe you're in a more patient and wise place to view the commodity cycle, where are we in the oil commodity cycle, and then we'll move to a couple of other commodities.

Well, I think it's no secret that the oil prices have come down slightly, but we haven't seen any degradation in volume. And you said it well, we're really a volume-times-rate company, but we not only move the crude oil, but we move natural gas, and we move all the natural gas liquids and refined products step fuel, diesel fuel and the motor gasoline. So we really haven't seen anything that's material in that way. We used to have more commodity exposure than we work really hard to get that out of the company. And so we've got mainly volume-times-rate types of businesses right now. But what I would say about it, it's different. You've got a lot of rhetoric around the tariffs and maybe some sort of global recession. But that's far different than COVID. So tariffs are not COVID. COVID turned the volumes down by almost 20% instantly. And so those are the kind of things that do affect our business because they do affect volume, but we don't see that right now. And so I think in our businesses, things are fairly stable. And fortunately, in our business, we're not only dependent on the volumes, but because of all of our acquisitions, we have so many opportunities to connect up the different pieces of our business and collect on the synergies that really are volume independent.

That's very clear. I have to repeat the fact on COVID, even COVID as an oil price cycle from the demand side losing 15 million barrels a day out of 100 was remarkable, yet the following year, we were back in the $70 oil. Today, recessions are a few hundred thousand barrels a day. And there are some folks that need to figure some things out, but we're far cry. So I'd highlight that. On the optimistic side, I'm going to try to make you make the audience as excited as possible around natural gas, convince me not to be bullish around natural gas.

Well, it's hard not to be bullish on natural gas because if you go back to 2000 to 2007, the actual natural gas production in the United States was pretty much flat. It was around 20 Tcf per year. And then now you fast forward to 2024, which is more than double since then, and that's about 42 Tcf a year. And if you look at what drove that, it was primarily the coal conversions to natural gas. And then in 2016, it started to pick up because went basically from 0 to 14 Bcf a day of exports out of the United States. And now there's projections that actually -- facilities are actually in construction right now along the Gulf Coast. There's, I think, 5, most of them are in Texas. There's a couple in Louisiana that's going to actually raise that to 10 Bcf a day And then there's even potential FID projects even past that up to 30 and even beyond that. So it's hard not to be bullish on natural and then you add in the artificial intelligence data centers that will likely be supported by natural gas, you had another 3 to 8 Bcf a day. So it's hard not to be bullish on natural gas right now with the LNG. And there will still be some coal plant conversions even now. So those 3 factors are going to really make a difference over the next decade for natural gas.

And what's interesting around America's energy landscape is every hydrocarbon we produce is an export molecule at this point, right, whether it's LNG, methane, that's going abroad, oil, crude oil gets exported, shale oil certainly gets exported. Coal actually marginal ton of coals and export ton. And that brings me to NGLs, natural gas liquids. You are unique amongst the folks we have here this week and that you're heavily focused on NGLs, a lot less than, say, 2 years ago when you were last year at NGLs in my mind, every incremental barrels and export barrels, talk about the NGL outlook, and talk about putting those barrels into a world where you're competing with petrochemicals, and where are we in the petrochemical cycle?

Well, in short, most of your natural gas liquids are essentially by-products because you have -- we talk in terms of natural gas as if it's 1 molecule, but it's many molecules. It's methane, it's ethane, it's propane, isobutane, normal-butane, gasolines. And so all of those products have different variable values at different points, but where they're produced they don't have a lot of value because you got to get them to somewhere where they do have value, and that's what we do. We're the midstream business, and we move all of those different products, either in raw form as they are together or we move them through purity lines and then we also have our refined product line. So overall, though, we do feel like that the ethane is going to be -- it's going to be produced in the United States primarily goes to the pet chems in the United States due to a lot of onshoring that's happened in the last 20 years throughout the petrochemical industry. And then as far as the propane, there's not -- we don't see a lot of demand for the propane in the United States above where it is today. So that extra molecule that's going to come with all the gas, it's either going to go to LNG or AI, is going to have to go somewhere, and it probably go through an export facility, which is 1 of the reasons that we're actually building an export facility with our partner, MPLX, down in Texas City. It's going to be a 400,000 barrel a day, a world-class scale LPG dock. And so we do think that's going to go around the world. And the thing about propane is it's pretty balanced. So if for some reason, some country doesn't want your propane, then they're getting it from somewhere else. And so it just displaces and goes to the different places. It's not like a hardwired pipeline. Pipeline is you go from point A to B, and there's no moving it, but because LPG is going on ships. It's easily to move. Sheridan, you're talking about his really expertise here when it comes to NGLs. He's been in the NGL business for a long, long time.

