ONEOK, Inc. (OKE): Navigating Leverage and Returns in Energy Infrastructure

ONEOK, Inc. (NYSE: OKE), a leading midstream energy company, has long balanced growth ambitions with financial leverage. In 2024, its financial metrics—particularly Return on Equity (ROE) and Debt-to-Equity (D/E) ratio—highlight a company straddling the line between aggressive expansion and prudent risk management. Let’s dissect the numbers to assess whether OKE’s strategy is paying off or accumulating risk.

ROE: A Modest 13.7%, But What Does It Mean?

ONEOK’s ROE of 13.7% in 2024 (calculated using $3.035 billion net income and $22.13 billion equity) reflects solid operational execution amid high debt. While this return is respectable compared to the broader energy sector’s average ROE of ~10-12%, it falls short of its own historical highs. For instance, in 2018, OKE reported an ROE of 16.6% with a lower debt burden. The decline underscores the trade-off between leveraging growth and diluting returns.

To contextualize, OKE’s ROE growth has been constrained by its $41.94 billion in long-term debt, which compresses equity as a percentage of total capital. However, the company’s Adjusted EBITDA surged 29% to $6.78 billion in 2024 (from $5.24 billion in 2023), driven by strategic acquisitions and volume growth. This suggests that while debt is high, OKE’s core operations remain robust enough to generate cash flows to service obligations.

Debt-to-Equity: High, but Improving?

ONEOK’s D/E ratio of 1.90 as of December 2024 reveals a company with nearly twice as much debt as equity. This ratio has trended downward from a 2022 peak of 3.01, but it remains elevated compared to 2018’s 1.47. The improvement reflects OKE’s efforts to reduce leverage through asset sales (e.g., a $1.2 billion interstate pipeline sale) and extending credit facilities (e.g., its $2.5 billion credit line was upsized to $3.5 billion with a 2030 maturity).

Critically, OKE’s net debt-to-EBITDA ratio of 3.6x in Q4 2024 signals manageable leverage, as this metric stays within the 3-4x range typically considered sustainable for midstream companies. However, the reliance on third-party assets and volatile commodity prices could strain cash flows if energy markets sour.

Strategic Growth vs. Debt Risks

ONEOK’s investments in infrastructure—such as its 400,000-barrel-per-day LPG export terminal in Texas City (see below)—are designed to capitalize on rising global demand for propane and butane. The project, connected to its Mont Belvieu storage hub, exemplifies the company’s push into export markets. Meanwhile, pipeline expansions like the Elk Creek Pipeline (575,000 bpd capacity) and the West Texas NGL Pipeline (740,000 bpd by mid-2025) aim to secure long-term volume growth.

These projects align with OKE’s dividend growth, which rose 4% in early 2025 to $1.03 per share quarterly. The company also repurchased $171.7 million in shares under its $2 billion buyback program, signaling confidence in its balance sheet. However, with net debt still elevated, investors must weigh growth potential against refinancing risks.

Risks on the Horizon

• Debt Management: OKE’s high leverage leaves little margin for error if EBITDA growth stalls. A prolonged downturn in commodity prices or delays in project execution could strain liquidity.
• Regulatory and Operational Challenges: The company’s reliance on third-party assets and pipelines—critical for volume stability—exposes it to regulatory hurdles and operational risks.
• Comparisons to Peers: While OKE’s ROE lags peers like Enterprise Products Partners (EPD, ROE ~12%) and EnLink Midstream (ENLK, ROE ~15%), its dividend yield of 8.5% (as of early 2025) offers income appeal.

Conclusion: A High-Reward, High-Risk Play

ONEOK’s 2024 results underscore a company leveraging its infrastructure scale to drive growth, with Adjusted EBITDA up 29% year-over-year and strategic projects on track. Its 13.7% ROE is respectable but tempered by a D/E ratio of 1.90, which demands cautious optimism.

Investors should prioritize cash flow stability and debt reduction as key metrics. If OKE continues to deleverage (even modestly) while maintaining EBITDA growth, its dividend and valuation could improve. However, the net debt-to-EBITDA ratio of 3.6x leaves little room for error in a downturn.

For income-focused investors, OKE’s 8.5% yield and stable cash flows from contracted assets may justify the risk. Yet, those prioritizing safety should await further deleveraging. In a sector where infrastructure builds are king, ONEOK’s projects position it to thrive—if it can keep its debt under control.

In short, OKE is a high-beta play on energy infrastructure growth. Its financials reward growth but demand vigilance—a balance investors must weigh carefully.