Enbridge Inc

First quarter 2021 financial results conference call. My name is Julie and I will be your operator for today's call. At this time, our participants are in a listen only mode. Following the presentation, we will conduct a question and answer session for the investment community. During the question and answer session, if you have a question, please press star one on your touch tone phone. Please note that this conference is being recorded. I will now turn the call over to Jonathan Morgan, Vice President, Investor Relations. Jonathan, you may begin.

Thank you, Julie. Good morning, and welcome to the Ember Jink first quarter 2021 earnings call. Joining me this morning are Al Monaco, President and Chief Executive Officer, Colin Grunding, Executive Vice President and Chief Financial Officer, Vern Yu, Executive Vice President, Liquids Pipelines, Bill Yardley, Executive Vice President, Gas Transmission and Midstream, Cynthia Hanson, Executive Vice President, Gas Distribution and Storage, and Matthew Ackman, Senior Vice President, Strategy and Power. As per usual, this call will be webcast, and I encourage those listening on the phone to follow along with the supporting slides. A replay of the call will be available later today, and a transcript will be posted shortly after the call. We will try to keep the call to roughly one hour this morning, and in order to answer as many questions as possible, please limit your questions to one plus a single follow-up if necessary. We'll be prioritizing calls from the investment community, so if you are a member of the media, please direct your questions to our communications team, who will be happy to respond. And as always, our investor relations team will be available for any detailed follow-up questions after the call. On to slide two, where I'll remind you that we'll be referring to forward-looking information on today's presentation and Q&A. By its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filings. We'll also be referring to non-GAAP measures summarized below. With that, I'll turn it over to Al Monaco.