Yes, Pierce, what I would add to that, it's 1 thing you got to think about propane and you mentioned it that propane and normal butane they are a byproduct of production of crude oil and natural gas. It has to go someplace, and it will find the price that it becomes demand that the demand will pick up on it if you see a drop-off in demand. And to show that is right now, we've seen a lot of fluctuations in prices, but our LPG export docks have been at high utilization, if not completely full for a long period of time. Ethane is a little bit different in exports. We do see, as Pierce mentioned, that ethane is really going to want to stay domestically. That's where we see the only growth in NGL demand. There is some ethane that is being exported. About half of that really goes to China today, India and some of the places pick up the other portion, and you saw it right away on the tariffs that trying to rescinded their tariff on ethane pretty quickly, realizing that, that's really the only source they have is the United States ethane. A lot of those docks, which is different than an LPG dock, a lot of the ethane docks or the 2 ethane docks. They have crackers on the other side of the world that they're just running back and forth through backward. So if they all of a sudden stop that ethane, they have to stop that cracker down, and ethane's still 1 of the cheapest feedstock for petrochemicals even with tariffs on it.

And there's a -- the tie-in with tariffs and regulation. And again, if you think about the oil and gas industry in the U.S., we contribute to the trade balance, right? LNG exports is a huge source that benefits trade balance for the U.S. And NGLs are in that camp, talk to the regulatory environment maybe we'll start with tariffs and then talk more broadly, what would you like to see more -- be more clear in today's regulatory environment?

Well, we've actually got to spend quite a bit of time with numerous heads of the administration on this issue. They've actually come to Oklahoma several different times, and we've got to sit down with them both kind of in one on ones and in group settings. And the thing I see differently today than I may be -- seen in the past is, in the past, somebody might say, "Well, what do you need to do? What can we do to help you?" And the answer might be very vague. It might be like, well, you need to speed up the permitting process or whatever. But the difference here is this administration is asking, no, what specifically do I need to do? And what -- where are you specifically having an issue? And tell me what that is, tell me the names of who you're dealing with, and I will go and see what I can do to help you. So there's a real problem-solving attitude out there right now, and that's what -- and I think that's what it's going to take. It's going to take specifics, not just generalities. But in general, I will say this, is that we would like to see that something is more long term in the regulatory process so that it can't change from an administration to administration.

And anything on the tariff policy, or is that still just clarity is, what is important?

A little bit on the tariff policy. We're seeing that a little bit as very volatile right now. A lot of times are being put out there and come back in and being put out there, come back in. And I think people are starting to get used to that a little bit just because there's a tariff in there, it doesn't mean it's going to stay for a long period of time. Obviously, a little bit of more certainty on that would help right now, but I think we're starting to work through that already that a lot of these tariffs are just more rhetoric than actually sticking.

Very clear. If I think about your -- again, 2 years ago, when you were last year at SDC, you'd announced but not closed on Magellan. And since then, you've added Translink. I always like to talk about strategy for a company as what won't a company do. So let's start, we're going to spend a lot of time talking about what you did and what you're going to do. But what won't you do as ONEOK?

Well, since Walt controls the money. This is a great question for him.

