ONEOK (NYSE:OKE) continues to harvest growth from its ownership of ONEOK Partners (NYSE:OKS), a publicly traded master limited partnership (MLP) that operates in various midstream energy businesses. The company also owns a number of regulated natural gas distribution companies and an energy services business.

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Net Income Growth
ONEOK estimates that its mix of businesses will lead to average annual net income growth between 18% and 22% from 2012 to 2014. (For related reading, see A Guide To Investing In Oil Markets.)

Organizational Structure
ONEOK owns 43% of ONEOK Partners and receives the majority of its earnings from this company's operations. ONEOK Partners GP, a subsidiary of ONEOK, is also the general partner of ONEOK Partners.

This type of organizational structure is fairly common in the MLP sector. Enbridge (NYSE:ENP) operates a large oil and gas pipeline network in North America. The company owns 26% of Enbridge Energy Partners (NYSE:EEP), which owns and operates midstream businesses in the Gulf Coast and other areas of the United States.

ONEOK Partners
ONEOK uses ONEOK Partners as a growth vehicle and receives distributions from the MLP as both a general and limited partner. ONEOK expects to receive $333 million of distributions in 2011 and $423 million in 2012. The distributions that ONEOK has received have been considerable over the last five years and totaled approximately $1.18 billion in the five-year period ending in 2010.

ONEOK Partners owns assets in the midstream area that help exploration and production companies gather, process, transport and store natural gas and natural gas liquids. The company has approximately $3 billion in projects planned to generate growth through 2014.

Natural Gas Distribution
ONEOK operates regulated natural gas distribution businesses in Kansas, Oklahoma and Texas. The company has a combined rate base of $1.9 billion and is allowed to earn a return off that base by the regulatory authorities that have jurisdiction in each area.

ONEOK is currently allowed a return on equity ranging from 10.1% to 10.7%. It expects the Natural Gas Distribution segment to earn $214 million in operating income in 2011 and $222 million in 2012. (For related reading on return on equity, see How Return On Equity Can Help You Find Profitable Stocks.)

In Oklahoma, Oklahoma Natural Gas Company is the state's largest distributor and provides services to approximately 842,000 customers, or 83% of the state.

ONEOK is also the largest natural gas distributor in Kansas, where it operates as Kansas Gas Service. The company has 638,000 customers or 68% of all natural gas users in Kansas. Texas Gas Service serves 622,000 customers in Texas, or about 14% of the state.

ONEOK is promoting the use of natural gas as an alternative transportation fuel in its service territory, and it operates 27 compressed natural gas (CNG) service stations to serve these vehicles. The company estimates that one vehicle powered by CNG will add the same amount of demand to its network as one house.

Energy Services
The Energy Services segment is the smallest of the three, and here the company provides unregulated services to utilities utilizing a network of leased storage and transportation assets. This business has been weak due to lower natural gas prices and lack of volatility in the market, which limits the ability of ONEOK to take advantage of market inefficiencies. ONEOK expects operating income in the Energy Services segment to be $40 million in 2012, down marginally from 2011.

ONEOK has passed along this growth to shareholders through higher dividends over the last five years. The company paid an annual dividend of $1.82 per share in 2010, and it expects this to grow to $2.48 per share in 2012. Since 2006, the dividend has grown at a compound annual growth rate of 13%. (For related reading, see Compound Annual Growth Rate: What You Should Know.)

The Bottom Line
ONEOK owns a curious mix of energy-related businesses and generates most of its growth from its share of the profits of ONEOK Partners. This should continue until the multi-year energy cycle turns over.

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