Okay. Thanks, Jonathan. Hi, everybody. I'm going to start today with an update on our three priorities that you see on the slide here. Then Colin will recap our capital allocation priorities, review the results, and how we see the year shaping up. And as you saw, a good start with Q1. Before we do that, as usual, I'll spend a minute on the bigger picture industry context and how we're positioned. While the economic recovery is really gaining steam here, Global energy demand is accelerating and should exceed pre-pandemic levels next year. The vaccine rollouts globally have been slow but stronger in some areas with the U.S. leading the way. Massive stimulus is starting to take hold. Interest rates should remain in check but the threat of inflation is out there as you see but we're well protected there. Gasoline, diesel and pet chem demand is back and hitting beyond pre-COVID levels as is natural gas. The resiliency of our business was tested again with the Texas storm. Millions without power, heat and access to clean water. We had a few disruptions there, but we reliably supplied energy to the region when they needed it most. In the face of a global pandemic and the storm, our franchises withstood the test again, operating near max. Liquids volumes have been steadily climbing and we should hit roughly 2.8 million barrels a day on average this year. Winter gas transmission volumes were above 2020 level, which illustrates again the rock solid demand for space heating, commercial, industrial and power gen load in our markets. And same goes for our gas utility in Ontario. What this picture here shows is that the three franchises and the low-risk model that underpins them drive out highly predictable cash flows, even in the worst downturns. These businesses have great longevity in any energy scenario and are well positioned for the future. We've talked about our views on the pace of energy transition in the past, so let me focus on our strategy on that front. We see the transition as an opportunity on several fronts and here's why. First, global energy demand is going up, led by Asia and developing nations. We think that North America's tremendous low-cost resource potential, combined with a clear pathway to reducing emissions, will be a true differentiator in terms of supplying reliable energy to feed global energy growth. That's why we're focused on expanding export infrastructure. I'll come back to that later. For us, reducing emissions provides an opportunity by modernizing our assets. We've developed a strong renewables platform with a big portfolio of opportunity. We're excited about the next frontier of low carbon growth as well. And the one thing that's common to these opportunities on low carbon is transportation, distribution and storage. So our assets will remain critical. And the key to being a differentiated service provider in the future is leading on ESG, which is foundational to how we've operated the business for many years. Moving to the priorities update, starting with strengthening the base. Good progress on the regulatory front. The settlements we reached actually on the three largest gas pipes added roughly 160 million of EBITDA. And in Q1, we landed three more settlements. On the liquids mainline, we're through the evidentiary part of the CER's review, and oral hearings will begin on May 19th, so we expect a decision this year. We continue to have strong customer support, and that's because our offering provides the toll and capacity certainty that they want. In contracting, let's remember, we'll assure a strong demand pull for Western Canadian barrels for a long time. Another source of growth is productivity. Last year, we delivered on the $300 million we promised, and we're on track for another $100 this year. I think there's more to be had here, and digital technology will play a bigger role in unlocking more value. And recall that the vast majority of our revenues, we show this on a chart here, have inflation escalators or contracted toll growth, so there's further built-in EBITDA upsides. Our second priority is executing our secure capital program. So you see our updated chart here. We've got $17 billion underway, which drives $2 billion plus in annual EBITDA growth through 2023. Projects cover the gambit here from gas, liquids, and renewables with low commercial risk underpinnings. We expect to put roughly $10 billion in the ground this year, the largest project being Line 3 in the U.S., so 2021 which is the bottom line of this chart is really a pivotal year for us we'll put a major portion of our capital program behind us and we'll be in less capital intensive mode after that the capital will drive dcf and dps growth and we'll have a lot of financial flexibility to extend growth beyond 2023. on to the program itself and gas transmission $3 billion of our $5 billion three-year program is slated for this year, and most of that is in our BC system and Texas Eastern modernization. We've completed all five compressors now on the DCT South expansion, and the first two loops are done on Spruce Ridge. Both of those should be ready in Q4. In the gas utility, everyone knows that new home demand is up, so we're nicely on track to add 45,000 customers this year. On renewables, we're well into construction on our two large offshore wind projects in France. We're getting ready to stand up the first turbines on Saint-Nazaire and foundations are underway at FECOM. So good progress on those and those two wind firms should be in service in 22 and 23. On to liquids and line three. The Minnesota program as you know came in as planned and we paused construction now for spring thaw but the station work will continue. Pipeline construction will ramp back up in early June so we're on track to hit our Q4 in-service target. Community support continues to be very strong here and one of the success stories is the collaboration with local tribes on the cultural survey, environmental measures that we worked on with them, and our economic partnership. We've not only hired hundreds of local members to help build this segment, but the tribal business opportunities have hit $180 million, well, what we thought we would achieve. Once the U.S. segment is in service, we'll start collecting the 93.5 cent per barrel surcharge on mainline volumes. And that translates to about $200 million in Q4 this year, and that should ramp up further in 2022. Moving to Line 5 and the associated Great Lakes Tunnel. Now, it's important to remember how Line 5 originally came about. It was built in 1953 to avoid moving crude on the water. The 540,000 barrels per day that we move is essential to Michigan and the entire region. It heats homes, fuels airports, and provides pet can feedstock that industry and consumers ultimately rely on. And you get a sense of that with the picture we're showing here with all of the attachments to key markets. The pipeline is the safest way to get that energy to the region. There's no practical alternative, and that's been studied over and over by independent experts, including the state's own report in 2017. Even if they were available, adding trains, trucks, and barges doesn't make sense, especially from an environmental and safety point of view, not to mention reliability and higher consumer costs. We understand the need to protect the Great Lakes, and that's why we've committed to build a tunnel. reduce the risk to as near zero as humanly possible. And just to reiterate, we intend to continue to operate the line, and certainly we're in compliance with the easement and the law. PHMSA has validated the safety of the line, and both the court and the state have agreed with that as recently as last year. The courts are reviewing the state's challenge to the pipeline, and that's going to take a while, so no decisions in our view are imminent. Affected parties, including surrounding states, industry and governments, are supporting our position. And we've finally been able to re-engage the state through the court-ordered mediation. Now, the obvious solution here again is the tunnel, which we've been moving forward on diligently despite these challenges from the state. We filed regulatory applications on the tunnel, and we've received one, and the other two are in progress. We finalized the design, and we're now bidding out construction. The next slide brings all of what I've said so far together in our three-year outlook. Embedded revenue, productivity, and optimization measures will drive 1% to 2% annual DCF per share growth. The secure program adds another 4% to 5%, so call it 5% to 7% growth through 2023 on average. Beginning in 22, the increased EBITDA from these two categories should give us $5 to $6 billion of investable capacity annually. So that's the story through 2023, so let's summarize the growth hopper beyond that. This map you see here, inventories are organic opportunities set across the footprint. I won't go through each of these, of course, but there's two main takeaways here. First, our diversity and positioning of assets gives us multiple avenues to grow, whether it's liquids, gas transmission, gas utility, and gaining more traction in renewables. Second, a good chunk of our organic capital is rateable. Gas utility growth at $1 to $1.5 billion a year, gas transmission, call it $1 billion or more, and low capital intensity expansions on our liquid systems. There's enough organic opportunity in the hopper to absorb most of the $5 billion to $6 billion of capacity. On that, though, we'll be disciplined on how we allocate capital between businesses and other options, including share buybacks. Colin will take you through how we'll prioritize that in a minute. But here's a bit of a flavor for the opportunity set first. On exports, we've got great connectivity to low cost supply for both liquids and natural gas. On the crude side, our heavy oil full path from Western Canada to the Gulf allows us to capitalize on growing heavy demand and, of course, the declining global heavy supply outlook for heavy. We're developing a terminal to aggregate barrels and provide bundle full path service to the Gulf. interest is building on our houston terminal and we recently acquired prime storage assets that link to our cushion position and we'll leverage the seaway distribution system into the gulf refineries spot is moving along there's an anchor customer as you know and murad's approval is expected later this year On the gas front, we're very bullish, as you know, given its load-falling capability and base load capability, for that matter. But we also see it as a great enabler of society's lower carbon goals. Gas will be critical to achieving renewable targets, and with that, green hydrogen. We're already a major player in LNG exports, feeding Sabine, Freeport, and Cameron. Venture Global is progressing their Calcasieu PASS facility, which will feed through our Cameron extension, and that's on track for Q4. We're set to supply the Plaquemines project off TETCO once they FID. Next Decade has now differentiated their Brownsville project from an ESG perspective, and that was great to see. And they could reach FID on Rio Grande as early as this year. And, of course, we acquired the Rio Bravo pipeline project that will feed the terminal. Also in Brownsville, Texas LNG received their FERC approval recently. We're working with them on providing supply via Valley Crossing. Turning now to renewables. Over the last two decades, we've built up a solid renewables business with development and operating capabilities. We've got 3,600 megawatts gross of North American onshore and European offshore renewables. In addition to St. Nazaire and FECOMPT in construction, we've kicked off Calvados in Q1, so that's another 1,400 megawatts underway. Each of these should earn solid mid-teen equity returns. We also saw an opportunity to recycle some offshore wind capital by monetizing interest at good value to the Canadian Pension Plan, and they're a very strong partner for us. So we're focused on expanding the footprint in Europe, anchored by maple power development and our EDF partnership. There's over 3 gigawatts under development. You can see that in the chart here, including late-stage projects in France and a very large expansion of our ramping facility in the UK. We're also developing floating wind, which will be the next offshore frontier. France itself has big plans to grow offshore wind, and floating will be part of that. We're going to pilot actually the Provence project on the south coast of France, and it's moving through a regulatory process right now. Another growing part of our renewables business is self-powering in North America. This does excite us because it marries up our liquids and gas business with our renewable capability. A couple of weeks ago, we put Alberta's Solar One into service. That's a 10.5 megawatt plant, which will provide zero emission power to the main line. And earlier this week, we sanctioned phase two of our liquids program. So that's another four projects along our system in the US Midwest. And recall Texas Eastern, our Lamberville project went into service last year. And this month, Heidelberg Solar will go into operation. There's three more gas solar projects on Bill's system in the queue, which should FID later this year. So we're really pleased with how our renewables business has developed. We've got more than enough in the hopper where we don't need to chase projects in this frothy market. I'll close off my update on longer-term strategic investments in low-carbon assets. Now, this is not about taking flyers. It's about developing our capability, improving our technology within our low-risk business model. And our early start a few years ago in our utility has put us ahead of the curve. In Ontario, we're in the middle of a two-stage pilot. On stage one, we built a power-to-gas facility that converts off-peak renewable power to hydrogen to manage grid stability. Stage two, which we're now starting up, blends hydrogen into our gas stream. More recently in Quebec, we'll source renewable power to generate hydrogen and blend into the network there. On RNG, we have six projects in operation or in construction. And as you saw, we just entered a partnership with Comcore and Walker Industries to develop projects across Canada. Finally, the biggest opportunity may in fact be on CCUS. We're very encouraged by both the U.S. and Canadian government policy actions. It's a perfect example of where public and private partnerships can make a big dent in achieving climate objectives. We do have our eye on a potential CO2 trunk line in northern Alberta to support our customers capture efforts. So all in still in early stages on this one, but lots of interest. So I'll hand it over to Colin for the financial review.