Well, I think that if you look at our strategy over time, it's been to build off a fantastic asset position. We go from the Canadian border to the Gulf Coast and then we kind of stay right in that middle band of the country. We have used as a competitive advantage, building off our system so that we're almost always doing a brownfield expansion to get our capital cost down vis-a-vis our competitors. So what I don't think you'll see us do is just jump out and do something that won't be integrated into our overall system that we can't use our competitive advantage. And to that end, we recently sold 3 interstate pipes that we had gotten years ago when we bought Northern -- our position in Northern border, and they came along, fantastic pipes. DT Midstream is going to do a great job with them. They have complementary assets. We didn't have complementary assets, wasn't integrated, and it didn't fit the model that we're trying to continue to grow. So we decided that they were better off in somebody else's hands. We had this NOL that is going to get limited in a few years. So it was tax advantage to go ahead and transact there and we did that and redeployed the cash into our core business.

So I'll push you a little more on what you won't do. And you mentioned integration and you mentioned power demand, what's your desire to integrate it from NGLs oil and gas into electrons?

Well, right now, we're going to focus on what we do best, and that's to move the natural gas to the point where somebody else actually turns it into an electron. We never say never about anything, but I think Walt's right there, it's not that we wouldn't go to say another base in another area, but we would want to see the pieces of the value chain already assembled or clear visibility that we could assemble those in those areas. So our model is about touching that molecule basically as many molecules as we can as much as we can for as long as we can.

And if you think about your current mix, roughly 1/3 NGLs, a 1/3 oil refined product, 1/3 gas G&P, 1/3, 1/3, 1/3 sounds nice. Was that a strategic outcome, or is that just the outcome of buying the right businesses?

Yes, I think we're actually a little bit more distributed than we're a little over 1/3 NGLs. So we've been primarily an NGL company over the last 5 or 6 years. And then it's really more 25-25 on the refined products in crude and our G&P business. The other 10% is natural gas, where I said that we sold our interstate getting natural gas pipes, we have a really nice intrastate natural gas business in Oklahoma, Texas and then we just got the system, the EnLink system down in Louisiana. We really like the intrastate. It connects in each of these cases with our other assets. We feed our intrastate off of our G&P business in the mid-continent. In the Permian, we will continue to feed our West Texas gas assets. So while that's still the smallest piece to the overall puzzle. I think that over time, we've tried to maintain G&P at below 30%. Not to say that we wouldn't go above that for a period of time. But I think as our business grows in that 25% to 30% is probably a good mix for G&P because that's the closest to the wellhead. And we've tried to drive commodity risk out of our business. It's contracted very well so that we don't have some of the concerns that we probably did 5, 10 years ago about commodity risk associated with G&P. But clearly, that's volumetric risk. And so we would keep that. Our NGL business has been as much as 2/3 of our business in the past. And I think that we do think that getting a better balance was part of our strategic plan. We also looked to geographically spread out our exposure. We were very dominated by the Bakken prior to Magellan and these latest acquisitions. Now we're more 1/3, 1/3, 1/3 between the Bakken, mid-continent and the Gulf Coast from a volumetric standpoint. From an earnings power standpoint, the Bakken is still our largest exposure.

I think, one thing on that, and as we think about the 1/3, 1/3, 1/3, you know that Walt's said a little bit different than that. If you know also what's coming into the refined products, we got into a more demand-driven type of product versus a supply-push type of product. So we have also a diversification, not just geographically but also from a supply and demand, how that affects it, as oil prices go down, you tend to see greater demand on your refined product system. So it has a little countercyclical to us as well? And obviously, even though the natural gas pipes is the smaller segment, with what we've got from EnLink in Louisiana, we're seeing a lot of opportunities over there because you got to think about that as the system they have in Louisiana is kind of the last mile into a lot of industrial demand, some LNG demand. So we're really seeing that being another demand pull force as well on our natural gas side, where Oklahoma and Texas is more of a supply push as well. So I think we're diversifying more on the supply and demand side as well.

