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spk02: Welcome to the Enbridge Inc. second quarter 2022 financial results conference call. My name is Sylvie and I will be your conference 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 touchstone phone. Please note that this conference is being recorded. And I would like to turn the call over to Jonathan Morgan, Senior Vice President, Capital Markets. Jonathan, you may begin.
spk06: Thank you. Good morning, and welcome to the Enbridge Inc. second quarter 2022 earnings call. Joining me this morning are Al Monaco, President and CEO, Vern Yu, Chief Financial Officer, and the heads of each of our business units, Colin Grundling, Liquids Pipelines, Cynthia Hansen, Gas Transmission and Midstream, Michelle Herdens, gas distribution and storage, and Matthew Ackman, renewable power and new energy technologies. As per usual, this call will be webcast, and I encourage those listening on the phone to follow along with the supporting slides. We'll try to keep the call to roughly one hour, and in order to answer as many questions as possible, we'd appreciate you limiting your questions to one plus a single 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. As always, our investor relations team will be available following the call for any additional questions. On to slide two, where I'll remind you that we'll be referring to forward-looking information on today's presentation and in the 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.
spk03: We'll also be referring to non-GAAP measures as summarized below. With that, I'll turn it over to Al Monaco.
spk06: Thanks, Jonathan. Hello, everyone. I'll start off this morning with how we're doing on our key priorities mid-year. I'll then cover our business update, including the new investments announced today that further accelerate our natural gas strategies. Fern will recap our capital allocation framework and review our financial results, the future outlook, and ESG performance. Before we do that, let me begin with the bigger picture and the two-pronged strategy we laid out at Enbridge Day. It's pretty clear we're in a global energy crisis and that we'll need all sources of supply to meet demand with affordable, sustainable, and secure energy. And as we've said before, North America is extremely well positioned with globally competitive, reliable, and sustainable supply. Given the inflection point in energy markets we've experienced, our two-pronged strategy is proving to be the right one. That is to continue investing in the best conventional opportunities while ramping up enfranchised low-carbon infrastructure over time. Our focus in the last few years is to build out our export infrastructure, and that's even more relevant today. Acquiring the Ingleside export facility filled out our Gulf Coast liquid strategy and is already opening up low-carbon export opportunities. And with our natural gas systems along the Gulf Coast and in B.C., we're capitalizing on global LNG demand growth. We've got a plethora of low-carbon development opportunities in flight, that nicely leverage our existing assets and fit our low-risk model. And we see renewables, RNG, hydrogen and carbon capture picking up steam and bolstering growth. With that context, here's the mid-year check against our priorities. Our number one priority will always be safety, and we're tracking well this year. Operationally, we performed well in Q2, strong utilizations, record gas transmission delivery days, and good wind resources. Results-wise, we had a solid quarter, and we're on track to achieve our full-year EBITDA in DCF per share guidance. And that puts us in good shape on our three-year 5% to 7% DCF per share KGAR target through 2024 off of 2021. The balance sheet is strong, and we're on track to exit 22 at the low end of our leverage range. So far this year, we've secured $4.5 billion of new investments that are right down the middle of the Enbridge Fairway. That includes expansion of our BC system and a 30% stake in Wood Fiber LNG. So our post-2024 secure growth hopper is filling up nicely. On capital allocation, we'll continue to be disciplined by optimally deploying growing free cash flow. Part of that is returning capital to a steadily growing dividend, and we've initiated share buybacks, as you've seen. On to the business update, beginning with liquids. After an extended upstream and downstream turnaround season, mainline volumes are ramping up, and we expect to get to the full-year average guide of 2.95 million barrels per day. In gas transmission, we had four of the top five power plant peak delivery days in the last five years. And we hit record LNG and Mexico export deliveries at 3 BCF a day in April. A couple of weeks ago, we also reached an agreement in principle on the Texas eastern rate case. So very good news there. And we're moving along well on $7 billion of capital in executions. In the utility, there's another $3 billion underway, including 40,000 customer ads this year and three more RNG projects. And finally, in renewables, we're in heavy