ONEOK (OKE) Q1 2026: FCF Drops to $70M as CapEx Jumps 37%

ONEOK posted first-quarter operating income of $1,428 million, up 17.0% from $1,220 million a year earlier, according to its Form 10-Q for the quarter ended March 31, 2026 — yet the cash left after building the assets that produced it shrank to almost nothing. Free cash flow, defined here as operating cash flow minus capital expenditures, fell to $70 million from $275 million a year earlier, against $674 million of dividends paid in the same three months, and the gap was bridged with $827 million of net new short-term borrowings. Earnings quality is not the issue: ONEOK expects consolidated earnings to be approximately 90% fee-based in 2026 by its own estimate, so the operating line is genuinely durable. The pressure sits entirely on the funding side, where a $2.7–3.2 billion 2026 capital program and a $4.28 annualized dividend are competing for the same cash — and in April the company added a $1.2 billion 364-day term loan to the toolkit. For a midstream operator that has spent three years absorbing Magellan, EnLink and Medallion, this quarter is less about whether the assets work and more about how the last leg of the build-out gets paid for.

1. Consolidated Balance Sheet

1-1. Major asset movements

Source: ONEOK Form 10-Q, three months ended March 31, 2026.

Total assets grew $1,562 million in three months, but only $443 million of that landed in net PP&E. The rest is working capital: receivables up $660 million and inventories up $188 million, driven by the Refined Products and Crude segment, where product sales jumped $2,227 million. The volume picture inside that segment is split — refined products volumes shipped rose to 1,568 MBbl/d from 1,401, while crude oil volumes shipped fell to 1,613 MBbl/d from 1,846 on lower-margin, short-haul movements. Gross PP&E rose to $56,272 million from $55,489 million while accumulated depreciation climbed to $7,968 million — the asset base is still being added to faster than it is being written down, which is what a company mid-build looks like.

Goodwill sat unchanged at $8,058 million and intangibles declined only through amortization, so there was no impairment of goodwill or consolidated PP&E this quarter. The one write-down was below the operating line: a $60 million non-cash impairment of the 50% interest in Powder Springs, inside the Refined Products and Crude segment.

Equity movements are worth tracing separately. Accumulated other comprehensive loss widened from $(27) million to $(266) million, driven by a $303 million after-tax decline in derivative fair values (net of $91 million tax), partly offset by $64 million reclassified into earnings. That is the hedge book moving against ONEOK as commodity prices rose — gross derivative liabilities designated as hedges went from $(50) million to $(441) million. Treasury stock shrank from $(829) million to $(818) million and shares outstanding rose to 630.0 million from 629.7 million, meaning shares were reissued for compensation, not repurchased. Despite listing share repurchases among expected uses of cash, ONEOK bought back nothing in the quarter.

On maturities, current maturities of long-term debt of $1,241 million comprise $491 million of 4.85% notes due July 2026 and $750 million of 5.55% notes due November 2026 — both inside twelve months. ONEOK did not wait for the first one: in April 2026 it redeemed the remaining $491 million at par, and the 10-Q says it did so with short-term borrowings. That maturity was refinanced into commercial paper, not repaid out of cash. Book value of consolidated long-term debt including current maturities was $32.0 billion at both dates, but its estimated fair value fell to $32.1 billion from $32.7 billion — the debt now trades essentially at par, having shed the premium it carried at year-end, which is what a rise in market yields on comparable issues looks like from the issuer's side.

1-2. Financial debt versus operating liabilities

Financial debt — current maturities $1,241 million, short-term borrowings $1,647 million and long-term debt $30,764 million — totals $33,652 million, up from $32,816 million, a $836 million increase. Almost all of it — $827 million — came from short-term borrowings, which doubled from $820 million. Commercial paper outstanding was $1.6 billion at a 4.16% weighted-average rate, up from $820 million at 3.91%, so the cost of the incremental funding is also rising.

Operating liabilities behaved differently. Accounts payable jumped to $3,572 million from $2,838 million, other current liabilities fell to $836 million from $967 million, and other deferred credits were roughly flat at $609 million. The $734 million payables build is the mirror image of the receivables build and is what kept operating cash flow positive.

The result is a working capital deficit of $2.3 billion at March 31, 2026 — current liabilities exceeding current assets, driven by exactly those current maturities and commercial paper. Management states it does not expect a deficit of this nature to have a material adverse impact on cash flows or operations, which is a defensible position for a company with committed bank lines; it is still the shape of a balance sheet that depends on rolling short-term paper.

Debt-to-equity moved to 1.50x from 1.46x. The covenant-defined leverage ratio in the $3.5 billion credit agreement was 4.2 to 1 at quarter-end, against a covenant of 5.5 to 1 that steps down to 5.0 to 1 after the quarter ending June 30, 2026. There is headroom, but it narrows in the second half.

