Enbridge Inc

The Enbridge Inc. Fourth Quarter 2021 Financial Results Conference Call. My name is Amitris, 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 1 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, Amitris. Good morning, and welcome to the Ember Jink fourth quarter 2021 earnings call. Joining me this morning are Al Monaco, President and Chief Executive Officer, Vern Yu, Executive Vice President, Corporate Development 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 Technologies. As per usual, this call will be webcast and I encourage those listening on the phone to follow along on the supporting slides. We will try to keep the call to roughly one hour, and in order to answer as many questions as possible, we'll be limiting questions to one plus a follow-up as 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. And as always, our investor relations team will be available following the call for any follow-ups. On slide two, I'll remind you that we will be referring to forward-looking information on today's call, 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 summarized below. With that, I'll turn it over to Al Monaco.

Thanks, Jonathan. Hi, everyone. Just as we begin here, the graphic is really just a reminder of how we kicked off Enbridge Day in December with the theme of how Enbridge is a bridge to a cleaner energy future. So more on that later. So I'm going to begin with a 2021 recap, our current perspective on the energy markets, followed by our business update and ESG performance, and then Vern will take you through the financial results and outlook. First, though, the closeout of 21 represents five years since the Spectra acquisition. That deal was obviously transformational for us. It gave us a premier natural gas transmission business and another large gas utility franchise. And we're driving a lot of growth and synergies in that business. We've expanded at the same time the liquids business and acquired the number one crude oil export facility in North America. We built our offshore wind business in Europe, and we have a fulsome low-carbon business. We honed our pipeline utility model by selling assets that didn't fit at great value, by the way, simplified our structure, and our financial position has never been stronger. So the business is in an excellent position, and we're excited about the future. As you saw this morning, we had another solid quarter, which closes out what's been a catalyst year in that five-year journey I was just talking about. We delivered record safety and operating performance. Our systems ran full, which drove DCF per share to the top end of the guidance of $4.96, and that included a further $100 million in cost savings. We put $14 billion of capital into service that includes moda, secured another $2 billion of growth and sold another $1.2 billion in non-core assets at good value. We made big headway on our crude oil and LNG export strategy and low carbon. With Line 3 in service, we'll see record mainline throughput and strong 22 EBITDA growth. Now, this couldn't have come at a better time for producers. as 400,000 barrels of new egress and improved netbacks is generating tremendous value, particularly at these prices, and it goes to the value of the franchise. Gas transmission utilization was strong as well. Texas Eastern saw 16 of its top 25 peak days over the past decade. We did have warmer weather at the utility, but we more than made up for that, and renewables came in well, resource and EBITDA-wise. This all translated into strong cash flow and dividend growth, which continued with the 27th consecutive increase this year. And we're free cash flow positive this year with visible organic growth across the businesses. Now on to energy markets. Just cutting to the chase on this, we're in the middle of an energy crisis. The economic recovery is driving strong global energy demand. Normally we see a supply response, but not this time, given significant underinvestment in both conventional and renewables. Not surprisingly, that brings energy shortages, higher fuel costs, and of course inflation, as you're seeing, which challenges competitiveness and economic growth. One example alone, U.S. Northeast electricity prices last month reached over $300 a megawatt hour several times, and that's the same case for heating bills in that area. And that's all, of course, due to lack of gas infrastructure. What we're witnessing today highlights the importance of reliable, affordable energy in our lives. The reality is that North American conventional supply will play a large role in years ahead with long live reserves, low break-evens, and leading ESG performance. Those North American advantages and coastal infrastructure will result in higher exports, which is what's behind our crude and LNG export strategy. So before the crisis, our view was that conventional energy would grow at least through 2035, and what's happening today just reinforces that view. But while energy fundamentals are constructive, we'll be very disciplined in deploying free cash and will gradually increase the proportion of low carbon investments. We've got a solid inventory of both conventional and low carbon opportunities, totaling about $6 billion per year. That actually aligns with our free cash flow generating capability after dividends and maintenance capital, including debt capacity. Of the $6 billion in investable capacity, we'll prioritize the $3 to $4 billion annually to rateable utility-like projects and low capital intensity growth. And we'll put excess capacity to the next best option. More organic growth, potentially modal-like asset deals, although those are few and far between, and share buybacks. On the conventional side, we'll expand and modernize gas systems, which will displace coal and support renewables growth. We'll continue to build out our LNG and export positions and invest in the gas utility. We'll also pursue capital-efficient liquids pipelines optimizations. The nice thing is that these businesses also come with embedded low-carbon opportunities, namely RNG, hydrogen, and CCUS infrastructures. And our renewables backlog gives us high visibility to growth as well. Moving to the conventional business update, the utility continues to have 45,000 customers annually of growth, and we're connecting 27 new communities. So we expect to add roughly a billion of rate base this year. In gas transmission, as you saw, we sanctioned another two projects totaling $700 million. Phase two of our modernization program, which improves the reliability and reduces emissions. And the next phase of our appellation of market expansion, which will add much needed capacity in the northeast. And in that business on rates, we're now in settlement discussions with Texas eastern shippers. In liquids with Line 3 now fully in the ground, our capacity is roughly 3.1 million barrels