construction mode with four offshore wind projects and 10 solar cell power projects, totaling almost $3 billion. And again, part of that is offshore France. St. Nazaire is going well and on schedule to start generating cash flow later this year. Now, a brief update on liquids fundamentals and mainline solar. The global energy inflection point I referenced earlier is driving improving North American oil fundamentals, and this is Colin's John Madden-type graphic that explains why. First, the historically long turnaround season has wound down. WCSB production is ramping back up as the mainline was apportioned for August deliveries, so basically we're at capacity. And premium supply is strong, with growth this year expected around 500,000 barrels a day. Given OPEC constraints, embargoed barrels, and a return of Asian economic growth, the natural outlet for light barrels is exports to Europe. Over time, we'll see inventories building back up, including the U.S. Strategic Petroleum Reserves. And you recall inventories are extremely low levels right now. These shifting fundamentals are positive as we're well positioned on both light and heavy barrels. On mainline towing, discussions with our customers continue. We've spent quality time exchanging information upfront and we're now in negotiations. Overall, the process, I would say, and our discussions with our customers have been constructive. As you know, there's a preference for an incentive-based model, which has worked well for our customers and us over the last 25 years. We're pursuing that option, but we're prepared to shift the cost of service if needed, and either option is acceptable to us, as we've said in the past. And to keep that latter part moving along, you'll likely see some required pre-filing CER notices in the next month or so. We're motivated to land something that works for our customers and a reasonable risk return profile for us. Timing-wise, we'll likely decide which of the two paths we'll be on by the end of the summer. Let's shift now to our LNG strategy, starting with the fundamentals and how we're positioned. And right off the bat, it's clear that natural gas is an increasingly exciting story and will be a growth driver for us in the long term. First, North American LNG exports are expected to increase to 30 BCF per day, and everyone knows the reasons behind that. Our assets are critical to making that happen with last-mile connectivity. You can think of our U.S. Gulf Coast and B.C. mainline systems as headers, connecting growing low-cost supplies in Appalachia, the Permian, the Hainesville, and the Montney with export market demand pull. We supply four operating LNG plants in the Gulf, soon to be five actually, and today we make up roughly 20% of North American exports. And those connections are supported by long-term take-or-pay contracts. But as you can see here with the bar chart, the precedent agreements we signed on two more LNG facilities that are pending SID, we could see our market share increase to 30% of exports. While our focus is on pipeline connections, we've been open to liquefaction investments, which we talked about before, providing they meet our investment criteria. Namely, it needs to be a value chain extension of our existing pipelines that anchor expansions or new lines. So that means pretty much directly connected to liquefaction. It needs to be aligned with our low-risk commercial model, so highly predictable cash flows, and accretive to future growth, so with expansion potential. So here's how our LNG strategy is unfolding, beginning with the Gulf Coast. With venture global sanctioning of Plaquemines, we're now underway with the Venice extension. That's a solid $400 million U.S. investment with a 20-year contract. We've secured now another $1.6 billion with the Rio Bravo new build and the Valley Crossing expansion. Both of the associated LNG plants there are pending SID by next decade and Texas LNG. And, of course, we're now also in discussion with LNG proponents other than those to see what other opportunities are there. Related to the LNG connections themselves, a recent open season revealed very strong customer interest in upstream access to our headers to connect growing Hainesville supply to LNG. So we're now designing potential options to expand Texas Eastern and Valley Crossing, so stay tuned on that over the next few months. moving north to B.C. and our T-North system. The fundamentals here point to strong WCSB supply growth over the next several years. We've seen a lot of positivity from our customers recently, which also came through on Allianz's contract extensions. This is all being driven by very low cost and a liquid-rich resource base that rivals U.S. shales. and the basin presents a great opportunity to feed growing regional and global demand with natural gas. Our BC mainline would be a critical part of getting gas to market, particularly to support LNG pull. To that point, we've completed a very successful open season and now sanctioned. A five expansion is mostly compression, and commercially, it's under-costed.
