UBS Turns Bullish On Oneok Ahead Of $9.3 Billion Merger Completion

Analysts at UBS turned bullish on ONEOK, Inc. OKE ahead of the completion of the $9.3 billion merger with Oneok Partners, expected to close this month.

UBS analyst Shneur Gershuni upgraded Oneok's stock from Neutral to Buy with a price target boosted from $56 to $59 as the merger will create a proforma company with a 6 percent dividend yield that could grow at around 10 percent.

The combined entity will also be better positioned to take advantage of potential opportunity related to the Bakken region, the analyst added. Specifically, Oneok is the biggest processor in the Bakken region as refracs have the potential to slow the decline rates of older wells in the region and could potentially boost oil production by over 200MBbpd.

Aside from the Bakken region, the analyst also sees opportunities for Oneok to grow in the SCOOP/STACK plays in Oklahoma with minimal capital. Also, Rocky Mountain G&P volumes could are expected to increase by around 5 percent year-over-year in 2018 as the total rig count will increase from 15 last year to 30 and could drive higher production in the next six to 12 months.

Finally, the analyst did caution that oil prices in the $40 to $45 range represents a risk to the company and could see Bakken producers slow down their capex spend. Potential NGL overbuild also serves as a risk, specially if EnLink Midstream Partners LP ENLK builds an NGL pipe from the STACK region which could result in an opportunity loss of around $63 million of 2019 EBITDA for Oneok.

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