1-3. Capital structure

Total ONEOK shareholders' equity slipped to $22,357 million from $22,485 million — net income of $774 million was more than absorbed by dividends and the $239 million OCI hit. The composition is the more revealing number: paid-in capital of $20,965 million against retained earnings of just $2,469 million — 94% and 11% of book equity respectively, the two summing above 100% because $(818) million of treasury stock and $(266) million of accumulated other comprehensive loss are subtracted on the way to the total. Retained earnings amount to less than one year of dividends at the current $4.28 annualized rate. That is the MLP inheritance — pay out nearly everything, fund growth with debt and stock — and it explains why the balance sheet carries so little internal buffer despite years of profitability.

2. Consolidated Statement of Income

2-1. Core results

Source: ONEOK Form 10-Q, Q1 2026.

The 19.6% revenue increase should be discounted almost entirely. Cost of sales and fuel rose $1,398 million against a $1,575 million revenue gain, because commodity purchases pass straight through both lines. The Refined Products and Crude segment alone added $2,227 million of product sales while its cost of sales rose $2,217 million — a $10 million spread on $2.2 billion of incremental turnover. Strip the pass-through and gross profit grew 7.4%.

Against that 7.4% gross profit growth, operating income grew 17.0%. That is the real operating leverage — roughly 2.3x — and it came from cost discipline rather than volume: operating costs fell to $746 million from $752 million, depreciation and amortization eased to $378 million from $380 million, and transaction costs collapsed to $7 million from $42 million as the EnLink integration wound down. (Note: these three cost lines do not on their own reconcile to the stated operating income — an additional unattributed item, likely gain or loss on asset disposals, added $6 million to income in Q1 2025 and subtracted $6 million in Q1 2026.) Excluding transaction costs from both periods, normalized operating income rose 13.7% to $1,435 million from $1,262 million — the cleaner growth rate.

Two items complicate the EPS story. Net income attributable to ONEOK rose $138 million while consolidated net income rose only $85 million, because noncontrolling interests fell to $2 million from $55 million after the January 2025 buy-in of EnLink's public units. That buy-in also lifted diluted shares 3.1% to 631.6 million from 612.5 million. In substance, ONEOK swapped a minority-interest deduction for share dilution; roughly $53 million of the $138 million improvement is that swap rather than new earnings.

Interest expense looks flat at $439 million versus $442 million, but capitalized interest rose to $27 million from $10 million. Gross interest actually increased 3.1% to $466 million from $452 million — the reported line is flattered by construction accounting. Interest coverage on operating income nonetheless improved to 3.25x from 2.76x. The effective tax rate rose to 24.0% from 22.2%.

2-2. Segment mix

Source: ONEOK Form 10-Q, Q1 2026 segment disclosures.

Natural Gas Pipelines supplied $127 million of the $222 million consolidated increase, and $92 million of that came from optimization and marketing — primarily $70 million from favorable Waha Hub to Katy price differentials and $19 million from Winter Storm Fern, with the balance unattributed in the filing. Those are location-spread and weather gains, not contracted revenue. Excluding those two named items ($89 million), consolidated adjusted EBITDA growth would have been roughly 7.5% rather than 12.5%. The durable part of the Pipelines gain was $23 million of higher firm transportation revenue, supported by contracted capacity rising to 7,837 MDth/d from 7,301 MDth/d and utilization to 93% from 91%.

Gathering and Processing was the only segment to shrink, down $24 million: a $64 million hit from lower realized NGL and natural gas prices net of hedging overwhelmed $27 million of volume growth and a $14 million cost saving from methane fees no longer incurred under revised regulation, with the remaining $1 million unattributed. Natural Gas Liquids added $71 million on $42 million of optimization gains and $24 million of exchange services, though the composition there is mixed — $80 million from higher Gulf Coast/Permian and Rocky Mountain volumes was partly given back by $41 million of lower average fee rates and $19 million of narrower fractionation differentials, with the remaining $15 million unattributed in the filing. Fee compression in the NGL business is a trend worth watching across coming quarters.

ONEOK's adjusted EBITDA is a non-GAAP measure that adds back interest, D&A, income taxes, the $60 million Powder Springs impairment and $58 million of non-cash compensation and other items, and includes $130 million of EBITDA from unconsolidated affiliates the company does not control.

3. Consolidated Statement of Cash Flows

Source: ONEOK Form 10-Q, Q1 2026. Free cash flow is calculated by LineVest as operating cash flow less capital expenditures and is not a company-reported measure.

Operating cash flow grew just 3.3% against 12.3% net income growth, because working capital consumed $605 million versus $344 million a year earlier. Receivables took $656 million, inventories $173 million, risk-management assets and liabilities $460 million and other assets and liabilities a further $126 million, offset by $810 million of accounts payable growth.