spk08: The next step is to engage stakeholders,
spk06: and file the regulatory application, and the targeted ISD here is late 2026. Today, you saw we also launched a binding open season to expand T-cell, which is driven by the recent FID of wood fiber LNG. That expansion would replace capacity currently moving volume to the Pacific Northwest, which will be utilized to feed wood fiber LNG on the West Coast when it's completed. Our preliminary estimate is $2.5 billion, also told under cost of service for the projected ISD of 2028. Now, if TSOAP does move ahead, we could see a further expansion of TNORP, so that's another opportunity. T North and T South, I think, really illustrate well the power of our strategically positioned system for low-cost access to growing markets. Now, that system also allows us now to extend our value chain to LNG liquefaction. This morning, we announced a 30% equity investment in wood fiber, which will be the second LNG facility on the West Coast. This is a really exciting brown floor opportunity for us, so let me provide some context in what's behind the investment. Our partner, Pacific Energy, has developed the project and established excellent community relationships. Wood fiber is integrated with Pacific's upstream reserves, a 2.8 TCF in the mountain, which is currently producing around 300 million cubic feet a day, with contracted transportation capacity on our system, as I mentioned. Our 30% ownership in wood fiber is structured as a preferred interest, which provides us with a predictable stream of cash flow and a solid return. Our share of the expected cost is U.S. $1.5 billion, with about 70% of the liquefaction facilities project financed. So our equity investment is approximately $900 million through 2027, which will be easily funded within existing investment capacity. In fact, Vern will discuss the ample room we have to deploy free cash flow going forward beyond that. We've evaluated a number of LNG projects in the past, and this one ticks the investment criteria boxes I mentioned earlier and more. Strategically, it aligns with our very positive view of natural gas today and well into the future, particularly global LNG growth. It extends our value chain as wood fiber connects to our upstream pipes, as you see on the map here, and anchors their expansions. Its size and use of existing infrastructure and routing make it highly executable, and we're very pleased with First Nations' support of the project. And I'll come back to this in a minute. It also fits squarely within our pipeline utility model, supports medium and long-term growth, and it generates a strong equity return, so it clears the capital allocation hurdles we've set for organic projects within the framework. And finally, what we really like is that it will be among the lowest emission facilities in the world at less than 0.4 tons of CO2 equivalent per ton of LNG delivered. So, all in, it clearly hits the mark for us strategically, financially, and it aligns with our emissions objectives. Wood fiber is located near Squamish. sited on industrial land that previously housed a pulp and paper mill. The plan will produce 2.1 million tons annually, that's around 300 million cubic feet a day, with 250,000 cubic meters of storage. There's very good access to the site via South Sound, which is well-traveled, and we expect loadings of two to three ships a month. Importantly, the Squamish nation itself approved the project. which includes a long-term benefits agreement. And the LNG plant and upstream infrastructure has received local, provincial, and federal approval. 70% of the capacity of the plant is under long-term contracted offtake with BP, and more capacity is likely to be locked up. Fortis will expand their system, which connects T-Cell with the plant itself. Wood fiber is ideally positioned to meet growing Asian demand, and here's how we see that picture. First, Asian LNG demand is forecast to more than double, and wood fiber is among the lowest cost supply sources because of the globally competitive money supply. There's roughly 150 PCF reserves at a cost of less than $2 an MMBTU. which means Canadian LNG is very high in the global LNG dispatch order. Another part of the value equation here is proximity to markets, which shaves two to four weeks off shipping times, so lower transportation costs and emissions. Combined, these factors make wood fiber LNG break-evens on par or better than U.S. Gulf Coast alternatives. So even put aside today's frothy global LNG market, the West Coast is highly competitive in any future energy scenario that we see. More broadly here, as a side note, we see a huge opportunity here for Canada to maturely ramp up LNG exports. The economic benefits are obvious, but also for Canada to play a leading role in improving global energy security and reducing GHG emissions beyond our own borders. Finally, in execution, the plant will be modular designed, which is ideally suited for this location under a lump sum turnkey EPFC contract. The final capital cost will be determined next April, and that will be the basis for setting our return and preferred distribution. The Squamish Nation has completed an environmental assessment of the project. Actually, it's the first one to be approved under the Government of Canada's Five Principles Framework. With environmental approvals in hand, the team is now focused on securing construction permits. We've laid out the timeline here with an expected ISD of 2027, and the spend is spread out over the next five years. Before I turn to Vern, a quick recap on our low-carbon strategy. As you know, our approach is to capitalize on existing infrastructure to extend growth with the same business model and returns as the rest of the business. All in, we've got close to $4 billion in development, with more on the way. On renewables, our development pipeline in France is about 2 gigawatts, providing good growth visibility there. Ten solar cell power projects are underway on our own systems, with another 300 megawatts in development. On RNG, we've supported 50 projects, where producers have applied to the Clean Fuel Funding Program, and the gas transmission team is also developing eight projects. On our Wabaton Carbon Hub in Alberta, we're planning well tests to confirm geology and finalizing commercial discussions with Capital Power, and Lehigh's project is also supported by five indigenous groups, who can become equity owners in the projects, and we're looking forward to that. Finally, in the Gulf Coast, we're in the Scammonia Production Facility at Ingleside.