per day, and we're running pretty much full, so we're looking good on liquid volumes. The priority now is to add more downstream egress to the Gulf on Flanagan Seaway Path. These are highly capital-efficient expansions and come with attractive returns. Now, on that note, here's how we see the mainline tolling process unfolding. As you know, there's a couple of options, either another CTS-like incentive tolling arrangement or cost of service. We're in the consultation and information sharing phase here and the goal is to land on which option works best for our shippers and makes sense for us. The incentive total model has worked very well in the past and aligns us with our shippers, and that's because it provides the total certainty that they want and need to run their business. It keeps costs in check and incentives us to add capacity. Now, in that framework, we take on operating, capital, and FX risk, and, of course, volumes move up and down. And if we manage all of that well, we can earn a commensurate return above the cost of service returns. To illustrate the win-win here, we have roughly a million barrels per day of new low-cost capacity during the last CTS term. And that's brought a lot of value to shippers when it's been challenging to add any new egress out of Western Canada. While the value equation has worked well in the past for both parties, we're equally comfortable under a cost-of-service arrangement going forward. because it minimizes the risks I mentioned, and we'd earn a good risk-adjusted return. As we've seen, SHPR consensus is tough to achieve, so we are preparing a cost-of-service application right now. And we don't want to presuppose the timing, but we're looking to land on a path by this summer, hopefully, and then file either a settlement agreement or a cost-of-service after that. But either way, we don't anticipate a material change in the context of Enbridge's overall EBITDA. Sticking with liquids, we've now integrated our Ingleside export terminal and going after expansions. Storage capacity is fully contracted out for term. We're talking to customers right now about adding another 2 million barrels of capacity, which we're targeting to sanction later this year. on the export side of the facility we're 60 contracted on the 1.6 million barrels per day of capacity so the goal of course is to turn that out we're also seeing early interest in developing lng hydrogen and ammonia exports and that's driven by global petrochemical feedstock demand And under any scenario that we can see, the Permian's low-cost, abundant supply of natural gas and NGLs are going to be key to meeting that PET-CAM demand. We're also co-locating up to 60 megawatts of solar power at Ingleside. And the graphic here, you see, shows this will more than achieve net zero, with the excess contributing to Scope 3 reduction. So essentially, net negative at Ingleside. It's a great example, actually, of how we look at all new investment opportunities. Outside of Corpus, we're continuing to develop the Houston oil and spot terminals, and that's the catalyst for expanding upstream heavy access to the Gulf and exports through our systems. We also have great momentum on LNG exports. With no end in sight to high LNG prices, after a little bit of a pause there, there's strong buyer interest in contracting up U.S. Gulf capacity. We just brought on our Cameron Extension project connecting to the Calcasieu Pass facility, our fourth transport deal. We've got several projects in development as well, and we've just locked up the PA with Texas LNG to expand Valley Crossings. We're now seeing interest in Western Canada LNG, plus local market demand is picking up, so that should drive expansion on our West Coast system. In fact, we're now working on a $2.5 billion expansion of Key South, and we're targeting an open season hopefully by mid-year. Now, the demand pull for that one is wood fibre LNG, which we understand is progressing well to FID. All in, we've got $6 billion of LNG opportunity in the hopper, which bodes well for post-24 growth. So you can see here that our conventional businesses have a long growth runway. But we know that energy transition is gaining momentum, and as you can see with the investment outlook here, capital is flowing. We see the transition as a great opportunity for us to extend our growth, because the fact is our transportation and storage assets are essential to unlocking low-carbon energy for the economy, and our franchises feed the best North American markets. The transition is going to take time, as we all know, so we're focused on investing capital where there's a clear path now to execution and with attractive returns. To assess the pace of transition, we look at a number of signposts. We put some of them down here on the slide. The conditions are actually already ripe for renewables, and we've been building that business for decades. We're starting to see the policy framework and investment flow for hydrogen and CCUS, but they're not where they need to be to accelerate and scale investment. Global carbon markets are starting to form, but that'll take time to mature as well. In our view, the importance of regulatory and permitting clarity is underestimated. We need more certainty and shorter timeline to permit projects. Through 2025, we see about $4 billion of potential investment, including offshore wind and construction, and we expect that to ramp up in the second half of the decade as RNG and CCUS and hydrogen accelerates. So let's run through the key low-carbon areas. We've got 14 renewables projects in construction right now, including solar cell power in North America and offshore wind in France, totaling 1.5 gigawatts. On offshore, over half of the 80 foundations are now in at St. Nazaire, and it's on schedule for late this year. VECOM and Calvados are tracking well to 2023 and 2024 ISDs. We're well underway on our first floating offshore pilot at Provence Grand Large, and we see upwards of 750 megawatts of floating potential in France with EDF. As you can see, we're busy with our current backlog, so we don't need to chase new projects during this period of frothiness. In North America, we're making great progress on solar self-power, three projects in service, 10 in construction. That's about $300 million of capital. And by leveraging our own land position and load, we've identified another 1.5 gigawatts for development. On CCUS, we're working on several early stage developments across the franchise. Now, as context here, the key drivers of success in CCUS, in our view, are storage proximity, scale and efficiency, and full path integrated solutions, which fits with our capabilities. Our Wabamon carbon hub development is positioned to capture emissions from a variety of emitters, over 20 megatons per year of CO2 capture potential in the circle that you see on the map. In December, we signed