Natgas Companies Gain On Rising Heating Demand

ONEOK, Inc. OKE announced that it has executed a definitive agreement with DT Midstream, Inc. DTM. Under this agreement, ONEOK will sell its three wholly owned interstate natural gas pipeline systems for a total cash consideration of $1.2 billion, subject to customary adjustments.

The transaction, unanimously approved by the boards of directors of both ONEOK and DT Midstream, is expected to be closed in the fourth quarter of 2024, subject to customary closing conditions, including Hart-Scott-Rodino Act clearance.

Key Details of OKE’s Deal

The three interstate natural gas pipeline systems consist of Guardian Pipeline, L.L.C. links to local natural gas distribution and power generation firms in Wisconsin, as well as a number of pipes at the Chicago Hub near Joliet, IL. The second is Midwestern Gas Transmission — a bidirectional system that includes several interstate pipelines with access to the Marcellus and Utica shale, a major pipeline interconnect near Portland, TN, and multiple interstate pipelines at the Chicago Hub near Joliet, IL.

The third is Viking Gas Transmission — a two-way system that connects to a significant pipeline network at the U.S. border close to Marshfield, WI, and Emerson, Canada.

According to Federal Energy Regulatory Commission filings, as of June 30, 2024, the purchase price was 10.8 times the previous year's EBITDA.

The net proceeds from the sale are anticipated to improve ONEOK's financial flexibility and its deleveraging trend as it moves closer to its previously stated goal of 3.5 times in 2026.

Other Oil & Gas Company’s Divestiture

Here are some oil and gas companies that take strategic actions to grow their businesses.

EQT Corporation EQT, a leading U.S.-based natural gas producer, is reportedly in talks with Blackstone, a major private equity firm, to sell minority stakes in its interstate natural gas pipelines, per Reuters. The transaction is valued at approximately $3.5 billion. This might ease a considerable amount of EQT's debt burden. Per Reuters, EQT will continue to operate the pipeline after the deal is finalized.

The Zacks Consensus Estimate for 2024 sales indicates a year-over-year increase of 7.8%. The company delivered an average earnings surprise of 56% in the trailing four quarters.

TC Energy Corporation TRP has an agreement to sell its Prince Rupert Gas Transmission project (“PRGT”) to Nisga’a Nation and Western LNG. PRGT is a natural gas pipeline project in British Columbia, the westernmost province of Canada, that would support the development of liquefied natural gas exports. The divestiture aligns with TC Energy's strategic priorities for 2024, which focus on disciplined capital allocation within its established investment framework, maximizing asset value and enhancing its overall financial strength.

TRP’s long-term (three to five-year) earnings growth rate is 4%. It delivered an average earnings surprise of 12.7% in the trailing four quarters.

OKE’s Price Performance

Over the past three months, ONEOK’s shares have risen 30.6% compared with the industry’s 13.9% growth.

OKE’s Zacks Rank

ONEOK currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

EQT Corporation EQT has gained 16% year to date, outpacing the 11.3% improvement of the composite stocks belonging to the industry.

What's Favoring the EQT Stock?

EQT, a leading natural gas producer in North America, carries a Zacks Rank #3 (Hold) and has established a strong presence in the highly productive Appalachian Basin. The company's production prospects are robust, with numerous prime drilling locations throughout this gas-rich region. As natural gas is a cleaner-burning fossil fuel, EQT is well-positioned to benefit from the growing demand for clean energy sources. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Moreover, the U.S. Energy Information Administration (“EIA”) forecasts that the price of natural gas will increase to an average of $2.80 per million British thermal units (MMBtu) in the first quarter of 2025 from $2.20 per MMBtu in October, driven by heightened demand for heating fuel. As a major gas producer, the company stands to benefit significantly from this anticipated rise in commodity prices.

Notably, the company is at the forefront among its peers when it comes to establishing emissions reduction goals. EQT’s ambitious goal is to achieve net zero scope 1 and scope 2 greenhouse gas emissions by 2025 or sooner.

Risks to EQT’s Business

EQT Corporation has experienced a notable increase in its total debt, which rose to $13.8 billion as of Sept. 30, 2024, from $5.8 billion at the end of 2023. This substantial increase raises questions about the company's financial flexibility and its ability to pursue strategic objectives effectively.

Also, EQT's engagement in exploration and production activities leaves it vulnerable to significant fluctuations in oil and gas prices, resulting in a highly unpredictable business environment for this upstream energy company. Some other major exploration and production firms that are also exposed to commodity price volatility are ConocoPhillips COP, Diamondback Energy, Inc. FANG and EOG Resources EOG.

ConocoPhillips has secured a solid production outlook thanks to its decades of drilling inventories across its low-cost and diversified upstream asset base. The resource base represents the company’s strong footprint in prolific acres in the United States, comprising Eagle Ford shale, the Permian Basin and Bakken shale.

Diamondback Energy, a leading pure-play Permian operator, has reported ongoing enhancements in the average productivity per well in the Midland Basin. Thus, the exploration and production company will likely continue witnessing increased production volumes.

In the United States, EOG Resources is one of the foremost explorers and producers of oil and gas, with its crude reserves spanning across the United States and Trinidad. The company possesses an extensive inventory of high-quality drilling wells in low-cost, premium resources, ensuring a strong business outlook.

Zacks Investment Research

On CNBC's “Mad Money Lightning Round,” Jim Cramer said Amphenol Corporation is a “terrific” stock.

On Oct. 23, Amphenol reported better-than-expected earnings for its fiscal third quarter.

When asked about Freeport-McMoRan , Cramer said he don't like the copper stocks, and “copper doesn't yield a lot here.”

On Oct. 22, Freeport-McMoRan reported third-quarter FY24 results. Revenue stood at $6.79 billion, beating the consensus of $6.47 billion. Copper sales totaled 1.0 billion pounds, down 7% Y/Y and 2% above the July 2024 estimate, due to the timing of shipments and lower ore grades and operating rates in North America.

The Mad Money host said he likes Devon Energy Corporation , but Coterra Energy Inc. is “far superior” to Devon.

“I don't know how you can really make a lot of money in that business, frankly,” Cramer said when asked about TransMedics Group, Inc. .

On Oct. 28, TransMedics reported quarterly earnings of 12 cents per share, which missed the analyst consensus estimate of 30 cents per share. The company reported quarterly sales of $108.76 million, which missed the analyst consensus estimate of $115.00 million.

Price Action:

• Freeport-McMoRan shares gained 1.3% to settle at $44.12 on Tuesday.
• TransMedics shares gained 2.5% to close at $82.92.
• Amphenol shares gained 1.6% to close at $70.98.
• Devon Energy shares fell 2.2% to settle at $37.91 during the session.

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