Thanks Al and good morning everyone. I'll start with the recap of our capital allocation priorities and then run through our financial results and outlook for the rest of 2021. So this initial slide summarizes our capital allocation framework and importantly, it remains unchanged. Our first priority is maintaining a solid foundation, a healthy balance sheet. We're targeting our debt levels between four and a half to five times debt to EBITDA, which given our low risk model maps strongly triple B plus credit frameworks across all of our agencies. Second, sustainable dividend growth will remain a core tenant of our value proposition. We intend to grow dividends up to the level of DCF per share growth, which is projected to be 5% to 7% through 2023, of course, while minding a prudent payout level. Third, we'll continue to carefully steward capital and focus on value maximization and equity returns. All the capital we're putting into service here will support $5 to $6 billion of annual investable financial capacity starting in 2022. $3 to $4 billion of this is designated for utility and utility-like investments, capital efficient optimizations, and in-court or expansions. So that leaves us about $2 billion of annual capacity for other investment opportunities as listed here. Or said another way, we'll dynamically deploy this $2 billion of capacity to maximize long-term value creation. And yes, share repurchases continue to be an option. Now a quick update on our financial position. We exited 2020 with a great balance sheet, and we continue to guard it and build even more flexibility. While 2021, as I mentioned, reflects an outsized CapEx program, it's being contemplated in our self-funded equity plan, and we expect to exit the year within our target range. This project execution should create significant 2022 EBITDA growth, which will strengthen our metrics to the low end of our target range or even below it. A quick comment on two of our recent financing innovations, which we're excited about. During the quarter, we issued our first sustainability-linked loan, tying our financial performance to our ESG goals. And second, we also issued what we understand is the world's first non-bank, SOFR-linked floating rate note as global financial markets transition away from the traditional LIBOR benchmark. Anyways, I think the main message on this slide is that our financial position is strong and we are on the cusp of significant financial flexibility. On to slide 19. Before I get into the results, I'll provide a few big picture comments on our Q1 performance broadly and how it positions us for the full year. Despite the Texas storm and another wave of COVID restrictions, asset utilization across the board has been strong. Also, as illustrated, we're executing on all fronts, which gives us great visibility to our three-year plan growth objectives and confidence that we'll hit our 2021 financial guidance yet again. As you look to the balance of this year, economic activity should continue to strengthen, which will support a return of energy demand growth. Inflation should remain largely in check in the near term, which we expect will give central banks cover to keep interest rates low and support the economic recovery. In any event, we're well protected against rising inflation should it occur, with more than 65% of our EBITDA streams benefiting from built-in escalators commercially. Foreign exchange, the U.S. dollar exchange rate, that is, is likely to remain a headwind for the remainder of the year, but our hedge program gives us very good protection there. In 2021, for example, we're about 90% hedged on an earnings basis and about 65% on a DCF basis in the 128 exchange rate area. And we saw the benefits of this program in Q1, which is a good segue to the quarter results on slide 20. Adjusted EBITDA was $3.7 billion, while DCF was $1.37 per share. And we think that's a great outcome considering Q1 of last year was a tough comp with exceptionally strong and largely unaffected results pre-pandemic, whereas this quarter endured the pandemic, the February Texas storm and a weaker exchange rate. In terms of the storm effects, briefly, if you're interested, our utility-like business model once again shone through and insulated us from significant impacts. We had puts and takes around the edges, I would say, on a handful of assets, with the net result being immaterial, albeit slightly negative. That's mostly due to two things. First, we have a weaker EBITDA pickup from our DCP investee, which reported yesterday. However, there was no cash impact to our distributions here. And secondly, the impact of adverse price movements impacting our energy services business, or about $20 million of the Q1 loss reported in that energy services segment. Moreover, our liquids pipelines and gas transmission assets were substantially uninterrupted and sold out, as Bill says, on a reservation basis. We did benefit marginally at our gas storage facilities, but again, we've contracted out the majority of this capacity, which reflects our business model preference. And lastly, on the storm, our three Texas wind farms experienced some ice buildup, but the team returned those to service quickly to offset downtime effects. So I think the message is here, once again, our business has proven highly resilient to the most challenging situations. Okay, let's look at the segment results. First, a comment on foreign exchange, which permeates a few segments. As you know, we have a continental footprint, and about two-thirds of our business earns U.S. dollar-denominated income, which we substantially hedge. Geographically, in our results, in the business segments, we report the U.S. dollar EBITDA translated at spot rates, but this is materially hedged. and offset with settlement gains reported in our corporate segment. In our liquid segment, mainline volumes were again right where we expected them at, slightly better than 2.7 million barrels per day for the quarter. That's about a 92% utilization rate, which combined with higher tolls and improved foreign exchange rates on our specific IJT tolls led to a strong reported quarter. In gas transmission, our results were right on target also. But year over year, changes were impacted by a weaker foreign exchange rate and the positive impact from the Texas Eastern prior period settlement as reported in last year's results. In the utility, results benefited from colder weather relative to last year, higher rates and a growing customer base. Relative to normal or our guidance, weather was about $24 million warmer. Renewable power had a few moving parts, but overall a positive result supported by strong offshore wind contributions year over year. Energy services continues to be challenged by underutilization of certain of our fixed commitments, which is due to primarily weak geographic basis differentials affecting light crude demand, as well as the 20 million storm one-time loss I mentioned a few minutes ago. Eliminations and others contains the offsetting hedge settlement gains I mentioned, as well as strong corporate cost management performance. Maintenance capital is expected to pick up seasonally through the balance of the year, weighted to Q3 and Q4 as usual. The 2020 reported number here was a bit of an anomaly. Okay, on to slide 21 for the bigger picture and how we see the full year shaping up. Because of a strong start, we're definitely ahead of plan for the first quarter. And while we're still cautious on the pace of recovery, we remain confident that we'll achieve our full year guidance. As we look at the balance of 21, we have tweaked our own quarterly forecast slightly, but importantly, no change to the full year outlook. I'll touch briefly on a couple of these tweaks. First, we're seeing a more concentrated crude oil customer turnaround season in the second quarter, as producers and refiners advance their maintenance in anticipation of continuing demand pickup in the second half. This just boils down to timing, with the mainline volumes expected to dip a little to about 2.6 million barrels per day, mostly impacting light volumes, then ramping back up to achieve the same full-year outlook of approximately 2.8 million barrels per day on average for the year. And second, lower energy service contributions will likely persist in Q2 and Q3 on weaker regional light demand and margins. Big picture, however, energy demand is picking up nicely. Our businesses are performing well, and we're confident in our full-year guidance.

