Enbridge Inc

Welcome to the Enbridge Inc. Third Quarter 2021 Financial Results Conference Call. My name is Polly, and I will be your operator for today's call. At this time, all 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 on your touchtone 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, Tully. Good morning, everyone, and welcome to Enbridge Inc.' 's third quarter 2021 earnings call. Joining me this morning are Al Monaco, President and Chief Executive Officer, Vern Yu, Executive Vice President and Chief Financial Officer, Colin Grunding, Executive Vice President, Liquids Pipelines, Bill Yardley, Executive Vice President, Gas Transmission and Midstream, Cynthia Hansen, Executive Vice President, Gas Distribution and Storage, and Matthew Ackman, Senior Vice President, Strategy, Power and New Energy. 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 provided on the website shortly after. We will try to keep the call to roughly one hour, and in order to get to as many answers to your questions as possible, we'll be limiting the questions to one plus a single follow-up if necessary. We'll be prioritizing questions from the investment community, so if you are a member of the media, please direct your inquiries to our communications team, who will be happy to respond. As always, our investor relations team will be available following the call for any detailed follow-up questions. Onto slide two, where I'll remind you that we'll be referring to forward-looking information in today's presentation and Q&A. And 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 the non-GAAP measures, which are summarized below. And with that, I'll turn it over to Al Monaco.

Okay, thanks, Jonathan. Hello, everyone. Well, to start off here, what you see in the photo is our new Ingleside Energy Center near Corpus Christi, with a VLCC just being maneuvered into place for loading. It's an important investment for us on many fronts, so we'll come back to Ingleside in a few minutes. It's been a strong quarter operationally and financially, so Vern will take you through the results. By the way, Vern was recently appointed CFO. He's held a number of senior financial roles at Enbridge and most recently headed up our liquids business, which Colin Grunding has taken over. I'll cover the high points of what's been a catalyst quarter and year for us, followed by a business update. Before I do that, though, let me speak to the current state of the energy markets. And as a reminder, our perspective on this is from a company that's been focused on the energy transition for years. It's obvious we need to reduce global emissions and that we're moving to a lower carbon economy. And we think that existing infrastructure is essential to that transition. As you've heard us say before, we see ourselves as a bridge to a cleaner energy future by leveraging our businesses and by achieving our own emissions goals. We're transitioning our asset mix in line with changing fundamentals and building on our early mover advantage in wind, solar, hydrogen and RNG. But it's also very clear that energy demand will continue to grow and that economic growth will always depend on conventional energy. So squaring these two realities comes down to the pace of transition and ensuring we secure low cost, reliable energy supply while that happens. The realities of this careful balance are playing out in energy markets today. Stimulus spending and recovery are driving GDP growth. Oil, gas and product demand are up and should outpace last year on the way to pre-pandemic levels. Petchem demand was resilient through COVID, but now even jet fuel has come back. As you've seen, natural gas demand is extreme, particularly in Asia and Europe. So consumption is up, and supply disruptions and tight inventories are creating an imbalance. Now, normally all of that is self-correcting as supply responds, but this energy crisis that we're in right now is entirely about underinvestment in all forms of energy, which is creating havoc with consumers, industrial competitiveness and inflation. Higher energy prices are impacting consumers in developed and developing countries. Spikes in electricity prices, heating, cooking and filling up the tank. Higher industrial feedstock costs also impact competitiveness and again, That rolls out to the consumer. So agriculture, manufacturing, pharmaceuticals, transportation, components, technology, and housing. And supply issues are impacting reliability. We see rolling blackouts and rationing in China and India. Increasing coal power generation, of all things, in Germany. Fuel shortages in the UK. And the U.S. Northeast, gas generation is running at five-year highs. and we're seeing switching to fuel oil for electric generation. All of that to say, the energy transition is a reality, but we need to be thoughtful about the pace and execution with the consumer in mind. And it's clear, if it wasn't before, that conventional energy will be a critical part of the supply mix for a long time. So the point being here that the transition needs to be driven by a mix of balanced policy solutions. Most important in our view, we have to embrace natural gas because it's simply the enabler of building more wind and solar supply, among other things. And it's a great source of reducing emissions, just like it has been to this point. Incentivizing consumption-based economy-wide emissions reductions and efficiency measures, and an immediate focus on regulatory certainty and support for CCUS investment. So on to the Q3 highlights. Operationally, all of our systems ran near capacity, and that drove solid numbers, and we're on track, as