spk08: So with that, I'll turn it over to Bernd. Thanks, Al, and good morning, everyone. Before I review this quarter's results,
spk06: I want to step back and remind you on how we're thinking about our low risk business model. We've designed our business to be resilient through all market cycles, and it's proven itself out over and over again. The most powerful example of this was during 2020, where we were able to meet our financial guidance despite the significant impact that COVID had on global energy demand. That's because our business is built on serving demand pull markets with strong long-term contracts, and we have conservative financial policies. Our contracts have commercial protections for rising inflation, where about 80% of our EBITDA has built-in toll escalators, or we have cost-of-service recovery measures. The majority of our debt portfolio is fixed rate, which limits the impact of higher interest rates. Our cash flow stability allows us to be confident in our financial results and provides us with a lot of financial flexibility. We expect to generate growing cash flows this year, 9% over 2021, and this of an annual investment capacity. Our balance sheet is in great shape. and we expect to be at the lower end of our debt-to-EPA range by BBB-plus stable credit ratings this year.
spk08: We're supplementing that with opportunistic share buybacks.
spk06: We've added $4.5 billion of new growth projects, which provides great visibility to cash flow growth.
spk08: same low-risk model and generate attractive returns.
spk06: Remember, all of these opportunities have competed against all of our other capital allocation alternatives, including shared buybacks. Let's move to our financial performance. Our second quarter results were up significantly over 2020.
spk08: operational performance across all of our businesses and we're seeing the benefit there's a capital we put to work we're tracking to our plan in liquid eight million book barrels a day in the second quarter which was in line with our expectations to
spk06: stream customer maintenance activities.
spk08: As a reminder, our results and for the ongoing gas transmission last year's $1.4 billion expansion to our BC pipeline system is driving.
spk06: We saw good contributions from PCP,
spk08: and off-stable on the back of strong commodities. These assets represent... So it's not a big driver overall. It's business as usual at the utility. With a small impact from the sale of our Niverco assets, our renewables business continues to benefit from strong wind resources.
spk06: Energy services remains... below expectations due to tight basis differentials and backwardation in commodity prices. Businesses are expected to return to a positive contribution next year, with the expiry of certain contracts that are negatively impacted by current market conditions. Finally, rising interest rates have had a slightly negative financing cost for us. So, a very solid quarter. Let's move to our full-year outlook. We expect our systems to be highly utilized for the rest of the year. Mainline volumes are rebounding after Q2 customer maintenance and in August. Commodity prices are generating a slight tailwind for our stable and DCP investments. while the utility and renewables are trying.
spk08: These services are expected to .
spk06: In terms of DCF per share, maintenance spending is expected to pick up in the second half, which is aligned with our full expense will be slightly higher than we expected, given higher interest rates. Again, this clearly demonstrates the predictability of our business. I'll now move to our secured capital program. Today, our secured capital program is at just around the corner. Execution is progressing well, with $4 billion of capital entering the service this year, driving cash flow growth in 2023. We locked in under fixed-price contracts. providing good inflation protection. And we've added a number of new secured projects to our backlog this quarter. These new capital requirements are easily absorbed within our $5 to $6 billion of annual investment capacity. And there's no change to our equity self capital that we've announced today will be spent beyond 2024. Now let's talk about how this capital program feeds our growth story. Through 2024, our secured capital program drives a highly visible 5% to 7% growth. This growth builds off a solid base in 2021, and we expect to continue to deliver 1% to 2% per year of growth from contractual revenue escalators and productivity enhancement. Our secure capital program will deliver another 4% to 6%. And all of this cash flow will be under a low-risk commercial framework. So we have excellent visibility in achieving our three-year plan that ends in 2024. With the recent additions to our secure opportunities we're advancing, Our capital program provides good visibility for longer. As we look forward, we continue to see a robust opportunity set to fill in longer-term growth across all of our business. An uptick in development activity across both our conventional and low-carbon platforms. As I mentioned previously, we have $5 to $6 billion of annual investment capacity driven by our growing free cash flow growth and our balance sheet capacity.