With that, Al, I'll pass it back to you. Okay, thanks, Colin. Just a quick recap here to end it off. First quarter came in strong and on track for guidance, as Colin just mentioned. Execution-wise, big year at $10 billion going into service, which is going to generate a lot of free cash flow. And after 23, very good hoppers you saw of in-franchise growth opportunities. Just more broadly here, though, the best-in-class franchises we've got here have very good longevity and transparency to future cash, but they also position us to capitalize as we transition to a lower-carbon economy over time. We'll continue to ensure a strong balance sheet and great flexibility. And finally, as we like to conclude, the combination of yield growth and capital appreciation here provides investors with a very attractive value proposition, especially as we move into a very robust economic outlook. That concludes what we want to say formally. We'll move to the Q&A, and given we're in different locations, I will quarterback this and hand off questions as required. So over to the operator.

Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using the speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star 1 on your touchtone phone. And Robert Kwan from RBC Capital Markets is online with a question.

Good morning. I wanted to talk about the strategy around the energy transition and ask first here just about the business mix. So post-2023, the numbers you put out, heavily gas-driven, do you see that as being more specific to your footprints on the gas side, or is there a higher kind of level macro view that's actually driving gas? And if it is macro, do you see an opportunity to reduce your exposure in slower-growing segments and acquire more gas platforms?

Okay, Robert, it's Al here. So I think it's probably a combination of both, Robert. Obviously, we've got a great platform, you know, likely one of the top two or three perhaps in the United States. So we're very pleased with that. And as Bill will tell you, you've got lots of organic growth coming out of it. Fundamentally, though, We're big fans of natural gas. We've been moving in that direction for quite a while. Very positive on the fundamentals for a bunch of reasons. The obvious ones are replacing coal generation. More importantly, though, as I mentioned in my remarks, it's about supporting renewables. If we want to hit renewables targets, natural gas is going to have to be very important to that. We like our position on LNG exports, and we have a very favorable view of LNG trade going forward. And that's going to spawn, I think, a lot of opportunities to modernize our gas system, and I think distribution utilities probably in the same category. In terms of the, I guess maybe the implied capital allocation question there, You know, we're in a good position here because the liquids business, as you know, is a world-class franchise. That's going to continue to grow, but the capital intensity, that's likely going to decline for a bunch of reasons. It'll grow through optimizations and efficiencies that Vern and his team are working on, optimizing the system. We've had a great record of doing that so far. So it'll be lower capital intensity, and that will allow us to perhaps deploy a greater proportion of future free cash flow into the gas business and into the renewables business. So that's how we see it. Hopefully that gets to your question.

So more organic versus anything where you can accelerate your gas platforms on the acquisition front?

Yeah, I mean, the base case is organic, and as Bill will tell you, there's lots of opportunities there. If you look at the markets and where we feed gas into, you know, the U.S. northeast, the southeast, we really like the Gulf Coast opportunity, given where we're situated along the coast and how that's going to feed LNG. Even if you look at the B.C. system, good opportunities for organic growth. We wouldn't hesitate, though, actually, if we could – find assets that, you know, extend out the franchise and give us some more opportunity to grow accretively from that platform. So, I mean, that's on the table. If we can find a good asset opportunity, we'd certainly look at it closely. And the team is looking at those opportunities. Nothing front burner on that right now? Well, probably not front burner, but it's certainly on the stove. Thank you very much. Great.

And we have Jeremy Toney from J.P. Morgan online with a question.

Good morning. Good morning. I just want to start off with the carbon capture, if I could, here. Just wanted to see a lot of new good information there. The focus seems to be largely on Canada, but just wondering if you see opportunities in the U.S. as well. And just kind of curious about how you see project returns. Do you see the 45Qs and other initiatives kind of helping make it attractive? Or would you like to use third-party capital and joint ventures here to move forward, just trying to think through the different possibilities?