you saw in our release, to deliver EBITDA and DCF per share within guidance. The balance sheet and financial flexibility are strong, and we'll move to the lower end of the target leverage range next year. It was a big quarter execution-wise, with $8 billion going into service, which will drive 2022 cash flow. And that's a great outcome in the face of a difficult permitting environment to say the least. We also accelerated our US export strategy and lower carbon opportunities. So all in good headway on priorities, moving the ball down the field, delivering good results, getting projects in the ground and building our business for the future. Moving to the business update, beginning with liquids in line three. A month ago now, we completed the U.S. segment, so we're in full operation for Western Canada to the Midwest. And with that, we also brought on the Southern Access expansion to 1.2 million barrels per day into Chicago. Line 3 has always been about modernizing our system, and to my earlier point, it assures Canadian and U.S. refiners have a reliable, low-cost feedstock, providing affordable energy for consumers and industry. Line three, though, also set a new bar for execution in the field. The world class environmental measures, actively engaging with communities in a different way and developing deeper Indigenous partnerships, cultural, environmental and economic. We still got work to complete restoration, but I'm proud of how our team brought this one to the finish line. With Line 3 in service, we'll earn the full 93.5 cent surcharge on all mainline barrels, and returning the line to full capacity sets us up for downstream expansion to the Gulf Coast. On Line 5, the existing line and the Great Lakes Tunnel is also about safe and affordable energy. The fact is, Line 5 and the tunnel are essential to Michigan, but also the entire region and two Canadian provinces. We're doing everything we can to make sure people's critical energy needs are not cut off, like propane in the Upper Peninsula and jet fuel for the Detroit airport as just two examples of many. Independent experts concluded there's no practical alternative to Line 5 other than thousands of more rail cars and trucks, higher emissions and increased energy costs. Pretty sure people don't want that. In fact, that's what the majority of Michiganders are saying. 80% or so believe the cost of energy is important to them, and there's 4 to 1 support for the tunnel. But we've always understood the need to protect the Great Lakes, which is why we've gone to extra lengths at the straits, including continuously and independently verifying the entirety of the line, shutting down the line as a precaution in high wave and wind conditions, and applying the latest in technology to monitor ship traffic to ensure there is no anchor drags. We've committed to build the Great Lakes Tunnel to reduce the risk to as near zero as humanly possible. We received the first tunnel permit last year and we're working on the remaining two. So let's shift gears now to our export strategy. A few years ago, we had a point of view on the evolving global supply-demand fundamentals and the need to point infrastructure to the Gulf and to capitalize on growing exports. As you can see, the map's developed out. We've built a big presence in the Gulf. Our export strategy is entirely consistent with the energy transition because North America is a low-cost, sustainable producer of conventional energy. And LNG exports can displace coal, which is going to be a big driver of lowering emissions in Asia. Our U.S. Gulf Coast strategy began with providing full path access for Canadian heavy to the Gulf and establishing a storage and blending hub. We're bolstering our seaway dock capacity with our Houston oil terminal to provide expanded low-cost waterborne access. We've now built out our light oil export position. Gray Oak initially gave us contracted pipeline ownership into Corpus in Houston, and the Ingleside Energy Center now gives us last mile connectivity to the light oil export path. Ingleside is North America's premier export terminal, transiting 25% of US exports last year, with 15 plus million barrels of storage and 1.6 million barrels per day of ship loading capacity. Angleside checked all the strategic, commercial, and financial boxes for us. Its sources crewed from the Permian and Eagle Ford, connected by 3 million barrels per day of pipe capacity. It's VLCC capable, and it's a prime location on the Outer Harbour. Commercially, take-or-pay commitments fit the business model well, and it came at an attractive valuation, and we're very glad to have retained the operating teams. Finally, we evaluate every new investment at Enbridge through an ESG lens, and specifically, we need to see a path to net zero. Ingleside's new state-of-the-art facilities were designed to reduce emissions in the first place, but we're also moving forward with a large inside-the-fence solar farm. That will allow us to achieve net zero on Scope 1 and 2 and contribute to Scope 3 reductions. Now, it's worth just delving a bit deeper into why this is a business for the future. It's clear that the Permian is among the most competitive basins globally, and its scale, low break-evens, and proximity to markets means it's essential in any transition scenario, and a competitive supply source in meeting global demand for many years to come. Ingleside has the lowest basin-to-water cost structure of any export point in Corpus or Houston. And that's because our two VLCC berths can load at twice the rate of a Suez Max, and we avoid lightening trips, which, when combined with our outer harbour