an MOU with Capital Power, and last month, another one with Lehigh Cement. So combined, that's close to 4 megatons CO2, which would anchor Wabamon, which would make it one of the largest globally. Timing-wise, we could see a phase in service between 2025 to 2027, so it's a project that could get the CCUS ball rolling in Alberta very quickly. Important to that project, last week we landed on a great partnership with five Indigenous groups that we hope will be full equity partners in the hub, and we're excited about moving forward with them on this project. With those pieces all in place, we've just filed our application for pore space through the Alberta government's RFP process. On RNG, the technology, economics, and commercial support, as you know, are already established, so we're in scale-up mode on this. At the gas utility, three RNG facilities are operating in foreign construction, and there's over 50 in early-stage development. The goal here, by the way, in the utility is 5% of our two TCF annual send-out to be RNG by 2030. In gas transmission, there's eight projects in development and a significant opportunity across the entire map. Hydrogen is at an earlier stage, but with probably much larger investment potential longer term. At this point, the key here is to prove out the technology and scalability. And the Markham Project pilots blending green hydrogen into our gas network. That's North America's first one of those facilities, which went operational in Q4. We're developing a similar but larger one in Quebec with Evolution. Finally, let's cover our ESG scorecard and how we're moving the ball forward further. So we're doing well against our emissions targets so far. Intensity is down 21% since 2018 towards our 2030 emissions goal, and absolute emissions are down as well. For example, our three operating solar cell power facilities will reduce about 20,000 tons of CO2 equivalent in the first full year of operations. And in GTM, for example, investments to modernize compressors lowers emissions by 25% at each facility. In liquids, we're just signing a long-term power contract with a local utility that could see 45% emissions reductions by 2030 for seven of our pump stations. And of course, on diversity, we've seen great progress at all levels of our organization, including at the board. The key to achieving these goals is three actions we've taken. Establishing concrete plans within each of our businesses, linking targets to compensation, and aligning those goals with capital providers, namely that's the $3 billion of sustainability-linked financing that we've done over the past while. So you can see on the right here that we're leading the pack already, but here's how we get better. And just to illustrate the mindset behind this, we've previously set NMIT emissions targets in the past, 21% down on our Canadian operations, and taking out 55 metric tons of CO2 equivalent with our conservation programs. We've set four new goals with four pathways and aligned them with Paris on net zero. We've now added Scope 3 metrics, including a contribution to Scope 3 reductions by investing in renewables, low carbon fuels and conservation. So here's how we're building on this foundation. We're going to work with our supply chain to get after Scope 3 emissions. We'll work with third parties to help develop science-based guidelines for the midstream sector. We're enhancing our PCFT disclosures to include a net zero scenario in our next sustainability report. That's coming out in Q2, by the way. And we're developing our new low carbon partnerships to drive innovation across the business. We're also integrating ESG further into our capital allocation framework. So here's what that looks like. First, every new investment we consider includes with our interim and long-term targets. Our investment models factor in our emissions targets, so we plan for future investments. Our hurdle rate accounts for regulatory and permitting risk, and we test new investments against a range of transition scenarios. A recent Ingleside acquisition, as you heard, is a great example of how we apply this ESG lens in allocating capital. So with that, I'll pass it over to Vern for the financial review. Thanks, Al. And good morning, everyone. Our fourth quarter results were up strongly over 2020 based on solid operational performance across our businesses, along with partial year cash flow contributions from the $14 billion of capital that we put to work last year. This translates into adjusted EBITDA and DCF being up 15% year over year, and EPS is 20% higher. Full year DCF per share came in at the top end of our range and our EBITDA was well within guidance. This is our 16th year in a row where we've hit guidance. Mainline volumes were about 3 million barrels per day in Q4, reflecting the benefit of the additional capacity from Line 3. Ingleside is performing in line with expectations and cash flows are expected to ramp up in 2022 as more contracts kick in. These operational results were partially offset by an interim toll provision recorded for the second half of 2021 following the expiry of our CTS agreement. We have included this full year provision in our 2022 guidance and throughout our three-year financial outlook. Gas transmission utilization was very solid, with additional contributions coming from the capital we placed into service in the fourth quarter, including the $1.5 billion BC pipeline expansion. And as Al mentioned, the utility's annual results were affected by $31 million due to warmer than normal weather. But we've had a cold start to 2022, so this is a little bit of a tailwind for us this year. Wind and solar resources in our renewables business met our expectations. In energy services, challenging marketing conditions continue to persist through the quarter. However, as a reminder, most of our committed contracts expire late this year or early next year, which improves our outlook for 2023 and beyond. Operating results in our U.S. businesses were impacted by a weaker Canadian dollar, but our FX hedging program offsets much of this. And you can see our hedge gains in eliminations and other. And finally, earnings reflect increased depreciation associated with the $14 billion of capital that we spoke about. So another solid year in the book. And that sets us up nicely for 2022. Let's move to that outlook now. Our 2022 guidance that we issued in December remains unchanged, and it represents a 9% increase in EBITDA over 2021. This includes the interim toll provision that I spoke about, Mainline volumes are off to a good start in the first quarter of this year, supporting our forecast of just under 3 million barrels per day on average for the year. This factors in seasonally lower volumes in Q2 and Q3 due to upstream and downstream maintenance activities. In our gas businesses, systems are running near full capacity, so good