spk08: We continue to prioritize rate-based investments, along with low capital intensity optimization and footprint. The low-risk investments are highly expected to increase returns in and should drive a base capital program of about $3 billion per year.
spk06: That leaves roughly $2 billion per year of excess investment capacity that will go to the next best alternative. Either more organic growth, share buybacks, tuck-in M&A, or debt repayments. which has spread out over several years, we have meaningful investment capacity to deploy through our current three-year plan. We'll continue to be disciplined, benchmarking all of our new investment opportunities and application alternatives. Before I turn it back to Al, let me update you on our ESG priorities and the great progress we are making now. At the end of the June, we released our 21st Annual Sustainability Report. We believe that ESG is foundational to our business, and we are proud of our performance. You can see here in 2020, we set new ambitious goals across all aspects of E, S, and G, with clear pathways to achieving them. In 2021, we put in place the organizational building blocks to make it happen, establishing specific plans across businesses and aligning our compensation and financing costs to ESG performance.
spk08: Our focus now turns to executing those strategies to achieving our goals, and we're making good progress there.
spk06: On safety, we've reduced our TRIF rate over 29%.
spk08: And we've heavily invested in pipeline integrity over $6 billion in the last three years.
spk06: This underlies our commitment to driving industry-leading safety and reliability. Our mission performance remains on top of the methane emissions in our gas transmission business. On diversity, we're on our way to meeting our diversity and inclusion goals. Internally, that means enhancement to our recruiting process and mandatory training to reduce bias, combat racism, and increase cultural awareness. And that's translating into real improvement across all levels of the company, including our board of directors. Ultimately, we believe our approach to ESG aligns us with our stakeholders, customers, investors, our right-of-way communities, and it provides us long-term alternatives. I'll turn it back to Al to wrap up. Thanks, Vern. To summarize, the business is running well, and we're on track to meet our financial targets. Along with the global focus on reducing emissions, security and affordability has been
spk08: of investing in both infrastructure. We're executing our capital program, advancing our export strategy on new investments to support post-2024 growth. And we'll continue to be disciplined capital allocators, protect the balance sheet, and advance our ESG commitments.
spk06: With that, we'll open it up to questions.
spk02: Thank you. We will now begin the question and answer session.
spk07: If you wish to answer, please press star 2. And if you are using a speakerphone, you may need to pick up the handset first before pressing the numbers.
spk02: And your first question is from the line of Rob Hope at Scotiabank.
spk08: The first question is on investment in LNG liquidation facility. This looks like a bit of a unique situation. Limited commodity risk. Can you speak to when you get comfortable in investment, would you be willing to take a little bit of commodity exposure opportunities, and then I guess the follow-up question there would be in the past or in the future, are you having discussions with proponents about other facilities?
spk06: I'll start off. With respect to the first part of your question around would we be willing to take additional risk,
spk08: I think the short answer to that, probably not. We searched and we landed on this one because, as I said in my remarks, it ticked all the boxes for us, and one of the important boxes
spk06: is ensuring predictability of cash flows. So we won't stray too far from that going forward, and we can transition, which you know well. Yeah, the short answer on the second one, talking to others, yes. As you know, there's a lot of opportunities, particularly in the Gulf Coast.
spk08: And as I mentioned earlier,
spk06: We're really well connected there, and lots of development going on. So, sure, there's opportunities, but the investment criteria on this going forward. All right. Thank you for that.
spk08: And then just to follow up, sorry, I guess, another question.
