ONEOK INC /NEW/ (OKE) stock intrinsic value fair value estimate & owner earnings analysis

ONEOK is one of the largest U.S. midstream companies. It gathers and processes natural gas, moves and fractionates natural gas liquids (NGLs) from the Permian, Mid-Continent and Williston (Bakken) basins to Mont Belvieu, Texas, runs intrastate gas pipelines and storage, and since buying Magellan Midstream in 2023 owns a large refined-products and crude pipeline and terminal network across the central U.S. In late 2024 and 2025 it added EnLink Midstream (now wholly owned), the Medallion crude gathering system in the Midland Basin, the rest of a Delaware Basin gathering joint venture ($941 million, May 2025) and a larger stake in the BridgeTex crude pipeline (to 60%, July 2025). About 90% of 2025 earnings were fee-based, so volumes matter more than commodity prices. Earnings base. We measure what the business earns for all of its capital providers before interest: operating cash flow with working-capital swings removed, less stock compensation, less the capital spending needed to keep the network running, less cash paid to minority partners, plus the cash interest paid. For 2025, the first full year of the combined company, that comes to about $5.5 billion ($3.79 billion after interest plus $1.73 billion of interest paid), or about $8.82 per diluted share. Earlier years describe a much smaller company, so they are not used to set the level. Our split between upkeep and growth spending is mechanical and treats about $2.05 billion of 2025's $3.15 billion of capital spending as upkeep, which is more than depreciation of $1.51 billion. ONEOK does not report an upkeep figure, so we could not check this against the filings. If true upkeep spending is lower, the business is worth more than we show. First-half 2026 results support the level: net income rose 13% and operating cash flow 23% from the first half of 2025. Growth we credit. On our per-share measure before interest, earnings grew 17% in 2025, but most of that came from EnLink and Medallion counting for a full year rather than a partial one. The base case assumes 7% for 2026, which is below both that rate and the first-half 2026 pace. The reasons are named: a full year of the Delaware Basin and BridgeTex purchases, the Denver refined-products pipeline (fully contracted, mid-2026), and a Permian processing plant moved from North Texas plus added Permian capacity (2026). After that the base case assumes 3% in 2027 for the Bighorn plant (backed by acreage dedications, mid-2027), 3% in 2028 for the Texas City LPG export terminal with MPLX (about $1.0 billion, early 2028) and the Eiger Express gas pipeline (mid-2028), and 1.5% in 2029 for a gas storage expansion. From then on it stays flat in dollar terms, with no growth assumed. The physical network, maintained by the upkeep spending already deducted, keeps earning at that level for about 30 years and then fades to nothing over another 20. We give no credit for new projects not yet approved, for rising volumes from producers, or for higher margins. Pending Brazos deal and Apollo investment. In August 2026 ONEOK agreed to buy Brazos Midstream's Midland Basin gathering and processing assets for $4.425 billion in cash. The deal is expected to close in the fourth quarter of 2026. The assets include about 1.2 Bcf/d of processing on some 600,000 dedicated acres, under fixed-fee contracts averaging more than 12 years. To pay for it, Apollo funds are putting $9 billion into a new ONEOK holding company. Apollo gets 15% of the operating company's quarterly cash flow until it earns a 7.0% return (rising to 7.35% in year 10 and 7.85% in year 15), and ONEOK can buy Apollo out from year 8. About $4.6 billion of the proceeds left after the purchase goes to paying down debt. We treat both deals as done. The only figures for the acquired assets are management's (about 7.5 times expected 2027 cash earnings, including $80 million of hoped-for savings). We credit about $300 million a year of cash flow in the base case, $220 million in the bear case and $420 million in the bull case, and none of the growth management expects. On those numbers the deal is worth somewhat less to shareholders than it costs, partly because Apollo's money costs about 7% against our 6% yardstick. Debt and other claims. On June 30, 2026 ONEOK owed $32.65 billion of bonds plus $1.5 billion of short-term borrowings. The bonds carry an average coupon of about 5.3% and have about 12.7 years left on average, so at our 6% rate they are worth about $31.6 billion, roughly $1.05 billion less than their face value. After the roughly $4.6 billion paydown, debt is about $28.5 billion. Apollo's claim is worth about $9.5 billion at 6%, and a small minority interest adds $0.1 billion. In total, about $38.1 billion comes ahead of common shareholders. Maturities are spread out: $1.75 billion in 2027, $2.15 billion in 2028, $2.51 billion in 2029 and $2.78 billion in 2030. The bonds trade close to face value, and yearly business cash flow is more than twice the combined interest and Apollo payments (about $2.4 billion) in every case. That is why no case assumes costly refinancing. Cases. Base: the growth path above. The business is worth about $100.6 billion, owes $38.1 billion and leaves $62.4 billion, or about $98.79 per share. Bear: 2026 still grows 3%, then cash flow falls 2% a year from 2027 to 2035. The named causes are the maturing Bakken and Mid-Continent gathering areas, NGL price exposure on the roughly 10% of earnings that is not fee-based, and a drop in contracted natural gas transportation capacity from 97% in 2024 to 91% in 2025. Cash flow then holds flat until 2045 and fades out by 2065, and the Brazos assets fade out by 2050. The business is worth about $71.0 billion, owes $38.1 billion and leaves $32.9 billion, or about $52.03 per share. Bull: 2026 grows 12%, in line with the first half, then 5%, 5% and 3% as the projects under construction start up. After that it grows 2% a year through 2035, which assumes ONEOK keeps adding the kind of capacity expansions it has built repeatedly (such as Elk Creek) and that pipeline tariffs keep rising with inflation. It then holds flat to 2060. The business is worth about $125.2 billion, owes $38.1 billion and leaves $87.1 billion, or about $137.76 per share. What changed. Our previous estimates were about $78, $148 and $178 per share. They applied after-interest earnings to ~3% growth forever and never subtracted the roughly $32 billion of debt. The downside case only lowered the earnings path to reflect the debt. This time we value the whole business before its lenders and then subtract the debt, the new Apollo claim and the Brazos purchase price. We give credit for the low fixed coupons on the bonds, and we assume no growth beyond projects already under construction. The earnings base is higher because it is now measured before interest, and 2026 results so far are stronger. Those two changes offset only part of the others. Net, our estimates fall to about $52, $99 and $138. What would make this wrong: upkeep spending that is actually much lower than our mechanical estimate (we would be too low); faster production decline in the Bakken or Mid-Continent than in our bear case (we would be too high); the Brazos deal not closing (little effect, since we value it near its cost).