And what we haven't mentioned is storage, which is very critical to an intrastate system because intrastate systems run primarily on supplying electric generation facilities and also the natural gas utility facilities. And both of those have pretty wild swings on them. So the storage piece is really important. We think storages are going to become even more critical on the Gulf Coast because as you keep adding more and more LNG, those facilities don't run 100% of the time, and they're large. So you can have 2 Bcf going into a facility at 1 point. And then all of a sudden, it's 0. So that gas has got to go somewhere. And so we're well positioned with our storage fields down in the JISH area, Jefferson Island area, and in some other areas down in Louisiana. We're expanding those if you think about it, look at -- we just mentioned all the gas that's moving in the United States, going from basically 20 Tcf a day to 42 Tcf and increasing from there. Well, we've only gone from like 4.1 or so Tcf storage to around -- actually, 4.4% to 4.8%. So not very much expansion on storage as it relates to the expansion of natural gas and the movement. So we think storage is going to be a very viable opportunity for us in the future.

Let's break down storage. I always think about storage as solving intermittency. And there are different types of -- there's daily intermittency and there's seasonal intermittency and then there's unscheduled intermittency. I've always thought of seasonal intermittency is getting easier as the south grows in population, right? If you go to the old days, storage is all about winter, we're bringing down winter demand. We're raising summer power demand. We're -- we still got our seasonality on storage, but the high-highs and low-lows are flattening. So I don't need as much seasonal storage maybe. Is that the right way to think of it? So the future is intermittent?

Well, I think you got to go back and look at what I would call as base load in the electrical generation facility. So you've got your -- you're basically -- your hydro, your coal and your nuclear. And at 1 point, back in 2005, there was 6 quads of basically natural gas that was supplying the electrical generation in the United States. You fast forward until basically today or at least in the 2020s. And what you'll find out is that, that 6 quads that was supporting that, that's no longer there because it's taken the place of the coal. So yes, you're exactly right on all these intermittencies that you have, but used to, you would have the ability to swing because of the electric generation from natural gas, you don't have that anymore. So you're going to need, I think, more and more storage to do that.

Interesting. I did have a question from the audience that's somewhat related. How do you perceive trends in natural gas pricing? And how do they impact your operations?

Yes. I mean, obviously, as Pierce said, there could be some more volatility in natural gas pricing based on the LNG facilities. They're going to be pulling by 2030, though. We'll have 24 Bcf of demand off of them. And 1 of those plants goes down, trains go down all of a sudden, you could put 2 to 4 Bcf back on the market in a very quick amount of time. And that will put quite a bit of downward pressure on it. Even in the right part of the world that could actually curtail production. That's why storage is so important to us. So as we go forward, as we could see a little bit more volatility, real-time volatility inter-month based on what's going on in the LNG side. We're also, from an operation on the LNG, you're also now moving natural gas into a global commodity. We haven't had that for a long period of time in the United States. So the price of natural gas is not just going to be depending on what the weather is or what the industrial demand is in the United States. It's probably going to be more dependent on what's going on globally, and how that price is going to be fluctuated. For us, we're not -- where we've tried to drive a lot of the commodity prices out there, we're volume times rate. So as long as that doesn't overall affect the volume, it's not going to have that big an effect on us. And we actually think that volatility will create opportunity with the storage that we've built out since winter storm, Uri, we've had a lot of demand for storage across our system. We've been able to expand across our system, both in Texas and in Oklahoma on that system. With the EnLink system as well. They have the Jefferson Island storage that we think could be expandable as much as 20 Bcf, and then we have some other locations there that could match that as well. So we think the volatility is going to create opportunity from the storage standpoint, but overall, not have that big an impact on us.

It's interesting, I'm warming up to the optionality of storage. As we sit here, if we go back to the last 2 times where U.S. LNG export ran less than nameplate, it was COVID, which was a great opportunity to store cheap gas and sell it at a high price later, and it was sort of Freeport LNG operationally when they had their issues, and they backed up all of that gas and put pressure on price, where you all can step into the Gulf Coast and say, "I'll take that gas out of your way, we'll do something with it later.

