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'll go out to the left. In the open area, there's a pair of elevator—uh, 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 Pigeonhole app. There it is. Enter your questions. They will come up to the iPad that I have in front of me, and then that will drive the conversation.
While I'm waiting for your questions, I will ask questions for our guests, and we're gonna follow a pyramid principle. We'll start with kind of the macro, and we'll work our way down from there. 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 CFO; and 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, you know, a $1 move in gas or a $10 move in oil changes their cash flows by 40%. 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? Then we'll move to a couple other commodities.
I think it's no secret that the oil prices have come down lately, but we haven't seen any degradation of volume. You said it well, we're really a volume times rate company. We not only move the crude, but we move natural gas, and we move all the natural gas liquids and refined products, jet fuel, diesel fuel, and, you know, the motor gasoline. We really haven't seen anything that's material in that way. We used to have more commodity exposure, then we worked really hard to get that out of the company. You know, we've got mainly, you know, volume times rate, you know, types of businesses right now. What I would say about it, it's different.
You, you've got a lot of rhetoric around the tariffs and maybe some sort of global recession, but that's far different than COVID. Tariffs are not COVID. COVID turned the volumes down by almost 20% instantly. Those are the kind of things that do affect our business because they do affect volume, but we don't see that right now. I think, you know, in our businesses, things are fairly stable. 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. You know, 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. You know, today, recessions are a few hundred thousand barrels a day, and there's some folks that need to figure some things out, but we're a far cry. I'd highlight that. On the optimistic side, I'm gonna try to make you, make the audience as excited as possible around natural gas. You know, convince me not to be bullish around natural gas.
It is hard not to be bullish on natural gas because if you go back to, you know, 2000 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, it is more than doubled since then, and that is about 42 TCF a year. If you look at what drove that, it was primarily the coal conversions to natural gas. Then in 2016, it started to pick up because LNG went basically from zero to 14 BCF a day of exports out of the United States Now there are projections that actually, facilities are actually in construction right now along the Gulf Coast. There are, I think, five—most of them are in Texas. There are a couple in Louisiana. That is 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. It's hard not to be bullish on natural gas. You add in the artificial intelligence data centers that will likely be supported by natural gas, so you add another 3-8 BCF a day. It's hard not to be bullish on natural gas right now with the LNG. There will still be some coal plant conversions even now. Those three factors are going to really make a difference over the next decade for natural gas.
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, the marginal ton of coal is an export ton. That brings me to NGLs, natural gas liquids. You are unique amongst the folks we have here this week, in that you're, you know, heavily focused on NGLs, a lot less than, say, two years ago when you were last here. And NGLs, in my mind, every incremental barrel is an export barrel. 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?
In short, most of your natural gas liquids are essentially byproducts, because you have—we talk in terms of natural gas as if it's one molecule, but it's many molecules. It's methane, it's ethane, it's propane, it's isobutane, normal butanes, gasolines. All of those products have different variable values at different points, but where they're produced, they do not have a lot of value because you gotta get them to somewhere where they do have value. That's what we do. We're the midstream business, and we move all of those different products either in raw form, you know, as they are together, or we move them through purity lines, and then we also have our refined products line.
Overall, though, we do feel like the ethane is gonna be—it's gonna be produced in the United States and primarily goes to the petchems in the United States due to a lot of onshoring that's happened in the last 20 years with the petrochemical industry. Then, as far as the propane, there's not—we do not see a lot of demand for the propane in the U.S. above where it is today. That extra molecule that's gonna come with all this gas that's either gonna go to LNG or AI is gonna have to go somewhere, and it will probably go through an export facility, which is one of the reasons that we are actually building an export facility with our partner, MPLX, down in Texas City. It is gonna be a 400,000 barrel a day, world-class scale LPG dock.
We do think that's gonna go around the world. The thing about propane is it's pretty balanced. If for some reason some country doesn't want your propane, then they're getting it from somewhere else, and it just displaces and goes to the different places. It's not like a hardwired pipeline. You know, pipeline is you go from point A to B, and there's no moving it. Because LPGs go on ships, it's easy to move. Sheridan, you're talking about his, his, really expertise here when it comes to NGLs. He's been in the NGL business for a long, long time.
Yeah. Pierce, what I would add to that is one thing you gotta think about propane, and he mentioned it, is 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. To show that is right now, you know, we've seen a lot of fluctuations in prices, but our LPG export docks are at high utilization, if not completely full for a long period of time. Ethane's a little bit different. Exports, we do see, as Pierce mentioned, that ethane is really gonna wanna 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 other places pick up the other portion. You saw right away on the tariffs that China 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 two ethane docks, they have crackers on the other side of the world that they're just running back and forth through and back and forth. If they all of a sudden stop that ethane, they have to stop that cracker down, and ethane's still one of the cheapest feedstocks for petrochemicals, even with tariffs on it.
