ONEOK CEO: ‘Huge Competitive Advantage’ to Upping Permian NGL Capacity
ONEOK is getting deeper into refined products and adding new crude pipelines through an $18.8 billion acquisition of Magellan Midstream. But the Tulsa company aims to capitalize on NGL output growth with expansion projects in the Permian and Rockies.
Chris
Mathews
Hart Energy
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After closing an $18.8 billion acquisition of Magellan Midstream Partners, ONEOK is eyeing ways to expand its takeaway capacity from the prolific Permian Basin.
Tulsa-based ONEOK Inc. already had a large portfolio of midstream assets for NGL and natural gas gathering and processing before acquiring Magellan Midstream Partners LP.
The Magellan acquisition gave ONEOK much greater scale in refined products, ONEOK President and CEO Pierce Norton told Hart Energy in an exclusive interview.
“Magellan has probably the premier refined products system in anywhere in the United States,” Norton said.
Magellan had access to nearly 50% of the nation’s refining capacity with its refined products system.
The Magellan acquisition also delivered exposure into a new market for ONEOK: crude oil pipelines.
Magellan owned interests in approximately 2,200 miles of crude pipelines—1,000 miles of crude pipe, a condensate splitter and 31 MMbbl of storage capacity was directly owned by the partnership.
“Crude was new to us—but that’s something we can enhance,” Norton said. “We are in the pipeline business. We move products, and crude is no different.”
ONEOK now owns the 450-mile Longhorn pipeline, which transports around 275,000 bbl/d of crude oil from the Permian Basin to storage facilities and refining operations in Houston.
Magellan held a 30% interest in the BridgeTex pipeline, a joint venture with affiliates of Plains All American Pipeline LP and OMERS Infrastructure Management.
The 400-mile BridgeTex pipeline can carry 440,000 bbl/d of Permian crude to Magellan’s massive East Houston storage terminal.
Magellan also held a 50% interest in the Double Eagle system, a 200-mile pipeline transporting Eagle Ford crude condensate from South Texas to storage and refining markets around Corpus Christi, Texas.
Magellan owned interests in the 400-mile BridgeTex crude pipeline and the 200-mile Double Eagle condensate pipeline. (Source: Rextag data)
Magellan’s crude pipelines are still quite new for ONEOK, but the company is evaluating ways to deepen its footprint in transporting Permian oil.
It’s a story ONEOK has watched play out in the North Dakota Bakken Shale, where the company has a legacy portfolio of gathering and processing and NGL assets.
Around 7% of the wells drilled in ONEOK’s Bakken territory had three-mile horizontal laterals in 2022, Norton said. That figure jumped to 13% in 2023, and ONEOK is projecting for 30% of all Bakken wells drilled this year to have three-mile laterals.
“You can actually have less drilling rigs but end up drilling the same or more lateral feet,” he said. “That access is more volume, although you’ve got less rigs.”
That trend is also being replicated in the Permian Basin—the top oil-producing region in the U.S.—and is starting to hit oilfield service players.
And a more-production-with-less-drilling strategy could have implications for future crude takeaway capacity growth for midstream players in the Permian.
“I do think [crude is] going to continue to grow,” Norton said, “but it looks like there’s enough crude oil capacity right now to move the crude that’s out there and even into the near future.”
ONEOK is currently completing the full looping of its West Texas NGL pipeline, more than doubling the company’s Permian Basin NGL takeaway capacity. (Source: Rextag data)
The full loop is expected to be in service in the first quarter of 2025.
“That gives us a huge competitive advantage to pick up the next basically 400,000 bbl/d of NGL that’s coming out of the Permian,” Norton said.
ONEOK is also growing its NGL footprint outside of the Permian. The company started initial work to expand its Elk Creek pipeline to 435,000 bbl/d to carry growing NGL volumes in the Rocky Mountain region.
The Elk Creek pipeline carries unfractionated NGL from ONEOK’s terminal in eastern Montana through liquids-rich regions of Wyoming and Colorado and into existing Midcontinent NGL facilities in Bushton, Kansas.
ONEOK is expanding its Elk Creek NGL pipeline system, which spans from the Bakken Shale through the Rockies. (Source: Rextag data)
In addition to expanding its NGL transport capacity, ONEOK is spending around $550 million to construct a new 125,000-bbl/d NGL fractionator in Mont Belvieu, Texas.
The U.S. upstream sector has been consolidating at a red-hot pace, with some of the industry’s biggest and oldest names getting plucked off the playing board in a matter of months.
The lion’s share of the dealmaking deluge has fallen over the Permian, where cheap-to-drill acreage is trading hands for healthy premiums.
Summit Midstream is selling its Utica Shale assets to an MPLX subsidiary for $625 million in cash—the culmination of a strategic review process undertaken by the Summit board of directors.