You're now seeing the benefit of storage, and why it is so important, not just on the seasonality, we've seen the same thing with propane, propane was very seasonal as well. More exports, you're seeing it kind of flatten out. But things happen operationally. And those LNGs on the other side, if all of a sudden, something happens in the field, especially in the winter. You think about the Permian, it's not as geared as much to handle winter or say the Bakken is. All of a sudden, you see a winter storm come through there. Volume comes off. That LNG facility needs to make sure it has a surety of supply. So they're going to be very interested in having some storage as well.

And then I'll return to your points you made around G&P. And I also think -- as a geologist, I always think about G&Ps, you got 1 customer and that customer has got 1 rock. When you move downstream and you start to think about demand customers rather than supply customers, then you've got a proliferation of customers. And then when you go to the export market, now you've got -- the world is your oyster, the world is your customer. And that -- what I hear from you all is that a deliberate part of your strategy is to diversify that customer base.

Yes. I mean, we -- the way we talk about it is that we wanted to go demand pull instead of supply push, as I say, instead, it's really balanced, like for instance, if you're heavily weighted to the Bakken, and the crude oil price goes down, there's an assumption that the rigs go down, the rigs go down, the volumes go down, the volumes go down, it effects [indiscernible]. Well, now if the prices stay where they are, in -- the gasoline prices, diesel prices and jet fuel prices, but get -- become very reasonable. And so now you have more demand pull. So it's not a one-for-one offset, but it definitely is something that was intentional that we did to try to balance that out between supply push and demand pull.

Last geology question. You did due diligence on your customers in the Bakken. You have a view on that basin, and how long it can sustain 1 million-barrel a day sort of levels. What are your current thoughts there?

Decades. I mean if you look at what the drilling is up there currently, you mentioned the rock, you usually have Tier 1, Tier 2, Tier 3 rock. You're going to continue to drill up everything that's in Tier 1, and you'll kind of go to Tier 2. They're already doing some of that. But we foresee definitely at least a couple of decades. What I found out in my career because I've been doing this for over 40 years is it seems like when you think, okay, this is -- it's reached its peak, or it's not going to get any larger then something happens with technology, something happens on some new rock that they fund. And the 1 thing I'll say about the Bakken is when we -- well, when I first started up there, there was only vertical drilling. That was back in the late '90s. Then it morphed into horizontal drilling that was maybe a mile long on the horizontal, and it went to 2 miles, and it's gone to 3 miles, and there's even some 4-mile laterals up there. So you go down 2 miles, you go either over 2 or 3 or 4 miles that's opening up way more rock than it was before. So I mean, that's what we're excited about. And so we just see so much more production up there. That's the reason that we started basically reporting on the horizontal footage that's drilled as opposed to the rig count because the rig count is deceiving. You can have say, 40 rigs that you had before, and I'm just making up these numbers. But if it's 20 rigs today, you may be getting the same production out of it because of these lateral lengths that they have.

We do have -- back to storage. We're getting questions coming. Storage sounds like a growth area. How does contracting work there? And what would the growth CapEx look like there?

On the contracting, and there's many different ways of contract, but a lot of it is contracted based on how much space you have in the cavern is 1 element. And then how many times you go in and out of the cavern to a third party. So that -- we also contract through there -- that's 1 way to contract. We also contract through our marketing arm, but we'll go out there and supply to certain people, and we'll guarantee them a certain amount, and they pay a higher fee for that than just normal because of -- and we're backing it with our -- what the storage coming those were. So there's 2 ways to go in there and do about it. Typically, the storage can be -- it's fairly inexpensive for what you get. They're very nice return projects because they have -- after winter storm Uri, we've got a lot more demand. It's pushing it up to replacement type storage. So you're getting a nice return on that. Existing storage is doing extremely well. If you can do a little expansions. They are a very low multiple aspect. We are -- the JISH or Jefferson Island storage. We're doing -- we're going to make it up to 8 Bcf. That's kind of our entry into that area. That's going to be it. It's still a fairly low multiple, but then we can expand it when we get more contracts up to 20 Bcf at a very cheap rate going forward, still be a very nice alternative because a lot of times, a very nice multiple because a lot of times, the people they need it for operational. They need it to make sure they can back their -- it's not necessarily about the price, it's about the service that you can give them. And that JISH storage sits right next to Henry Hub. So people like it very much from a pricing standpoint. They can put it in, take it out and be able to hedge it very well. So it's a -- that JISH island storage is a very unique place.