spk06: one right now um can you maybe speak to what the main sticking points in terms of negotiations have been and from the outside you know you know i believe the investment community is taking the fact that it's been quiet from producers that's the only aligned and the expectation is that a negotiated settlement will be reached i'll turn it over to colin here Rob, like I said earlier, it's going pretty well in terms of our discussions. But as you can imagine, there's all kinds of different interests at play here. Overall, there's, you know, 38 discussions and who will have to... So, you know, there's... lots of different views on it and I'm not surprised that it's relatively quiet as you're putting it in terms of the public picture but I can tell you there's lots going on behind the scenes in terms of the discussions with our customers and as I said earlier a lot of information being shared to make sure that we have the transparency not just into what we think the future holds but how we've performed under this mainline calling over the last 10 years. And a big part of that, Robert, is the service we provided and I think a real good value for our customers out of the basin and our refiners downstream. So something to that.
spk08: I think you had it. Just briefly, I think the historic ordering the mainline contracting proposal
spk06: there was disagreement amongst industries, as you recall. That was around contracting the line. We've taken that off the table, to be clear. And so once we've removed that, it's removed that point of difference. So industry is now, in our view, relatively aligned on what they want from us, as Al said, which is alignment to uh, hustle, uh, towards their interests, uh, which, which were, um, we've now contained in our tolling proposals. Um, but, but we're not there.
spk08: Uh, we can't, we cannot assure we're going to, we're going to get attracted to us. So, uh, anyway, a little more color there, Robert.
spk05: All right. Thank you for the answers. That's it for me.
spk02: Tony. My apologies. Jeremy Tonin from J.P. Morgan is on the line with a question.
spk06: Morning. Just wanted to come in a little bit more on the structure that you set up. I was just wondering if you could touch a little bit more about specific, I guess, risk versus reward parameters or hurdles you're looking for here. Were you always seeking a preferred outcome?
spk08: Could this preferred equity convert into common or have any other upside levers down the road? Just trying to get a better feel for this.
spk06: The short answer on the second part is no, it's not convertible to anything under this arrangement. And I think probably the biggest upside lever to think about here is the integration we have upstream. Jeremy, as you see, it's anchoring a lot of opportunity. And, you know, the investment itself is really, as we said earlier, kind of an extension of the value chain that we've got. We've done a lot of project execution in that region, so I think we're bringing that to the table. In terms of essentially eliminate as much commodity exposure here as we could. And I think we've achieved that with this structure.
spk08: The simple way to think of it is we'll have an investment here with a certain level of equity and we'll earn
spk06: pretty much a return in that business that is, again, pretty much fixed and very consistent with the rest of Cynthia's GTM.
spk09: Thanks, Al. I read earlier in your comments that it is that opportunity for us to have various. We're working with a partner. We're going to have an opportunity on the existing relationships we have in
spk08: and it's a great opportunity. Yeah, and just maybe a little bit more color, Jeremy. What we really like about this is, aside from what I mentioned earlier about very low rate of emissions, high costs and tolls are
spk06: essentially locked in if you look at the partnership level structure here. And then, of course, there's a commitment by BP to take 70%, which is really the driver here. So it's pretty much locked down from our point of view, as we alluded to earlier. And it's a smallish investment. for us to start out in liquefaction and you know we'll develop more capabilities we go forward but i think at this point got it thank you for the details yeah that makes sense a lot of pull across the portfolio so um and and Next question I had, just really want to talk about, you know, there's a lot of natural gas logistics growth that you've talked about here, but the Hainesville specific amount of growth there, I think you had talked about kind of initiatives there in the past, and I was just wondering how you think Hainesville growth might play into... Well, I'm going to let Cynthia speak to the details here, but essentially, we carried out an open season,
spk08: And we were with a level of interest to get onto our system.
spk06: So, you know, we heard from a lot of customers. And, you know, we're really in the process now just designing options for them. And, you know, I alluded to we probably see some activity here later in the year. But, again, big header system.
spk08: lead into the Gulf Coast LNG projects from the Hainesville directly. So that's the big picture.
spk09: With the results of that opportunity and being so positive, we are just working those details now with our customers. So it's both that demand pull from the LNG exports and
spk08: and then the supply push from Hainesville.
spk09: And as we're working through those project details, of course, our connectivity infrastructure really is where we're looking to add value with our customers. So we are working through those details now.
spk08: It is an exciting future. That's exactly right, Jeremy. You think about it, this is a competitive space, right?