performance in the early part of this year. There's been a lot of focus in the market on inflation, interest rates and foreign exchange. So let's recap how we're positioned on these items heading into this year. On inflation, about 80% of our EBITDA has inflation protection built in through contractual escalators and other regulatory mechanisms. So we're well protected on the top line. We continue to be highly focused on managing costs, And as Al mentioned, since 2017, we've delivered $1.2 billion in aggregate cost savings, with another $100 million realized last year. Our exposure to rising interest rates is limited, as most of our debt is fixed rate. And what's remaining, we actively hedge. On FX, we are about 95% hedged on DCF for 2022 at a rate of 1.28%. so we've got good protection against exchange rate volatility and as you know we intentionally limit our exposure to commodity prices which amounts to less than two percent of our ebitda but on the margin we could see a little bit of upside from our investments in auxable and dcp let's move to the funding plan in keeping with our self-funded approach all equity funding needs will be met through internally generated cash flows debt maturities in 2022 are about seven percent of our total debt which is very manageable and will continue to tap capital from diverse credit markets in q1 we've already swapped out some preference shares with hybrid notes this allows us to capitalize on lower rates which optimizes our funding costs No change to our expectations for leverage. We expect to exit 2022 near the bottom of our 4.5 to 5.0 debt to EBITDA range, driven by annualized contributions from Line 3 and the Ingleside Terminal. This provides us excellent financial flexibility and results in $5 to $6 billion per year of investment capacity. A portion of that will fund our secured program, so let's turn over to that. As of today, our secured backlog sits at $10 billion. This reflects the $700 million of further investments in our U.S. gas transmission business that we announced today. We added the Phase 2 of Texas Eastern Modernization Program and Phase 2 of Appalachia to Market Expansion. That is consistent with our thesis that natural gas is a part of the long-term energy equation, providing reliable and affordable growth along with emissions reductions. More broadly, our secure program continues to be well diversified across our businesses, with an emphasis on rateable and capital-efficient growth. Over our three-year planning horizons, These projects will support a 5% to 7% DCF per share growth outlook. And as Al noted, we have good visibility to $6 billion per year of organic growth coming from conventional and low-carbon investment opportunities, which will support our longer-term growth outlook. So let's wrap up with our capital allocation priorities. Our priorities start with maximizing our financial strength and flexibility. Our balance sheet is in great shape. It will strengthen over the year, and we have BBB plus ratings from all four credit rating agencies. This is exactly where we want to be. We will continue to grow our dividend rateably. We increased it by 3% this year, and that's our 27th consecutive annual increase. Annual rateable dividend growth remains core to our value proposition. Our cash flows and balance sheet leave us with about $5 to $6 billion of annual investment capacity. We'll deploy $3 to $4 billion to advance brownfield low multiple expansions and optimizations, along with ongoing modernization investments and the utilities annual capital programs. That leaves about $2 billion per year in excess investment capacity for more organic growth, potential asset acquisitions, share buybacks, or debt repayment. Successful opportunities will need to meet our low-risk business model. Our risk-adjusted hurdle rates have a strong strategic fit and align with our mission reduction goals. The Ingleside terminal acquisition was a good example of how we checked all of these boxes. In addition, we have a proven track record of opportunistically recycling capital. We did another $1.2 billion last year, and this could supplement our $5 to $6 billion of annual investment capacity. The bottom line is we'll continue to be highly disciplined and be good stewards of capital on behalf of our shareholders. So I'll wrap up and turn it back to Al. Okay. Thank you, Vern. Just a few takeaways here. Our diversified business, as you just heard, continues to generate predictable cash flow and consistently growing the dividends. The solid base, along with our secured growth outlook, drives 5% to 7% DCF per share at CAGR through 2024. We have a two-pronged strategy, capitalizing conventional energy fundamentals while increasing low-carbon investments, and we think that supports continued growth beyond 2024. As you just heard from Vern, we'll remain very disciplined, prioritizing capital efficient and utility-like projects, and ensure free cash is deployed to maximize value all that to say that we believe that our value proposition remains very solid and if you recall that five-year look back and how 2021 capped it off we believe we're in excellent position to continue growth before we get to the questions i want to acknowledge bill yarley our long-time leader of the gas transmission business a couple of weeks ago We announced Bill's retirement after 21 years at Enbridge and previous to that, Spectra, and just a remarkable career. Bill developed a top-notch gas business and he's been a key member of our broader executive team. Many of you have known Bill for a long time and it's been a real pleasure to work alongside of him. He's put a lot of points on the board for us, but what really stands out for me is how he set up the transmission business for the future. particularly in expanding it and executing our LNG export strategy. But he's also personally led a mission to make us better on safety and reliability. And it won't be too far into a discussion with Bill before he gets to the importance of serving our customers. Finally, as you heard him speak at Enbridge Day, Bill is very passionate about the future of natural gas. We spent a lot of time thinking and planning for succession and developing people at Enbridge to manage changes like this. So taking over for Bill will be Cynthia Hanson, who's had her own mark leading our gas utility over the years and has been through several senior roles. So it's a natural fit, and she's excited about taking on this new role in Houston. Taking over for Cynthia in Toronto is Michelle Herdance. Michelle currently runs gas transmission operations in Houston and has great experience in every part of the value chain. And finally, in addition to his CSO role, Vern is taking on corporate development, again, a long history of experience and leadership at Enbridge. So we'll end it off there and turn it back to the operator for the Q&A.