I heard a volume number. I didn't hear a CapEx per Bcf number.

I actually think that it's out there that EnLink, this is a project that came over from Enlink, and it will come up in 2028, it's 8 Bcf of about $80 million.

Very clear. And on the LNG side, we have another question from the audience, which is how do you see the LNG industry build out? There are sort of 2 philosophies out there. One is a fully contracted strategy. I'm going to go out, and I'm going to start a 10 million-ton per annum facility, and I'm going to get 9.5 million of that locked up. What we have seen more recently with a couple of new entrants is much more sort of merchant risk. I'm going to own either my early cargoes or maybe I'll just do FID before I fully contracted it because the rest of my business can absorb that risk. And that will matter to the scale of that LNG growth. Do you see anything there.

So I actually have heard Walt talk about this slightly, and it has to do with how they finance it and these kind of things. So I think he's got a -- I think he's got a really good answer to this.

So what we've seen here, I mean, you're absolutely right, when Cheniere kind of started. It was long term, 20, 30-year contracts really was -- once the facility was up and running at it became a utility-like type of cash flow for -- what we've seen now is private equity has been developing these later, they go out and get kind of the who's who of customers at what's effectively at or below a market rate. So if you're in an Exxon or you're a ConocoPhillips or a Shell, why not take on capacity if you're getting it below market rate. But they get enough of those contracts to service the debt. And then they've basically bought themselves an option on the spot market. And clearly, in the past few years, when post the invasion of Ukraine, that has been a winner. Time will tell over whether that continues to be a winner as we see more and more capacity come on and you've got more variability there, at times where ethane is a point-to-point delivery as a commodity. LPGs and now LNGs with these facilities you don't necessarily know where the boat is going when it leaves the dock as opposed to back in the original days, it was a point-to-point kind of milk run type of thing.

The 1 thing I would add to that is if you're following what's going on between Russia and Ukraine, they were actually supplying the European market with maybe about 15 Bcf a day prior to the invasion of Ukraine. Now it's down in the 4 to 5 Bcf. It varies a little bit there. But 1 of the risk is what happens if, for some reason, Europe decides that, okay, we're okay with Russian gas. We're going to bring it all back on. The problem with that, we did a little research on this. And with the damage that's been done to different facilities, it may come back on, but it's going to be a long time to kind of rebuild and restart a lot of those facilities. So -- and then if you look at the LNG export facilities, there's only 2 areas of the world that really is expanding in exports, one is United States and the other one is the Middle East. Australia is pretty much holding steady. Everybody else that exports. They're not really doing any expansions. But the real demand is probably going to come out of the Asian area. And the United States is in good position there. Clearly, the Middle East has the lowest cost because they -- their gas -- you see some negative prices, 0 prices out in the West Texas area, especially with some of the pipeline constraints that we've had. Well, that has basically existed in the Middle East for a long time. So I mean, they can sell gas for $0.15 over there. So they're going to always kind of get us on the feedstock piece. But then when you look at the transportation and other things. I mean that's -- but the United States has the stability kind of the systems that you can really count on. So I think LNG in the United States is really positioned really well.

I think you're including Canada as the 51st state because we're also getting some -- soon some Canadian export LNG, which is good and eventually a little bit of Mexico as well, which is all exiting molecules from North America. So it's all good for the trends we see here. I got to ask a question on ethane since we were just there. When I think about LNG and you go add up all of the regas capacity around the world, it's 1,000 million tons or so. And the export terminals are 500 million, 600 million tons. There's almost twice as much regas. There's twice as much potential demand as molecules I put on the water, which is very different than the old days where it was really kind of point to point. On the ethane side, right, you're putting NGLs into a global market, there's much more ability to take all of that than you're putting into the market. Is that a fair conclusion?