Maybe we'll get Vern to talk about how we see the U.S. and the opportunities there. And we'll come back to the last part of your question after.

Okay. Thanks, Al. Obviously, carbon capture is going to be very important in the energy transition, as there's many industrial processes that people are going to need for the future. that you've seen out of Exxon and others are highly informative where people are thinking about that we need to make carbon capture a big part of the mix. Obviously this is all relatively new and we're in discussions with multiple parties in the U.S. about potential opportunities. I think we bring a lot of expertise to building these types of projects. So we're talking with customers in the Gulf Coast, customers in the Midwest and the Rockies as well as what we're doing in Canada. I think it's still, as these projects are very early in the conceptual stage, hard to comment on whether we want to bring third-party capital in at this point.

Yeah, maybe I'll just add one point to what Vern said around that last part. You know, obviously at this point, as you know, Jeremy, the economics are still challenged on CCUS. So, you know, I think what's going to be important here, and you mentioned 45Q, I think we'll have – hopefully a similar structure in canada in the not too distant future that's really going to help and point being that i think at this stage of the cycle we definitely need uh good partnerships between government and and uh industry to move this along quickly and i think that will naturally um evolve and we'll have some good opportunities there to to jointly fund and provide incentive for this very important area if you look at it CCUS is probably the key to at least one of the two to three keys to achieving lower carbon emissions in accordance with the goals.

Got it. That's very helpful. Thanks. And maybe just switching over to RNG, appreciate the new partnerships you formed there. I don't know if you're able to share more detail on what that could look like exactly in Canada, but also curious, I guess,

in the u.s uh do you see similar um you know opportunities emerging or any thoughts on south of the border there okay well cynthia why don't you uh talk that question uh at least on the canadian front and then head on thanks all uh yeah jeremy uh the partnership that we announced uh with um comcor and um Walker Industries gives us an opportunity, as Al mentioned, to build out facilities across Canada. Obviously has the opportunity to involve us and Comcor has the experience and expertise. We have the one project that was announced that is under construction in Niagara. And we have 10 to 15 kind of projects that we're looking at. So there'll be an opportunity for us to expand in that space. There's over 10,000 landfills in Canada, and they account for about 20% of the annual methane emissions. And so the studies say that up to 10% of the gas blend in North America could be from RNG by 2040. So it's a great opportunity. The project sizes are just for the blending facilities are in the $30 to $40 million kind of per project. And then there's the cost of the biodigester. So it is a significant opportunity with our partners, and we're excited about that. On the U.S. side, I think there are similar opportunities, and, you know, we can continue, as Vern mentioned, with the opportunities on carbon capture. There are future opportunities, and we'll see how the market grows.

Got it. Thank you very much. Okay. Thanks, Jeremy. Okay.

Bob Hope from Scotiabank is online with a question.

Good morning, everyone. I want to circle back on the carbon discussion you had there. Maybe just some additional color on where eventually you would like to dabble into the value chain, whether it be largely on the trunk line, as you mentioned, in northern Alberta, or if there is sufficient government support, could you go upstream or downstream there on the carbon side?

Well, Rob, Vern can add on here, but essentially the way we're looking at it is you got it, I think. I mean, the trunk line is probably where we're naturally fitting, and we've got expertise in that area. And so there's really no issue there. That's the obvious one. But I do feel that we have the capabilities well to move upstream. And so collaborating with governments and importantly our customers on the capture side is a possibility. Certainly on the downstream end of it, on the storage side, that's also something that we have great capability at. So we actually see it as probably a full value chain investment opportunity anchored by our expertise initially on the pipe side. So I think it's a full value chain play for us. But I don't know, Vern, anything else on that?

No, I think you've captured it well, Al. That I think our customers are looking for potential partners to take part in the full value chain. I think they find that more attractive than just being a pipeline operator.

All right. Appreciate that. And then I appreciate the comments on line five and acknowledging the deadline next week. Can you just remind us how much flexibility you have in the system to move some volumes on the southern end and then back up into the Sarnia region in the off chance that there is an injunction against the pipeline?

Yeah, Rob, maybe just to reiterate Al's points, obviously we believe the pipeline is safe. It's been reaffirmed by both PHMSA and the state court last year. Obviously, the tunnel is the perfect solution to make the pipeline even safer. And the fact is there is no alternative, meaningful alternatives to Line 5. It provides roughly 50% of the crude oil and propane to the Great Lakes states. as well as central Canada. So a shutdown would be very impactful for the energy security of the region. We do have a little bit of capacity that we can provide through Line 78, but it's not going to be enough to meet the energy needs of the Great Lakes region. So I think that's why we believe it's in the best interest of everyone for us to get on with building this tunnel.

Yeah, Rob, you know, just to add on one quick point to that, you know, that whole area in the corridor is pretty full up if you look at, you know, capacity maximization on all the lines. I mean, you just can't take 540,000 barrels a day out of the market and not have bad things happen, you know, ultimately to consumers and, you know, pet chems and And refineries, it's just a very bad outcome. So like you said, maybe at the very small margin, there's a few things that you can reroute, but it's not going to make a difference to shutting down one.

Thank you.

Ben Pham from BMO is online with a question.

Hi, good morning. I have a couple of questions on that. the carbon tax, and I'm curious what higher level of impact that would have on any business, particularly maybe first off in Canada, the impact. And then my fault is if you see carbon prices starting to get reflected in, say, European power prices or the U.S., doesn't that have some of the benefit on your renewable offshore business?

Do you want to take the CCUS part?

Yeah, I can take the CCUS part. So obviously, with the recent federal budget here in Canada, the federal government is consulting with industry for a period of time to figure out the best way to implement tax credits associated with carbon capture. And we're at the table in those discussions. So I think until we get that finalized, it's probably difficult to say how meaningful these tax credits will be. But having said all that, it's obviously critically important that these tax credits exist. But just because by the level of carbon pricing we see today in Canada, there isn't sufficient economic value to go ahead with CCUS without the tax credits. Maybe I'll turn it back to Al or Matthew to talk about European wind.