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're using a 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. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Robert Cattelier with CIBC Capital Markets.

Thank you. Good morning, everyone, and thanks for the presentation. I wanted to start with the offshore wind, where we've seen rising costs causing some financial difficulties for one of the offshore wind contractors. So can you describe your exposure to the to SACIM on existing offshore wind projects? And just more generally, how do you see inflation and cost escalation impacting your ability to move other projects development to FID?

Okay, Robert, I'm going to quarterback this q&a, by the way. So I think for this one, we'll, we'll hand it to Matthew. It's a good question on on inflation and offshore wind.

Okay, thanks, Al. Thanks, Rob, for your question. Yeah, you're right. We are seeing inflationary pressures in the industry generally as in all infrastructure. But on the offshore wind assets and these construction projects, we have very good protection in terms of WRAP EPC contracts for construction. Right now, fortunately, we're not seeing inflationary pressure on our capital budgets over there. As you know, same as there, they're scheduled to come online later this year, and that's in good shape. Regarding SAPEM, they are involved with us, especially at Corsair, Calvados. They are involved in the foundations. So, you know, generally, a couple points there. Calvados is a few years away from in service. And the major construction work there would start next year. As you can imagine, we have the regular protections in terms of bonds as well as collateral. So, you know, it's also, I think, the main point It's a very good contract. We don't see any disruption at this point. And, you know, so we're optimistic that there won't be any impact there as we go forward. So I'll back you.

Yeah, I think the broader point around inflation, though, in this opportunity set is real, though, Robert. I think your point is good. As I refer to in my remarks, I think we've got enough going on here that, you know, we're going to watch that carefully and we're not going to necessarily get into projects that get us exposed. I mean, we know the returns are clamping down in this sector, so we're going to be very careful about future investments. And, you know, there's no rush for us to, you know, get into a whole bunch of projects that are going to crunch our returns. So that's the broader perspective on it.

Okay, that's very helpful. And maybe one more just on slide 13, you had a comment on your CCUS update about utility like commercial model and returns. I'm just wondering if in your commercial discussions, are you taking a cost of service approach or a fee for service approach, or maybe some other? And I'm curious as to what level of scale you think is necessary

um to be able to make that work on a commercial basis okay well i'll start it off and then uh as you know we're working on a project here in alberta but generally speaking uh you know this is this whole sector is going to develop with scale and cost in mind so our thought is uh with appropriate sort of, what would you call it, throughput with CO2 on the infrastructure, we can make a utility like um structure work and what i mean by that is good protection in terms of long-term cash flow and in that way we should be able to provide the lowest cost of capital to actually make things work so these are very uh cost and capital intensive projects so we need to be very thoughtful about how we bring our cost of capital to bear on that so it really does fit the utility-like model and that should line up with the competitiveness that customers will want on this. So that's the bigger picture. In terms of scale, what we're thinking about on this project, as you know, we have a rough estimate of investment required for each megaton of of reduction, which is about $1 billion for each. So these are fairly large-scale projects. So that's probably the order of magnitude you're talking about for each megaton. Colin, do you want to add anything on that? I think you covered most of it. The only thing I'll add, Robert, is a point on proximity and to help this cost-down equation. You know, moving the waste product the shortest distance possible contributes meaningfully to the outcome.

So our project is designed to transport and store the carbon relatively close to the emitting source, so that helps too.

Okay, that's helpful, Colter. Thanks, guys. Thank you.

Your next question comes from the line of Robert Juan with RBC Capital Markets.

Great. Good morning.

I'd like to follow a little bit here on emerging energy transition initiatives, whether it's CCUS, you talked about hydrogen, and just you've been a returns-focused organization historically.

What's the appetite to deploy capital at suboptimal returns just to establish the footprints? with the hope of developing a franchise that can drive additional projects with better returns over time.

Yeah. Well, in short, we don't have a lot of appetite to deploy capital in low-return markets. projects. I think this is going to be an interesting number of years here as we go forward. I think so far, Robert, we've been able to deploy capital right in line with our traditional investment criteria, as you point out. Whether you look at the R&G opportunities that we're investing in, good returns there. Certainly the renewables projects in broad terms have generated Enbridge-like returns, let's call it, The hydrogen pilot plant is generating a good return under regulatory protection, let's just call it. So that will continue to be the process. There may be something at the margin, let's say, where we're trying to prove a technology out or something. prove it out to scale that, you know, we could see a little bit of capital deployed to see that happen. But generally speaking, during this period, while we're in scale up, we want to be very careful not to get too far ahead of the curve on putting capital to work that isn't going to generate the right return for us. So that's our overall approach. That's great, Al. And maybe if I can finish here on the main line.

You know, it's been, I guess, now a little over 10 years under CTS.

You've got a shipper group that's arguably maybe more disparate in terms of their interest than we've seen in the past. So what are you seeing just as you've had these initial discussions as the top two or three points of contention in terms of, you know, what they're coming to you and just even what members within the representative shipper group, you know, may be wanting here?

Go ahead, Kyle. Robert, Amy, good morning. You know, it's an interesting question, and while some time has passed, some things stay the same.

And I don't want to be presumptive here because, as Al mentioned, we're still in relatively early innings consulting and listening carefully to customer interests.

What's staying the same is the – The early feedback, which is fairly homogenous, is to ensure Enver stays aligned and behaves in a manner that creates value for the shipping community. And I think Al went through the ingredients to that, and it's moving as much oil as we can safely every day. At $90 a barrel, that's the primary value lever here. So we're hearing about consistently the need for continued fixed tolling, certainty on the toll, and that alignment. So while I know that the mainline contracting application was contentious at the end, I think If we remove the contracting element of it or substantially do that, I think there'll be potential for consistent alignment here by the group. Alan, do you want to add anything? Yeah, I think, Robert, everybody's been, what, through the wringer on this over the last, I don't know, three, four years. you know, Colin mentioned toll certainty, but just generally certainty commercially for our customers is important as it is for us. So everybody wants to move forward, I think, and try to move along. You know, Colin mentioned tolls, but it's also egress. The key here is that Given that it's very difficult to build any pipeline capacity, and we know that the upstream customers do have a lot of opportunity to grow incrementally, they want to make sure that we bring what we brought before, which is ideas and options to move barrels at very low incremental costs for them. And then probably the other thing that's staying the same, which I think we've done very well, is just managing costs. And that's why I mentioned in my remarks that, you know, having us aligned to ensure that we're managing the cost part of it ultimately flows through the toll and what we land on here. So I think there's a lot of things that, you know, argue for... a lot of certainty as we've had, as they've had in the past. So that's the main priority from what we see. That's great. Appreciate the comments.