Well, I would say on the export side, as I mentioned earlier, it is point-to-point continuing. But we see more demand coming on in the United States. As we sit there and talk to the petrochemical companies, they got to think about a cycle they need to keep up with world GDP. And a lot of them will tell you at a 2% to 3% world GDP growth. They need to build a world-scale cracker every 5 years just to stay up with that. And we're continuing to hear more of them look to the United States to build their next wave. I know we just have the 1 coming off here pretty soon. But everybody is really looking into Louisiana where they have some existing crackers to be able to bring those online. But the interesting thing about ethane is what saying is ethane does have another -- can be used or something else, and that's burning into the into the natural gas. So you already see a balancing where you don't really going to get an oversupply of ethane because they can go back into the natural gas stream and be exported through LNG or burned in the industrial [indiscernible] . So it's different than all the other NGLs, propane and butane, it has to go someplace and it's going to go across the water.

And moving to financial strategy. Currently, priorities for capital allocation, sustaining CapEx, roughly $2.5 billion of dividend. How do you think about allocating -- how do you think about growth capital competing for cash returns once you're beyond that level?

We have a very specific asset allocation strategy. We have had fantastic opportunities for organic growth. With that brownfield concept that we have, we've been able to achieve better returns than our competitors in most cases on our organic growth. So that is our #1 priority is to get those high growth capital projects. The dividend is something that we have stood behind through some pretty difficult times. We were 1 of the very few companies that did not cut the dividend back in 2020. We maintain that and continue to grow it coming out the other side. So dividends are clearly very important. Kind of the third leg to that stool is pretty much on equal ground with the dividend is our leverage statistics. And we try to operate the company with a target of being around a 3.5x debt to EBITDA. The rating agencies have actually given us a little more latitude than that. One is pretty comfortable up into the low 4s, the other one around 3 and 3.75. We still think 3.5 is the right place. So that's where we're going to manage to, as you look forward, we've done 2 back-to-back sets of acquisitions that have popped us up a little bit above 4 each time. But we've done them where we saw clear visibility to get back to our 3.5x in a very short period of time. We did that quite a bit quicker than people expected with Magellan, and we're on that pace now to do that again. So -- and then given the characteristics of the business and the fact that we may be getting closer to peak oil, so there may not be as many growth opportunities out there that is going to leave us most likely with some excess cash. And that cash we've put out there a $2 billion stock buyback program. To date, we haven't done a whole lot on that. We've done a little bit because we've seen these capital opportunities. But as you get out a couple of years, our debt statistics are down in that 3.5x. If we aren't reducing debt, we're going to need to be buying back stock because otherwise, we'll see our debt-to-EBITDA go sub 3 pretty quickly if we didn't.

And if we come back to the growth CapEx aspect, can you talk about, say, average growth CapEx in the next 1, 2, 3 years? And how does that compare to the backlog of projects that you have line of sight for?

Yes. I think this year and next year are going to be very similar. And then you'll start to see a trend down, not a whole lot of difference in '27, but definitely trending down. And then over the periods after that, I think that you could see a pretty meaningful step down unless Sheridan goes out and finds us another big project, which he's been pretty good at doing over time. But as we look at the 5-year vision today, that's why we think we'll be in a position to comfortably buy back that $2 billion worth of stock over the time period that we've put out there.

Speaking of big things to bring into the mix, if we went back pre-Magellan and pre-EnLink and added up pro forma expectations at the time for EBITDA and compare them to where you were this year, the sort of $0.5 billion that appeared out of somewhere. Where did that $0.5 billion appear from?