Go ahead, Matthew, if you want to answer that. Sure. Hi, Ben. Thanks. Yeah, I think you're right. I think indirectly it does. What you're really seeing in Europe is very aggressive targets for offshore wind being established by most of the governments, especially where we're operating. So, you know, for example, in France... about a gigawatt a year of offshore wind. The UK is targeting 30 by 2030, 30 gigawatts. And so I think that rather than the carbon value or tax itself playing into our business, what we're seeing is a growing number of opportunities because of the targets and just the lack of supply of offshore wind. And, you know, just as a reminder, we are under long-term contracts, and, you know, that's our model. And so we don't really benefit or get penalized one way or another from prices or carbon values. But what we do get is the tailwind of just the industry fundamentals driving behind us. And so that's creating more opportunities in our core markets there.

All right. That's great. Thanks, Matt. Thanks, Mark.

Okay. Thanks, Ben.

from 2D Securities is online with a question.

Thank you. So with respect to the energy transitions that we're seeing underway, not only are certain parts of the value chain increasing in importance in services, but I think also how your assets are being used might change. So I'm wondering what sort of implications there might be for your pipeline recontrasting, especially as it relates to your U.S. gas transmission. and some of the settlements underway long-term, how you might invest in connectivity and other linkages between the natural gas and power markets, for which you have capabilities already, is my understanding, and also how it affects your utility costs. evolution long-term, if you can comment on how you're thinking about repositioning the usage of your assets and the opportunities there.

Okay, that's a very good question, Linda. Maybe on the first, there's a lot there on the first part of it, maybe I'll get Bill to give his views on that, and then we can shift to Cynthia.

Sure. So, thanks, Linda. You know, there is a lot in that question, and I think The best way for me to think about this is all of these efforts are layering on top of what we already do. So, for example, you ask questions around how are we providing more services perhaps along these lines to utilities. Well, we're partnering very closely. As you know, most of our customers in the eastern half of the country are utilities, and they're trying to get out ahead of us, and they're big incubators with regard to any of the greening that we're doing. So R&G, hydrogen, all of those present really good partnerships kind of for the medium to long term. And just as an advertisement for Cynthia's business, I don't think anybody is as far ahead on this stuff as Enbridge Gas Distribution, so we're learning a lot there. But then it also presents new opportunities for things like the work that we're doing with our LNG terminals or the terminals that we're serving. Next Decade is a great example of that, where they are truly out front in trying to produce and load green cargos, and we will be a major part of their efforts. So it's kind of like when Al was talking earlier, my vision of this is that it's soaking into every corner of our business, whether it's modernization or new infrastructure. And I know that's kind of high level, but I'll stop there.

Anything to add, Cynthia?

Sure. Thanks for the question, Linda. I think, you know, as Bill mentioned, I'll just add that we are positioning ourselves to support the energy transition in our utility So in addition to the projects that Al highlighted, and that was in the deck on the RNG and hydrogen side, looking at how we can optimize their infrastructure there, we're also working with municipalities, home builders, and the electrics to really optimize the existing infrastructure. So part of that is tying into some and supporting some pilot projects in other areas, such as like geothermal or The key that we know is that our assets are used and useful now, and they will be into the future. The resiliency that our assets bring is pretty critical. So we are a really great part of that energy transition and really can provide that foundation and investment for the future for the platform because there is that, as Al mentioned, it is his remarks that natural gas will support that energy transition.

You know, Linda, I think this is very interesting because from a strategic point of view, the way we think about, you know, the transition and what it means to our businesses, I mean, obviously the infrastructure is going to be critical in any kind of pace of transition. But The whole angle here is to provide differentiated natural gas transportation. So we know where we're headed in terms of lower carbon emissions. So our challenge is to find ways to ensure that what we're doing as a service provider is differentiated as well. And that will be a competitive landscape. And I think we're in good shape so far.

Thank you. Just as a follow-up, as it relates to the pace of energy transition, might there be an opportunity, and are you looking at any, to potentially acquire or divest of assets or businesses to accelerate the transition in in terms of even augmenting your capabilities, whether it's to service or technology, or buying late-stage development projects as well to accelerate some of your opportunities.

Yeah, that's a good point. So strategically here, I think as the team has just gone through, we've got some pretty good capability and I think we're probably ahead of the curve. But certainly, you know, maybe acquiring some additional expertise, certainly being on top of the technology, is something that we're going to have to be thinking about to round out. I mean, the partnership that Cynthia mentioned is a good example where we've got opportunities with partners that bring value to the table. We bring value to the table, but certainly more partnering, perhaps assessing technologies as we go, will be part of the plan. I will say, though, that You know, from a capital point of view, over the next several years, we're going to be very disciplined in where we put capital work. So I could see doing those kinds of things you're mentioning, you know, at the edge or on the margin, but certainly, you know, size-wise, nothing that would really, you know, be large capital intensity over the next two to three years anyway. So we'll be disciplined, but certainly bring up our capability, as you mentioned. Thank you. Okay. Thank you.

Robert Kellyer with CIDC Capital Markets is online with a question.

Hi, good morning. One more follow-up on the carbon capture side. I'm wondering if you had an idea what a realistic development period is for that type of project before you'd be in a position to submit applications. And further to that, other than clarity on the tax credits, What other regulatory or policy support do you think is needed to make these a commercial reality?

Okay, Vern, why don't you take the development period and I'll come back on the second half of this question there.