And Bill, all the best in retirement. Thanks very much, Robert. Thank you, Robert.

Your next question comes from the line of Jeremy Tonnet with J.P. Morgan.

Hi, good morning. Hi. And Bill, you will be missed. Best of luck going forward.

Thanks very much, Jeremy. Appreciate it.

You know, just want to touch on the main line a little bit here. And I don't know if you guys exactly disclosed it, but as we think about the reserves booked in the fourth quarter, just want to confirm that that's for two quarters, third quarter and fourth quarter. And do you guys quantify what that level was? So this we're going to hand to Vern. Hi, Jeremy. The reserve that we booked was for Q3 and Q4. And as we talked about at our investor day in December, we're not disclosing the magnitude of that or the provision that we have in 22 and beyond. So I think you'll understand that these are commercially sensitive numbers and we don't want to broadly disclose those. Got it. Fair enough there. And then I'm Just wanted to come back to buybacks, I guess, a little bit. And I was wondering if you could provide just maybe a little bit more color on the capital allocation calculus as far as what could lead to different levels of buybacks if that falls in the ranker of where capital allocation points to. Just trying to get a sense. There's a big program out there, but what might actually transpire? okay well i'll start it off verne can add you know i think we we've got some broad criteria of how we're going to deploy this share buyback program i think you know just going back a little bit jeremy uh you know it certainly moved up in the order for us after line three went into service i think we communicated that and it's certainly uh right in the mix right now so the way to think about it generally is we want to make sure the balance sheet is in very strong position at all costs. And the reason for that is we need that flexibility to take on opportunities that we see and capitalize them. So leverage is number one. Now, beyond that, you've got this vying for capital between additional organic growth, potentially some asset M&A, the motor-like opportunities. And then, of course, we'll look at where the shares are in the market and determine. So it's all about how we maximize the value here amongst those three options after we make sure the balance sheet is is in check. So that's the policy or approach generally to using the buyback program. Vern, do you want to add anything? Well, I'll just add that we continue to think that the shares are undervalued. So buying more of our assets is always a good thing. And it's really nice to have another avenue to give capital back to our shareholder on top of our dividends. so really you can think about it that it's a supplement to our to our annual dividend got it uh that's very helpful i'll leave it there thank you okay thanks jeremy your next question comes from the line of rob hope with scotia bank uh morning everyone and uh congrats on uh the upcoming retirement bill all the best in the future um the question actually could be for you or yeah looking at the 2.5 billion t south expansion is this entirely dependent on wood fiber proceeding and if so um you know is this kind of a 2026 2027 in service uh date for this uh pipeline expansion just given when wood fiber is expected to come in uh yeah pretty much uh pretty much rob you know we've been expanding t south uh quite a bit you know just finished one last year that was about a billion dollars for for customers uh in southern bc in the pacific northwest so the next big one is probably going to be related to a major offtake and wood fiber certainly would fit that bill um and and yeah anything we start now would be a you know 25 26 in service so a lot of optimism there i think i i they're a bite-sized project, you know, you've been following them for sure.

But yeah, no, I think I think they've got a good a good shot.

Great. Thank you. And then just moving over to the crude oil business, the downstream expansion opportunities on Flanagan and Seaway, what are the gating factors to get these things more further along, just given that Line 3 is now in service? And kind of has the cap line reversal changed any of the dynamics there, just given alternate avenues of flow? Okay, over to Colin. Hey, Rob. So on the first part, the our downstream pipes. Um, we have, we've mobilized, you know, early work on that to maintain a quick, uh, ISD. Um, we would be talking to customers on, on both of those. You should probably think about those in concert with the E hot as well. They, they kind of all go together and it'd be good to have, uh, uh, some, some termaling at the end of all that down in Houston. Um, timing wise, um, We're having parallel discussions with industry as we advance the mainline tolling framework. You can see how they would interrelate to ensure you could get egress to use that downstream space. There is interest in it for sure. So that's kind of the timing we're thinking on those. On the other business development ideas, those are Ingleside and Express, et cetera. Those are all... happening on a quicker basis, I would say, independent of the mainline Gantt chart.

On your question on capline, I think we're viewing that as more opportunity than threat at this point. As you know, we feed it from three of our pipelines and then upstream about the mainline and regional, so we're not seeing capline cannibalize flat against health volumes, for example. I think they're moving about 100 a day.

I think that came off of rail and barge service previously, so it didn't steal it from our system.

Sorry. Appreciate the call. Thank you. Thanks. Thanks, Rob.

Your next question comes from the line of Ben Pham with BMO.

Okay. Thanks. Good morning. I was wondering, what are your updated thoughts on non-core asset sales at this point. I'm probably more curious about the more commodity-based businesses. Do you come from just holding on to capitalize on increasing margins, or is this a good window to look at monetization?

yeah hey ben um you know generally speaking on non-core asset sales there's not a lot that fits that category i mean certainly we could look at you know portions of um our other assets if if we could see great value we'd always look at that and and the team's always monitoring uh that as far as the commodity sensitive ones that there's really not a lot in that category uh certainly the main ones would be oxable uh and uh and dcp in the case of oxable uh it's really tied to the alliance pipeline as you know from an operational point of view and the commodity exposure there's relatively low force in the in the bigger picture context of enbridge In the case of DCP, I think you're familiar with that one. You know, it's a relatively small piece of our EBITDA as well. And it comes with a very large negative basis, tax basis in that asset. So right now, I think we're pretty comfortable in just holding those relatively small pieces of commodity exposure. Okay.