Yes, I see where you're coming up with your number, and it's a mixture of 2 things. We have achieved significantly greater synergies on the Magellan transaction than we originally thought. That's been a very great opportunity for us. But our core business at ONEOK, our legacy business has been a very significant growth machine over time. So while you've got a nice piece of it being synergies. The ONEOK legacy system has continued to grow. We've continued to see pretty significant volume growth in both gas processing and NGLs up in the Bakken. And that's the highest margin G&P and NGL business in the United States. So that core business has continued to grow. We expect it to continue to grow going forward. And then you layer in -- our next layer of synergies that will start to come in here second half of '25 and into '26. When we announced Magellan and then the Easton transaction, we said that there were going to be some connections that we needed to make between those systems before we would get the full benefit of the Magellan synergies. Well, we're just starting to complete those connections of the Easton assets into our system that connects our Mountain Belvieu NGL system to our East Houston distribution for both refined products and crude, that opens up a bunch of opportunities from blending and reduces logistic cost that legacy Magellan had been paying to some of our peer companies.

And if I think about your evolution, you've sort of talked about CapEx, there seems some hesitancy around growth CapEx and maybe it subdues, amidst the backdrop that's kind of exciting. So what are you governed by? Are you guiding to a certain earnings per share, a certain dividend yield, a certain revenue runway a certain EBITDA runway. What is that long-term, medium-term plan look like?

Well, I mean if you just look at our growth over time. It's been pretty significant. I think those high single-digit types of growth on earnings over time is what we're looking for. We've got an established 3% to 4% dividend growth rate with the stock repurchase. We've allocated from a capital standpoint after CapEx, about 75% to 85% of our free cash flow between dividends and stock buybacks. So we've left room for that CapEx project that we don't have on the radar screen today so that we can still meet those growth rates in dividend and stock buyback. If that project that is in there to make that fill doesn't make -- doesn't present itself, we clearly will have room for either an enhanced dividend rate or more stock buybacks going forward.

And what would those criteria be for that last project to get in or out of the mix rate of return? We'd like to...

We've had a pretty high bar. When we originally announced our Elk Creek project, we said that at 100,000 barrels that would be a 4x project. That's doing 300,000 to 400,000 barrels a day today. So it's pushing a 1x project at this point. We don't see many opportunities like that again, but we are consistently targeting in the low 20% type of IRR. I think that in every instance, we'll be in the high teens as we look at things because we see -- with our expectations of where the stock should go based on our earnings growth, just if you keep a consistent multiple, you've got a mid-teens return just buying back that stock.

And in our last couple of minutes, maybe close with what's the value proposition for owning ONEOK shares? In theory, any 1 of you could take this.

So well, I'll probably chime on this.

Yes. I think that when you look at ONEOK, we've got an integrated model that touches that molecule as many times as we possibly can. And when we do that, we not only are controlling the next future revenue stream, but we're taking and getting incremental margin from a supply origination. So the integrated model to us is the key to bringing out the downstream value. I think 1 thing that was really interesting, before we did Magellan, we really thought about our earnings stream from the wellhead to the frac. And it was quite eye-opening to us when we saw that we could, in many cases, make more money below the frac than we actually were making above the frac with...

Your frac is different. My frac is fracturing, your frac fractionation.

Fractionation, yes. We're fractionating as NGLs.

And the only thing I'd add to that is that typically a company that's of ONEOK size, you're waiting on the producer to drill the well, you capture that. You compress it, you treat it, you process it, you break it into the liquids. You send the gas usually to the electric generation or to the utility. Then you get downstream, you go to the frac, separate those things out. Some of it stays locally. Some of it goes over the water. But what's different about us because we put these different pieces of the puzzle together, the connectivity is not all there yet. And so that's where a lot of the upside is going to be is, we call them synergies, but really, it's just about controlling your own destiny with connections you control. You got to have a permit. You got to have a construction crew, you got to get the -- you got to get the construction done, but it's stuff that we control. And so that's where I think the real opportunity is maybe between us and maybe some other midstream companies because we've been able to collectively put together these assets intentionally to integrate them, but we are still left integrating several of them that this kind of bring value to us in the future.

That's very clear. I want to thank you all, and I want to thank you in the audience for joining us.

Thank you.