There is a tie-in with tariffs and regulation. If you think about the oil and gas industry in the U.S., we contribute to the trade balance, right? LNG exports are a huge source that benefits the trade balance for the U.S., and NGLs are in that camp. Talk to the regulatory environment. Maybe we will start with tariffs and then talk more broadly. What would you like to see be more clear in today's regulatory environment?
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, you know, both kinda in one-on-ones and in group settings. The thing I see differently today than I may be seeing in the past is in the past, somebody might say, "What, what do you need to do? What, you know, what can we do to help you?" The answer might be very vague. It might be like, "You need to speed up the permitting process or whatever." The difference here is this administration is asking, "No, what specifically do I need to do? And where are you specifically having an issue? 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." There is a real problem-solving attitude out there right now, and I think that's what it's gonna take. It's gonna take specifics, not just generalities, but in general, I'll 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 administration to administration.
Anything on the tariff policy, or is that still just clarity is what is important?
A little bit on the tariff policy. You know, we're seeing that a little bit as, as, very volatile right now. A lot of times they're being put out there and come back in and being put out there and come back in. I think people are starting to get used to that a little bit. That is just because there's a tariff in, in there doesn't mean it's gonna 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 rather than an actual sticking.
That's very clear. If I think about your stra, again, two years ago when you were last here at SDC, you'd announced but not closed on Magellan. And since then, you've added EnLink. I always like to talk about strategy for a company as what won't a company do. Let's start. We're gonna 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?
Since Walt controls the money, this is a great question for him.
I think that if you look at our strategy over time, it's been to build off a fantastic asset position. You know, we go from the Canadian border to the Gulf Coast, and then we kinda 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 costs down vis-à-vis our competitors. 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. To that end, we recently sold three interstate pipes that we had gotten years ago when we bought our position in Northern Border, and they came along. Fantastic pipes.
DT Midstream's gonna 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. We decided that they were better off in somebody else's hands. We had, you know, this NOL that is gonna get limited in a few years, so it was tax advantage to go ahead and transact there. We did that and redeployed the cash into our core business.
I'll push you a little more on what you will do. You mentioned integration, and you mentioned power demand. What's your desire to integrate in from NGLs, oil and gas into electrons?
Right now we're gonna 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. You know, we never say never about anything, but I think, you know, Walt's right. 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. 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.
If you think about your current mix, roughly a third NGLs, a third oil refined product, a third gas, G&P, a third, a third, a third, sounds nice. Was that a strategic outcome, or is that just the outcome of buying the right businesses?
Yeah. I think we're actually a little bit more distributed than we're, we're a little over a third NGLs. So we've been primarily an NGL company over the last five or six years. And then it's really more 25%, 25% on the refined products and crude, and our G&P business. The other 10% is natural gas, where I said that we sold our interstate natural gas pipes. We have a really nice intrastate natural gas business in Oklahoma, Texas, and then we just got the system, the LIG system down in Louisiana. We really like the intrastate. It connects in each of these cases with our other assets. You know, we feed our intrastate off of our G&P business in the Midcontinent. In the Permian, we will continue to feed our West Texas gas assets. 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, you know, in that 25%-30% is probably a good mix for G&P because that's the closest to the wellhead. And, you know, 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, you know, we probably did 5- 10 years ago about commodity risk associated with G&P. Clearly that's volumetric risk, and we would keep that. You know, our NGL business has been as much as two-thirds of our business in the past. 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 are more a third, a third, a third between the Bakken, Midcontinent, 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 is we think about the third, a third, a third, you know, that Walt sets a little bit different than that is, you know, also with 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 that. Usually, you know, as oil prices go down, you tend to see greater demand on your refined product system. It has a little countercyclical to us as well.
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 gotta think about that as the system they have in Louisiana is kind of the last mile into a lot of industrial demand, some into some LNG demand. We're really seeing that being another demand pull for us as well on our natural gas side, where Oklahoma and Texas is more of a supply push as well. I think we're diversifying more on the supply and demand side of it as well.
What we have not 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. Both of those have pretty wild swings on them. The storage piece is really important. We think storage has begun to become even more critical on the Gulf Coast because as you keep adding more and more LNG, those facilities do not run 100% of the time and they are large. You can have 2 BCF going into a facility at one point, and then all of a sudden it is zero. That gas has got to go somewhere. We are well positioned with our storage fields down in the Jefferson Island area and then some other areas down in Louisiana. We are expanding those.