Thanks right now. And also your comment around renewable returns coming down and being careful about future investments. I would like to hear that. But what about also being opportunistic on maybe buying some of these junior renewable developers? That could be a challenge in terms of returns and inflation. Is there a window here to take advantage and go into new geographies, for example?

Yeah, well, you're right to point out that, you know, valuations have certainly compressed over the last little while, and some of them are encountering difficulties. It's probably not a primary objective of ours right now. And the reason for that is I think we've got as I alluded to earlier, quite a bit going on in the business. And when you talk about the solar self-power opportunities, there's a number of what we call front-of-the-meter renewables opportunities where we can bring our expertise to bear. We've got the projects that Matthew's been working on and developing for the last year two to three years. So I think we've just got enough on the go right now to not necessarily require going out and doing some kind of M&A deal. We always watch it, of course, but low likelihood at this point.

Okay, great. And maybe just a quick one for Colin, perhaps on the Wildman project or maybe anything in Alberta CCUS. Do you need to get the CR involved at some point or They'll see 69. Like, how does that does that feed in at all?

We'll need regulatory permits. You know, physically, as they develop, it's, it's an intra Alberta situation doesn't cross borders. So as Al said, well, the whole

industry will need clarity quickly on permitting on this whole new slate of projects. So we'll be advancing that in parallel.

The ISDs for the emitters we're working with here are relatively early in the relative scale of things, in 25, 26. So we've got some time to work on that. I think you mentioned C69. I don't think that applies here. I'm pretty sure about that, Colin, but if there's something different, we'll get back. But I don't think C69 applies.

Okay, makes a lot of sense. Okay, thank you. Okay.

Your next question comes from the line of Brian Reynolds with UBS.

Brian? Good morning, everyone. This is a follow-up on the share buyback authorization in mainline. I'm just curious if you could provide a little bit more color on how mainline contracting uncertainty and reserving could ultimately impact the size and pace of those buybacks over the balance of 22 and 23. Thanks.

Yeah, you know, Brian, we don't see that, actually. I think as Vern alluded to, we've made our provisions. It's within the guidance that we're talking about for 22, as well as our 22 to 24 outlook. So I think if you look at the variability in those outcomes, it's actually relatively small. And in the bigger picture, the share buyback program really shouldn't be impacted by the outcome there. So that's how we're looking at it, just from a

the numbers uh that we see and the variability uh it's not going to be impacted by um the share buybacks won't be impacted by the mainline outcome great um appreciate all that color and then the follow-up just curious if you could provide an update on the markham hydrogen blending you know post and service you know how is the project performing and do you see this project as scalable and replicable across the rest of your footprint at this time

Yeah, that's a great question, Brian. So Cynthia is on the line. So Cynthia?

Yeah, thanks, Brian, and thanks, Al. We just started with the project. It went live, and as Al said, in Q4, it's been performing well. You know, we will continue to learn from it. It is something that we're looking to scale, and we're very hopeful. So things are progressing as we had expected, and we'll continue to provide updates as that opportunity unfolds. So it's a good start.

Great. Appreciate it, Nicola. Have a great day, everyone. Thanks, Brian.

Your next question comes from the line of Linda Ezogales with TD Securities.

Thank you. I just would like to also wish Bill all the best in his retirement, and a big congratulations to Cynthia and Michelle for their new roles. Maybe you could help us maybe paint a little picture about how this Alberta Carbon Capture Initiative might evolve from an operational and governance and ownership framework, recognizing that a lot of different partners bring unique attributes and skills to the table. I'm just wondering, you know, what are the guardrails of what is possible for what the range of ownership that Enbridge would consider? You know, how important is operatorship and, you know, how those interfaces might work if there's elements that others operate? And then also layering on the governance, there's a lot of complexity, and I realize that it's all being navigated and there might be some sensitivities, but anything you could help us understand as to how to mitigate some of the execution risk beyond the commercial framework.

Okay, well, I'll start off, Linda. Thanks for the question. Well, first of all, I think you're right in pointing this out. This is going to be a, let's put it this way, a collaboration. As I mentioned in my remarks, this is going to take a lot of integration. If you just think about capture, transportation all the way through to storage, So we see this as a combination of players. And it's going to take emitters. There'll be certainly some government policy angles with respect to the regulatory part of it, but also how we manage pore space. So there's a lot to go on here. Another element of this which I mentioned is First Nations participation and we could see them become equity owners which I think is just a great opportunity for us and for the First Nations. So I think at a high level it's a combination. In terms of governance and how we actually operate an asset like this. I see it probably developing as a large joint venture where we're going to take the expertise for each part of the value chain and have the experts roll with it. So I'm envisioning that we run with the transportation and the storage And then, of course, you know, the upstream capture part, you know, maybe others involved, particularly on the emissions front. So that's the big picture on this. A lot of this, of course, will be TBD as we move forward on the commercial construct.

Thank you. And just as a follow-up, recognizing that each jurisdiction has unique geographic and likely regulatory and policy attributes, how much of the discovery of this process could be used and leveraged for other jurisdictions? And what other jurisdictions do you think Enbridge would bring value to the table in terms of getting involved in carbon capture initiatives?