Well, I think right now, Rob, we've got some lofty goals here in Canada to reduce our emissions by up to 300 megatons per year by 2030. And the oil sands is a very obvious target to be a meaningful part of that CO2 reduction. So I know our customers are looking at all sorts of opportunities near, medium, and long-term to meaningfully reduce the carbon emissions that comes from those operations. I would say that CCUS is probably in the medium-term bucket. The technology exists, the infrastructure is buildable and it would all be under the jurisdiction of the Alberta regulator and that could be done in a relatively short regulatory process. So I kind of see these types of projects three to five years out where the industry is going to, where the upstream guys in the very near term are going to be focused on even quicker solutions such as using more solvents and how they potentially change over from more carbon-intensive sources of energy for SAGD to less carbon-intensive sources for SAGD. But the opportunity set here is very large, and there's lots of different irons in the fire.

So I think, Rob, we shouldn't underestimate the need to move along on the incentive front and funding front on this one. But actually, the other part of this that needs to be developed is more to do with, let's call them some of the regulatory issues, environmental issues with storing, whether you store it, sequester carbon, or whether you apply it to EORs. uh you know there's issues around you know who owns that carbon in the ground uh who's going to monitor it what are the regulatory implications i think there's a whole stream of work here that's got to happen on the regulatory and environmental front so that's another thing that we see that has to move the genesis of the question is trying to get a sense of how much uh other work is uh still out there other than the uh clarifying the credits Yeah, I think we're there. I mean, CO2 for EOR is already in place. I think that's fine. But if you're just looking at sequestration, you know, those regulatory issues will need to be sorted out.

Al, can I add one more piece?

Yeah, go ahead.

Robert, on the tax credits, I just had a small tweak here. You know, I think that the go-to tax incentive, you know, both sides of the border is being a tax credit, but you've got to be basically taxable to use it. So I think if policy were tweaked to make those accessible to a broader group of taxpayers, I think, you know, more capital would form in this space.

Okay, that's a good point. And I did have a question on the mainline contracting. You know, obviously there's some uncertainties or some pipeline issues issues that you're well aware of dapple line three line five but on the other hand you do have some more clarity with respect to um yeah that came from the cancellation of the keystone itself so how are those three things impacting commercial um discussions with shippers or is it pretty much the same as the last update well i think everyone's working through the cer process right now um

Obviously, as Al mentioned, we're about to head into the hearing. So the focus on all parties is to support their efforts in the hearing. We still have very strong support from shippers where over 75% of the volumes that move on the mainline today are supportive of contracting. We believe we've got a very strong regulatory case on why contracting should be allowed and that our tolls are just and reasonable. I think if you look at our reply evidence that was filed in late April, I think it's very meaningful. And I think we feel quite good about our prospects in the hearing. So let's get through that phase first.

Chinur Gershani from UBS is online with a question.

Hi, good morning, everyone. Really enjoyed the expansive discussion today on the energy transition front. I was just wondering if I could sort of ask a big picture question kind of from a different angle. You know, in the past, you've talked about, you know, your fuel mix represents the global consumption of fuel and that you expect it to evolve along with global consumption patterns over time. You've also said that you won't chase returns. And to that point, you know, opportunistically, you have sold some wind assets as well, too. I was just wondering if your opportunity set, which you've talked about expansively today, is going to be lumpy in terms of where you place your focus is, you know, kind of in the near to medium term. You know, so for example, renewable returns are fairly low in many instances today, you know, sort of pushing it out on the risk curve of where one needs to invest. But at the same time, it seems like the capture opportunities are emerging, as are the export opportunities, you know, let's say on the LNG front. And so I was just kind of wondering if you could sort of rank order, you know, where you think the highest returns are today, and where do the dollars go first in terms of the opportunity set that you see in front of you? You know, is it going to be something like investing – even further with next decade into the actual LNG project or with Lake Charles project? Is it CCUS or is it still going to continue to be on the wind side and the renewable side?

Okay. Well, front and center, I would say maybe two or three points. In terms of renewables, let's go through them here. You know, you're exactly right about the returns out there on some of the transactions that are being done. I mean, we're just not going to play in that area. I mean, we've been through opportunities in the U.S. Northeast. We've been through a couple in Europe where, frankly, we've lost. And so we're going to be very disciplined not to play where we're not going to earn a sufficient return. The good news is that As I mentioned in my remarks, we've got a good three gigawatts under development now. So those are opportunities where we're right up in the development phase. So we feel very good about the fact that we can certainly deploy a lot of capital from here, at least over the next three, four, five years or more, on returns that are more conducive to where we want to deploy capital. So I think that will be a priority for sure. on the lng front i think you're right about the opportunities perhaps to migrate down into the terminal that hasn't been our preference but certainly where we can deploy capital with a commercial structure that fits with our own uh you know that's an opportunity not our first one uh the pipes uh given where we are on uh on the gulf And for that matter, on the west coast of Canada, I think position us well to focus on the pipe side, but always an opportunity downstream. I think we shouldn't forget, though, about the liquids business in terms of its growth capability. The team has developed a lot of optimization opportunities over the past, and my guess is we're going to grow that business, but as I said, probably less capital intensity. And then finally, I think you mentioned CCUS. I mean, obviously, that will take a little bit of time to come to fruition. So that's probably not large capital deployment over the next two to three years. So I'm hoping that that helps with your question, at least in broad terms, but if it doesn't, come back.

No, it does. It makes perfect sense is just trying to think about it more on a three to five year basis. And that was very helpful. Um, maybe it's a follow up question. I was wondering if we can talk about line three for a minute here. Um, you know, the in service state sounds to be like early fourth quarter. And I understand that you're not able to construct between now and June 1st due to the previously set construction schedule. I was just wondering at what point, is it July, August, or even September, where the heavy construction on your schedule is completed, like the spreads are out of the way, and where you're at the point where the ground is effectively closed up and you're sort of entering the technical and commissioning stages?