If you think about it, look at, you know, we just mentioned all the gas that's moving in the United States, you know, going from basically, you know, 20 TCF a day to 42 TCF and increasing from there. We have only gone from, like, 4.1 or so TCF of storage, you know, to around 4. actually 4.4-4.8. Not very much expansion on storage as it relates to the expansion on natural gas and the movement. We think storage is gonna 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 as 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 still got our seasonality on storage, but the high highs and low lows are flattening. I don't need as much seasonal storage maybe. Is that the right way to think of it? The future is intermittent storage?
I think you gotta go back and look at what I would call the baseload in the electrical generation facility. You have your, you know, basically your hydro, your coal, and your nuclear. At one point back in 2005, there were six 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 six quads that was supporting that, that's no longer there because it's taken the place of the coal. Yes, you're exactly right on all these intermittencies that you have, but used to you would have the ability, you know, to swing because of the electric generation from natural gas. You don't have that anymore.
You're gonna need, I think, more and more storage to do that.
Interesting. I did have a question from the audience that is somewhat related. How do you perceive trends in natural gas pricing, and how do they impact your operations?
Yeah. I mean, obviously, as Pierce said, there could be some more volatility in natural gas pricing based on the LNG facilities. You know, they're gonna be pulling, you know, by 2030, we'll have 24 BCF of demand off of them. If one of those plants goes down, trains go down, all of a sudden you could put 2-4 BCF back on the market in a very quick amount of time. That will put just quite a bit of downward pressure on it. Even if in the right part of the world, it could actually curtail production. That's why storage is so important to us.
As we go forward, as we could see a little bit more volatility, real-time volatility inner month based on what's going on 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. The price of natural gas is not just gonna be depending on what the weather is or what the industrial demand is in the United States. It's probably gonna be more dependent on what's going on globally, how that price is gonna be fluctuated. For us, we've tried to drive a lot of the commodity price out there. We're volume times rate. As long as that doesn't overall affect the volume, it's not gonna have that big an effect on us.
We actually think that volatility will create opportunity with the storage that we have built out since, you know, winter storm Uri. We have had a lot of demand for storage across our system. We have been able to expand across our system, both in Texas and in Oklahoma on that system. With the EnLink system as well, you know, they have the Jefferson Island storage that we think could be expanded to as much as 20 BCF. We have some other locations there that could match that as well. We think the volatility is going to create opportunity from the storage standpoint, but overall not have that big an impact on us.
It, it's interesting. I'm warming up to the optionality of storage as we sit here. If we go back to the last two times where U.S. LNG export ran less than nameplate, it was COVID, which was a great opportunity to store cheap gas and, and sell it at a high price later. 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 could step into the Gulf Coast and say, "I'll, I'll take that gas outta your way. I'll, I'll do something with it later.
You, you're now seeing the benefit of storage and why it is so important, and not just on the seasonality. We've seen the same thing with propane. You know, propane was very seasonal as well. More exports. You're seeing it kind of flatten out, but things happen operationally. 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 as 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. Those are gonna be very interested in having some storage as well.
I'll return to your points you made around G&P. I always think as a geologist, I always think about G&P as you got one customer and that customer's got one 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. When you go to the export market, now you've got the, the world's your oyster, the world's your customer. What I hear from you all is that's a deliberate part of your strategy is to diversify that customer base.
Yeah. I mean, the way we talk about it is that we wanted to go demand pull instead of supply push. I was gonna say instead it's really a balance. You know, 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 volume goes down, it affects one of, well, now if these, if the prices stay where they are, then the gasoline prices, diesel prices, and jet fuel prices become very reasonable. And now you have more demand pull. 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 a million barrel a day sort of levels. What are your current thoughts there?
decades. I mean, if you look at, you know, what the drilling is up there currently, you mentioned the rock, you know, you usually have tier one, tier two, tier three rock. You know, you're gonna continue to drill up, you know, everything that's in tier one, then you'll kind of go to tier two. They've already done some of that. You know, we foresee definitely at least a couple of decades. What I've found out in my career, 'cause 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 gonna get any larger, then something happens with technology, something happens on some new rock that they find.