location, saves roughly five days' transit. We also have capacity to capture incremental barrels, and this is a big upside for us. We'll go after the low-hanging fruit first, which is to contract up existing dock capacity, which could add another 600,000 barrels per day of loadings. And then we'll build into the permitted storage that we already have and dock capacity, so another 5.5 million barrels of storage there and 300K of loadings. Lastly, as part of our transition lens again, The terminal's location and open land make it an ideal spot for green fuel and carbon cash for development. While we're on the topic of exports, Texas Eastern and Valley Crossing are nicely situated along the Gulf, which puts us at the center of the U.S. LNG build-out, and that pace should quicken now, given the global supply crunch. Not much doubt about gas's role in sustaining European and Asian economies, displacing coal, and building renewables. And these fundamentals drive more demand pull on our systems. In just two years, our LNG volumes have doubled to one BCF per day, and we'll add another half a B with our Cameron extension that'll feed Calcasieu this year. We've also built a nice portfolio of late stage development projects totaling about $2 billion. Bill and his team are also executing a $5 billion secured capital program. $3 billion of that is targeted for in-service this year. We've just completed our two BC expansions for about 600 million cubic feet a day of firm to the Lower Mainland and U.S. Northwest. In the U.S. Northeast, we've put Middlesex and Appalachian and Market into service. But again, as you all know, this region needs a lot more capacity to address reliability and rising energy costs. We're advancing our multi-year modernization program so that'll lower emissions and assure the integrity of our system for years to come. But there's more opportunity beyond that. Our new partnership with Vanguard Renewables will develop RNG projects along our system. We're starting with eight projects where we'll provide the injection and transportation assets, and that should total around 100 million of capital. Onto our gas utility in Ontario. First, this system is not only critical to the heating market, but meeting peak generation demand. In fact, the ISO's recent study, and I encourage everybody to have a look at this, makes it clear that natural gas is essential to Ontario's energy needs today and in the future. Our franchise also benefits from continued population growth, mostly from immigration. We're on track for another 45,000 customers there this year. Importantly, Ontario has also approved 27 new community expansions. We're planning to sanction new capital for those shortly. Overall, we're executing on $3 billion of utility capital through 2023, so great visibility there to rate-based growth. There's also lower carbon potential. We're developing a sound portfolio of RNG and hydrogen opportunities. On RNG, we've got three in operation and four in construction. And through the Walker Comcor JV, we're developing another 15 projects across Canada with more potentially in the hopper. On hydrogen, our green power facility was completed a couple of years ago, and that proved out the technology and gave us great experience. This quarter, we expanded that facility and put into service the blend hydrogen project, and that will move into our distribution network. The prize here, of course, is to make that happen across the franchise. Finally, to our renewables business and an update on European offshore wind. As you recall, we've got three projects in operation and now three in construction and several opportunities in development. Matthew went through that at Enbridge Day. Offshore France, we've installed 35 foundations at St. Nazaire. and another 45 planned through mid-22, so we're on track for in-service there late next year. Later in the schedule at FECOMP, we're building the foundations there right now, and El Calvados, we're manufacturing substation components and subsea cables. These projects will add 1.4 gigawatts of capacity with in-service dates through 2024. As far as development, we've got another three gigawatts at various stages, so we have good runway here as well. In North America, we're accelerating our inside defense solar self-power. We've put three facilities into service on our liquids and gas pipelines, and as you can see here, you get a feel for the proximity to our pipelines. We've now started construction on four new projects on the Lakehead and Flanagan systems. This phase will be in service next year and will lower our emissions and generate good returns. These projects compete for capital straight up with the rest of our business. Our existing behind the fence land, large power load and renewable capability really give us an advantage in this space. And there's a lot of runway to grow at the compressors and pump stations that you see noted on the map here. So stay tuned for more. All of this is a great example of how we're using our skills that we developed in renewables over the last couple of decades to the rest of our business today. Last point, as part of our new energy business, we've established a dedicated team to coordinate the strategy and allocate capital to the best opportunities. An important element of low carbon strategy, in our view, is partnerships. that give us access to technology, complementary assets, and skills. We now have amassed four partnerships, which includes a recent one with Shell, where we'll collaborate on a range of North American opportunities. With that, let me pass it to Vern to go through the financial results and the priorities there.