Yeah, we're about 60% complete overall on the pipe side and about the same on the station side. The stations will be done before the pipes are done. So I think it's late summer, early September when all of the pipe will be in the ground and we'll be working on the tie-ins and commissioning and line fill and all kinds of complicated matters of getting the pipeline up and running.

All right. Okay. So that's the point in time where the cost goes down and that if there was a delay from the courts, that you wouldn't be incurring a lot of costs if you can make it to that point in late August, right? Yes. Perfect. Thank you very much. Really appreciate the color and discussion today and have a great weekend.

Okay. Thanks, Shannara.

Patrick Keeney from National Bank Financial is online with a question.

Yeah, good morning, guys. Just maybe on line five, given the inflationary pressures out there on steel and construction in general, is the tunnel project still a circa $500 million endeavor, or has that estimate gone up quite a bit, say closer to a billion? And I guess at what price tag do you think it makes sense to seek financial assistance from the Canadian government, just given the linkage to jobs both out west and out east?

Yeah, so Patrick, the cost estimate we did originally for the tunnel made a whole host of assumptions before a lot of engineering work was done. So now we've done the geotechnical and completed the engineering design for the tunnel, which we announced in the quarter. So the next step is to go out to contractors and suppliers for bids. So it's too early for us to give you a better estimate of the cost of the tunnel, but it is fair to say in all likelihood the cost will be higher. So at this point, while it's still unknown, I don't think we can really comment on if we need assistance on this project or not.

Generally, though, Patrick, in terms of government support, that's not how we're looking at things today. Obviously, it's always possible, but as Vern and his team thought through mainline contracting, obviously, coming up with our toll there and discussions with customers, we had a placeholder for the cost of Line 5 tunnel in there. So right now we're assuming we can handle this within our commercial framework, but I guess things could change.

Right. And then maybe sticking with the government support theme, circling back to the CO2 trunk line opportunity, obviously lots of wood to chop there on closing the gap on economics, especially without EOR being included in the tax credits. But just in terms of capacity, are we looking at something similar to, say, the ACTL, call it 15 million tons per year, or something potentially much larger in scope and size?

That's really going to depend on what the customers want. And we have a placeholder project that we've put out there that would be significantly larger than the current Alberta trunk line, but I think it's really too early to determine if that's the ultimate size of the pipeline or not.

Okay. That's great, guys. I'll leave it there. Thanks. Great. Thanks, Matt.

Puneet Satish from Wells Fargo is online with a question.

Thanks. Good morning. Just have a two-part question on the self-powering pipeline strategy. I guess first, is there any update or do you see any traction on the regulatory front to potentially include that CapEx that you spend on self-powering in the rate base? And then second, do you have any appetite to help other midstream companies, either through JVs or just outright self-power their pipelines, or do you think the competitive dynamics prevent you from doing that?

Okay, well, Matthew, why don't you take that one?

Sure. Thanks for the question. First, we're really, really pleased with the progress we've made on self-power. We just announced these four new projects. There's 45 megawatts DC there, and so they're substantial, helping us reduce scope 2 emissions, and they're great investments as well. You know, we feel like we do have some significant advantages here. We obviously have a big electricity load ourselves and the development expertise and also the operation expertise. People forget about that but these aren't just small pieces of equipment hanging off your pipeline system. They're actual power plants that have to be operated and controlled and we have all those skills and abilities. Yeah, I think there could be opportunities for third party, and some of those could be joint ventures even. You know, so there's lots of options on that front, and we certainly think we have the skills and capabilities for that and a strong value proposition. Meanwhile, we'll roll out our own program, and to your first question in terms of The commercial model, you know, I think it can differ. There is some potential for rate base, especially on the GTM front. I mean, obviously, those are in progress. Bill may comment on that. But also, I mean, just straight-up power cost savings justify the investment in terms of strong returns, as well as the carbon credits. So that's a commercial model that we're relying on presently for liquids pipelines. So I'll leave it there, and hope that answers your questions. Yes, it does. Thank you.

Thanks, Preeti.

And once again, if you have a question, please press star 1 on your touchtone phone. Becca Follow-Will from U.S. Capital Advisors is online with a question.

Good morning. Good morning. On Site 13, when you look at your diversified opportunities, it's about $17 billion for liquids and gas transmission pipelines. Given the incredible difficulty in getting things permitted, are any of those lumpy projects that would require permitting, or are they things that are just add-on to traditional systems?

Yeah, maybe, Colin, if you want to add in, but really the $17 billion that we're talking about on that slide, if I think I got your slide right, those are all in execution. Are you talking about the opportunity set? Okay, sorry.

I'm talking about the post-2023. Yeah.

You know, I guess generally, Becca, those are all you know, subject to regulatory process. But the way we're thinking about it, if you go through the slide, for example, on the gas utility front, there's a good chunk of capital there, as I said, probably a billion, billion and a half a year. That regulatory construct is, you know, very well understood and and it's within what we call the incremental capital module within our current framework so i think we're we're good there on the gas transmission side i mean obviously there's challenges in in terms of getting new greenfield pipe in the ground most of what we have slated though is modernization capital which doesn't really attract a significant amount of regulatory intervention like Greenfield project. In Vern's liquids business I mean obviously Greenfield there would be difficult in today's environment but again most of what he's got going in the next little while are expansions of existing projects so I think you know generally we feel pretty good and this is how we've actually designed the the program post-2023 to be relatively low key, I guess, in terms of regulatory requirements. So hopefully that gives a bit of context.

That's great. That's all I had. Thank you.

Thanks, Parker.

This concludes the question and answer session. I will now turn the call over to Jonathan Morgan for final remarks.

Thank you, Julie, and thank you for taking the time to join us this morning. We appreciate your ongoing interest in Enbridge. As always, our investor relations team is available to address any additional questions you may have. So once again, thank you and have a great day.

Thank you, ladies and gentlemen. We appreciate your participation. This concludes today's conference. You may now disconnect.