That's the one 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 1990s. Then it morphed into horizontal drilling that was maybe a mile long on the horizontal end, and it went to two miles, then it's gone to three miles, and there's even some four-mile laterals up there. You go down two miles, you go either over two or three or four miles, that's opening up way more rock than it was before. I mean, that's what we're excited about. 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 there, there's many different ways to contract it, but a lot of it's contracted based on how much space you have in the cavern is one element, and then how many times you go in and out of the cavern through a third party. We also contract through there. That's one 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 'em a certain amount. They pay a higher fee for that than just normal 'cause of, and we're backing it with our own, with the storage coming as well. There's two 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 in aspect. We are the Jefferson Island storage. We're doing, we're gonna make it up to 8 BCF. That's kind of our entry into that area. That's gonna be, 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, at a very cheap rate going forward. Still be a very nice alternative 'cause a lot of time. A very nice multiple 'cause a lot of times the people, they need it for operational.
They need it to make sure they can back there. It's not necessarily about the price, it's about the service that you can give 'em. And that Jefferson Island 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 Jefferson 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, it's out there that the EnLink, this is a project that came over from EnLink and it'll come up in 2028. It's 8 BCF for about $80 million.
Yep. Very clear. 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 two philosophies out there. One is a fully contracted strategy. I'm gonna go out and I'm gonna start a 10 million ton per annum facility and I'm gonna get nine and a half of that locked up. What we have seen more recently with a couple new entrants is much more sort of merchant risk. I'm gonna own either my early cargoes or maybe I'll just do FID before I've fully contracted it because the rest of my business can absorb that risk. That will matter to the scale of that LNG growth. Do you see anything there?
I actually have heard Walt talk about this lately and it has to do with how they finance it and these kind of things. I think he's got a, I think he's got a really good answer for this.
What we've seen here, you're absolutely right. When Cheniere kind of started, it was long-term 20-30 year contracts. Really, once the facility was up and running, it became a utility-like type of cash flow going forward. 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. If you're an Exxon or you're a ConocoPhillips or a Shell, why not take on capacity if you're getting it below market rate? They get enough of those contracts to service the debt. Then they've basically bought themselves an option on the spot market. Clearly, in the past few years, post the invasion of Ukraine, that has been a winner.
Time will tell over, you know, whether that continues to be a winner as we see more and more capacity come on and you've got more variability there. But you know, at times where ethane is a point-to-point delivery, is a commodity, LPGs and now LNGs with these facilities, you do not necessarily know where the boat's 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.
You know, the one thing I would add to that is, you know, 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 their invasion of Ukraine. Now it's down in the 4-5 BCF. It varies a little bit there, but you know, one of the risks is what happens, if for some reason Europe decides that, okay, we're, we're okay with Russian gas, we're gonna bring it all back down. 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 gonna be a long time to kind of rebuild and restart a lot of those facilities.
If you look at the LNG export facilities, there are only two areas of the world that really are expanding in exports. One is the United States and the other one is the Middle East. Australia is pretty much holding steady. Everybody else that exports, they are not really doing any expansions. The real demand is probably going to come out of the Asian area. The United States is in good position there. Clearly the Middle East has the lowest cost because they, you know, their gas, you know, you see some negative prices, zero prices out in the West Texas area, especially with some of the pipeline constraints that we have had. That has basically existed in the Middle East for a long time. I mean, they can sell gas for 15 cents an M over there.
They're gonna always kind of get us on the feedstock piece. But then when you look at the transportation, the other things, I mean, that's, you know, the United States has the stability, kind of the systems that you can really count on. I think LNG out of 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 gotta 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 500-600 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?
I would say on the export side, as I mentioned earlier, it is point to point, you know, continuing. We see more demand coming on in the United States. As we sit there and talk to the petrochemical companies, you know, they gotta think about a cycle they need to keep up with, with world GDP. A lot of 'em will tell you at a 2%-3% world GDP growth, they need to build a world scale cracker every five years just to stay up with that. We are continuing to hear more of them look to the United States to build their next wave. I know we just have the one coming up here pretty soon, but everybody's really looking into Louisiana where they have some existing crackers to be able to bring those online.
The interesting thing about ethane is what you're saying is ethane does have another, can be used for something else, and that's burning into the natural gas. You already see a balancing where you don't really get an oversupply of ethane because it can go back into the natural gas stream and be exported through LNG or burned in the industrial export. It's different than all the other NGLs. Propane and butane, it has to go someplace and it's gonna go across the water.
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. You know, with that brownfield concept that we have, we have been able to achieve better returns than our competitors in most cases on our organic growth. That is our number one priority, to get those high growth capital projects. The dividend is something that, you know, we have stood behind through some pretty difficult times. We were one of the very few companies that did not cut the dividend back in 2020. We maintained that and continued to grow it, coming out the other side. Dividends are clearly very important. You know, kind of the third leg to that stool that is pretty much on equal ground with the dividend is our leverage statistics.
