ONEOK's Strategic Expansion in the Delaware Basin: A High-Return Catalyst for Midstream Energy Investors

The midstream energy sector has long been a haven for investors seeking stable, fee-based cash flows insulated from the volatility of commodity prices. ONEOK Inc. (NYSE: OKE) is now positioning itself as a standout player in this space, leveraging its recent final investment decision (FID) for the Big Horn gas processing plant and its full acquisition of the Delaware Basin joint venture (JV) to unlock a new era of growth. With a $365 million capital outlay for the Big Horn facility and a $940 million equity stake in the Delaware Basin JV, ONEOK is betting big on the Permian Basin's surging gas volumes—and the math suggests this is a high-conviction, low-risk play.

Strategic Rationale: Why the Delaware Basin?

The Delaware Basin, a sub-basin of the Permian, has emerged as one of the most prolific natural gas production regions in the U.S. Driven by the discovery of high-carbon dioxide (CO2) gas streams, operators are increasingly reliant on advanced processing infrastructure to monetize these resources. ONEOK's Big Horn plant, with a 300 million cubic feet per day (MMcf/d) capacity and CO2 treatment capabilities, is uniquely positioned to address this demand. The facility is scheduled to begin operations in mid-2027, aligning with the projected peak of Permian gas production growth and ensuring a steady pipeline of incremental throughput.

The acquisition of the remaining 49.9% stake in Delaware G&P LLC for $940 million (completed in May 2025) further cements ONEOK's dominance in the region. This move consolidates its ownership of a 700 MMcf/d processing and gathering network, creating a critical mass of infrastructure that enhances operational leverage. By eliminating third-party ownership, ONEOK gains full control over margin-generating assets, reducing exposure to revenue-sharing agreements and amplifying the upside from volume growth.

Financial Performance: A Strong Foundation for Growth

ONEOK's 2025 second-quarter results underscore its financial strength and strategic execution. Net income of $841 million and adjusted EBITDA of $1.98 billion were driven by the EnLink and Medallion acquisitions, which added $290 million in combined EBITDA. The company's disciplined capital allocation is evident in its debt reduction efforts, including $600 million in senior note repayments and a $1.03 per share quarterly dividend (up 3.1% year-over-year). As of June 30, 2025, ONEOK had $97 million in cash and no borrowings under its $3.5 billion credit facility, providing ample flexibility to fund the Big Horn project without diluting shareholders.

Investment Thesis: Fee-Based Stability in a High-Growth Region

The Big Horn plant exemplifies ONEOK's focus on fee-based, low-commodity-risk infrastructure. With natural gas processing margins tied to volume rather than commodity prices, the project offers predictable cash flows even in volatile markets. The plant's CO2 treatment capability is a differentiator, enabling ONEOK to capture incremental value from otherwise uneconomical gas streams. Analysts estimate that the facility could generate $15–$20 million in annual EBITDA once operational, contributing to a 5–7% EBITDA growth rate over the next two years.

The Delaware Basin JV acquisition also enhances ONEOK's ability to scale. With 700 MMcf/d of existing capacity and the Big Horn plant adding 300 MMcf/d, the company is poised to handle a significant share of the Permian's projected 2027 gas output. This scale reduces unit costs and amplifies the impact of volume growth, creating a compounding effect on earnings.

ESG and Long-Term Value Creation

ONEOK's ESG credentials further bolster its appeal. The company's MSCI AAA ESG rating (May 2025) and inclusion in the FTSE4Good Index (June 2025) reflect its commitment to sustainable operations. The Big Horn plant's CO2 treatment technology aligns with decarbonization trends, potentially unlocking access to carbon credits or regulatory incentives in the future.

Conclusion: A Buy for Midstream Investors

ONEOK's strategic expansion in the Delaware Basin is a textbook example of midstream value creation: high-return infrastructure, fee-based stability, and a clear path to earnings growth. With the Big Horn plant set to come online in mid-2027 and the Delaware Basin JV fully integrated, the company is well-positioned to outperform sector peers. At a current enterprise value-to-EBITDA (EV/EBITDA) ratio of 10.5x (as of August 2025), ONEOK trades at a discount to its historical average of 12.5x, offering a margin of safety for long-term investors.

For investors seeking exposure to the Permian's energy renaissance, ONEOK's disciplined capital deployment and robust balance sheet make it an attractive candidate. The Delaware Basin is not just a growth story—it's a catalyst for sustained, low-risk returns in a sector primed for a multi-year upcycle.