Okay. Well, this one may be, as you saw on the map there, we've got a number of these we're working on. So maybe I'll invite the business units to talk about specific areas. So I'll start with Colin and then perhaps Matthew if you want to cover anything else. So Colin, what do you think? The primary answer is yes. Linda will port the learnings here. I think as I'll mention in your question in further, there's lots to learn here. So Alberta's at the front end of this, and good for them. But we feel we can port this to other parts of our footprint, right? Where we have physical presence and local know-how and customer relationships. So on a liquids footprint, we have conversations, are developing concepts in Houston. in the Corpus area, for starters. Cynthia?

Sure. Thanks, Colin. As you know from the map, you can also see that we have a lot of infrastructure around some industrial hubs in Ontario, so whether that's Hamilton or the Sarnia industrial area. With our storage capabilities that we have and our knowledge of the geography in Ontario, I think there's opportunities for us.

Thank you.

Your next question comes from the line of Praneet Satish with Wells Fargo.

Thanks. Good morning. The takeaway situation in the Bakken continues to look constrained. And I know in the past you were evaluating an expansion of Alliance to accept more Bakken gas. I guess the question is, where does that expansion stand today? And I know there's a bunch of competing projects, but is that something you're still pursuing? Bill, that's probably something for you. Yeah, you know, we've been talking to producers on and off over the course, really, of the last few years. And it's just a matter of, you know, getting the right concentration and traction. You know, we feel as though there's great connectivity and we bring the gas to the right place. So nothing to report as far as new contracts there, but we do keep pursuing that. Okay, great. And then I guess I was just wondering if you could comment at least directionally on how either of the two commercial frameworks you're advancing on mainline would impact your financials. I know you've embedded the reserve and the guidance for toll uncertainty, but is it fair to assume that if you're able to advance either of the commercial frameworks, it would have a modest positive impact on your financials? Sorry, can you repeat that last part of the question again? Yeah, the last part is just is it fair to assume that if you're able to advance either of the commercial frameworks, it would have a modest positive impact on your financials? I think the reserve or provision really is our best guess at where we end up at the end of the day. I think maybe if I understood the question right, What Vern said is the answer, really. With the provision, you can think of it as a neutral outcome. If we book the provision as to the best outcome we think there is, or the most likely, I don't think we see much beyond on the upside or downside. So I wouldn't say that it's a modest positive effect, as you had mentioned. Yeah, I should reiterate that obviously we think on the context of our consolidated EBITDA of over $15 billion for 2022, any outcome is not material. I think the bigger takeaway here, though, is really what we said about the commercial outcomes. So we're quite comfortable managing a CTS-like environment. We've proven that for the last, I think, 25 years working on incentive freight making. But, you know, as I said earlier, we're equally comfortable, though, with cost of service. And so with the provision and the fact that cost of service would certainly minimize the risks that we were talking about, I don't want to say we're agnostic because I think as we were pointing out earlier and Colin was referring to, I think our shippers were probably happy moving on to a new CTS. So those are the things that we look at. It really is more of a commercial issue going forward here, given that we've booked the provision. Got it. And Bill, congrats on your retirement. Thank you. Thank you.

Your next question comes on the line of Andrew Kuski with Credit Suisse.

Thanks. Good morning. Al, you kind of started at the beginning of the call framing the energy crisis that people are experiencing right now with high pricing. and then also the producer discipline side of it. And I guess that's a bit of a two-edged sword for you. You can wind up with a lack of volume growth but better counterparties. Just how do you see that translating to your business overall, and then does that really compel you to pivot faster into some of the energy transition activities?

Yeah. You know, I think, Andrew, the way we see this is, as I alluded to there, it's pretty clear that the conventional runway is going to be there for a long time. At the same time, you've got pretty solid discipline we're seeing out there. I mean, there may be some upticks that you've heard about recently, particularly in the Permian around drilling and so forth. Generally speaking, producing community is not unhappy in our view, given where prices are and the fact that they're not really deploying a lot of capital and returning it back to shareholders. So I think that discipline is going to be maintained. With respect to how we pivot, again, if you look at any of the three areas, as I said, R&G is probably the fastest growing, but maybe lower capital investment opportunities there. But hydrogen and CCS are going to take some time. Policy-wise, incentive framework-wise, that's got to still develop. So I think we're going to have to be disciplined here and really focus on the two-pronged approach. Conventional energy will have runway. We'll capitalize on those opportunities. But we'll also look to gradually invest in low carbon, providing that we can make those work economically and scale up over time. So those are going to happen, but they'll happen not in the next two to three years, but after that we'll certainly be scaling up those investments.

That does help. And then just to follow up, and it really focuses on the producer health and the discipline they have at this point in the cycle, has that changed the dialogue that you have with them? at this point in time in your customer focus, or is it more of the same from an average perspective?

I think it's pretty much the same. We have a lot of dialogues across the four businesses with our customers on all kinds of issues. So I think so far their health has been very positive for our industry and us. We like the fact that You know, they've sort of turned over and balance sheets have strengthened. And ultimately, I think that's going to be very positive for the industry. And they'll probably get back on to, you know, growthier outlooks. But as for the next two to three years, I think we're keeping in touch and being very responsive. And, you know, the CCUS project that Colin was talking about is a good example. There's a lot of producer interest in that, but we're being very careful to make sure that whatever we talk about with them has cost in mind, in that that'll be a big driver on the growth in CCUS going forward.

Okay, that's great. Thank you.

Okay. Thanks, Andrew.

We have reached our time limit and not able to take any further questions at this time. I will now turn the call over to Jonathan Morgan for final remarks.

Great. Thank you. And thank you for joining us this morning. We appreciate your ongoing interest in Enbridge. As always, our investor relations team is available following the call 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.