You know, we try to operate the company with a target of being around a three and a half times debt to EBITDA. The rating agencies have actually given us a little more latitude than that. One's pretty comfortable up into the low fours. The other one, around three and three quarters. We still think three and a half's the right place, so that's where we're gonna manage to. As you look forward, you know, we've done two back-to-back sets of acquisitions that have popped us up a little bit above four each time, but we've done them where we saw clear visibility to get back to our three and a half times 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.
Given the characteristics of the business and the fact that, you know, we may be getting closer to peak oil, so there may not be as many growth opportunities out there, that is gonna leave us most likely with some excess cash. 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. As you get out a couple years, our debt statistics are down in that three and a half times. If we aren't reducing debt, we're gonna need to be buying back stock because otherwise, you know, we'll see our debt EBITDA go sub three pretty quickly if we didn't.
If we come back to the growth CapEx aspect, talk about, say, average growth CapEx the next one, two, three years. How does that compare to the backlog of projects that you have lined a site for?
Yeah, I, you know, I think this year, next year are gonna be very similar, and then you'll start to see a trend down. You know, not a whole lot of difference in 2027, but definitely trending down. 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. You know, as we look at the five-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 out of the, at the time, for EBITDA and compared them to where you were this year, there's sort of $500,000,000 that appeared out of somewhere. Where did that $500,000,000 appear from?
Yeah, I see where you're coming up with your number and it's a mixture of two things. You know, we have achieved significantly greater synergies on the Magellan transaction than we originally thought. You know, that's been a very great opportunity for us. Our core business at ONEOK, our legacy business, has been a very significant growth machine over time. 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. That's the highest margin G&P and NGL business in the United States. 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 2025 and into 2026. You know, when we announced Magellan and then the Easton transaction, we said that there were gonna be some connections that we needed to make between those systems before we would get the full benefit of the Magellan synergies. We are just starting to complete those connections, of the Easton assets into our system that connects our Mont 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 the logistic costs that, you know, legacy Magellan had been paying to some of our fewer companies.
If I think about your evolution, you've sort of talked about CapEx where there seems some hesitancy around growth CapEx and maybe it subdues amidst a backdrop that's kind of exciting. 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 does that long-term, medium-term plan look like?
I mean, I think if you just look at our growth over time, it's been, you know, it's been pretty, 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 3-4% dividend growth rate with a stock repurchase. We've allocated from a capital standpoint after CapEx about 75-85% of our free cash flow between dividends and stock buybacks. 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. You know, if that project that is in there to meet that fill doesn't make, you know, doesn't present itself, we clearly will have room for either an enhanced dividend rate or more stock buybacks going forward.
What would those criteria be for that last project to get in or out of the mix? Rate of return? We've talked about that.
You know, 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 four times project. You know, that's doing 300,000-400,000 barrels a day today. So it's pushing a one times project at this point. You know, we don't see many opportunities like that again, but we are consistently targeting in the low 20% type of IRR. You know, I think that in every instance we'll be in the high teens as we look at things because we see, you know, we're 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.
Very clear. In our last couple of minutes, maybe close with, what's the value proposition for owning ONEOK shares? In theory, any one of you could take this.
We'll all probably chime in on this.
Yeah. You know, 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 one thing that was really interesting before we did Magellan, we really thought about our earnings stream from the wellhead to the frack. And it was quite eye-opening to us when we saw that we could, in many cases, make more money below the frack than we actually were making above the frack with.
Your frack is different. My frack is fracturing. Your frack is fractionation.
Fractionation. Yes. Yeah. You know, we're, we're fractionating his NGLs.
That's right. Yeah. The only thing I'd add to that is that, typically a company that's, of ONEOK size, you're waiting on the producer, you know, to drill the well, you capture that, you compress it, you treat it, you process it, you bring it into the liquids, you send the gas usually to the electric generation or to the utility. Then you get, you know, downstream, you go to the frack, separate those things out. Some of it stays locally, some of it, you know, goes over the water. What's different about us, because we put these different pieces of the puzzle together, the connectivity is not all there yet. That's where a lot of the upside is gonna be is, we call 'em synergies, but really it's just about controlling your own destiny with connections you control.
You know, you gotta have a permit, you gotta have a construction crew, you gotta get the, you know, you gotta get the construction done, but it's stuff that we control. That is 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's gonna bring value to us in the future.
That's very clear. I wanted to thank you all, and I want to thank you in the audience, for joining us.
Thank you.