spk06: And other players have, you know, desires to have more capacity in this region. But the advantage we have is we're in the right spot. and the expandability of the system is there. And this is all about cost, ensuring that you've got the lowest cost solution right from the supply source into the LNG facility.
spk08: We have a good carve-out of advantage here, if I can put it that way.
spk06: Got it. That's very helpful. Thank you.
spk07: Thanks, Danny. Ben Sun from Bino is online with a question.
spk04: Hi. Excuse me. Thanks for the morning. I appreciate the disclosure on the inflation protection on existing assets, but I'm wondering as you sanction new projects and inflationary risks against other ways to achieve returns.
spk08: Yeah, this is a great question. very topical, Ben. Maybe what I'll do is I'm going to have Vern talk to the protections you refer to in the business. Maybe I'll just touch a little bit on the broader issue around investment and how we look at that given the pressures.
spk06: First of all, I think generally if you look at our capital spend profile here in the last two years and then going forward you know we've really completed you know a very large chunk of the secured program uh and of course that includes line three if you look at the program size that avern referred to uh at 13 billion and about three of that has been spent so we got another 10 to go uh and as you look at the list of projects um certainly smaller there there isn't the sort of the mega scale line three Projects in there, they're diversified across the building. We're situated, we're pretty much on time and on budget. There's a few things here and there, but that's the bigger picture. What really gives us some comfort, though, is around our major projects execution process. I think we've had a pretty good track record here and fixed price, a lot of it.
spk08: The scale of Enbridge, you know, helps here in terms of supply chain and what we can command in the marketplace.
spk06: And, of course, in some cases we have recovery mechanisms to make sure that we're getting our return on enough capital. So, you know, that's the big picture.
spk08: We got comfortable on wood fiber.
spk06: after a lot of diligence around the capital cost estimate at this point. And then, as I said earlier, the final cost estimate for purposes of our distributions and preferred return here will be set sometime next April or thereabouts. On how we're thinking about the pressures we're seeing in inflation and so forth, but maybe Vern, you can cover off. Okay, thanks, Val. So on the capital side, obviously we try to lock in all of our costs as we sanction projects, employ fixed-priced EPC contracts where we're able to. Our large scale obviously allows us very competitive supply chain analysis to have cost recovery mechanisms should the capital go up. If we move to the OffEx side, I think I mentioned in my prepared remarks that 80% of our EBITDA has protection against inflation. Really, we're seeing that through fixed revenue escalators or the ability to come back for cost of service rate filings, although there is a little bit of a delay there.
spk08: And finally, I think it's important to point out that that's really at risk. We do have some exposure to power prices and labor.
spk06: On the power price side of things, we have back directly to customers.
spk08: And then our solar cell power program in the long term provides us a hedge against rising power prices. So I think that covers it all.
spk04: Thanks for the awesome answer. Maybe my second question, going back to LNG, and as you think about how to execute it and construct it with Pacific, and then you'll look at potentially other investments, or you have appetite for maybe doing something else ahead?
spk08: On the one hand, sure, it's a new area for us.
spk06: But on the other hand, Ben, if you look at the execution we've had in large infrastructure, it's been roughly $100 billion over the last decade. So we've put a lot of projects into the ground. This, of course, is infrastructure, and it's similar to what we do. So, sure, we're going to learn something through the process here, but we'll also look for other opportunities and see if there's something that could fit commercialization
spk08: predictability.
spk06: And back to the cost question, we've got enough surety here that we're comfortable that the project will be strong and how the developer to this point has constructed and designed the commercial arrangements here. So we're happy with that.
spk04: Okay, great. Thanks and have a good long weekend. Thanks, Ben.
spk02: Matt Taylor from Tudor Pickering is online with a question.
spk05: Hey, yeah, thanks for taking my question.
spk04: The massive success of that recent ride for cancer in Alberta. So, yeah, well done there. It seems almost all of us are in some way. So, hey, it's close to home there.
spk08: Nice to see you back in person. Just one question for you, Al. Is there a role for Enbridge?
spk06: to plane-owning pipeline infrastructure in Europe as the continent gets entwined away from Russia. So, Matt, thanks for mentioning the ride. It's a very centerpiece of our community initiatives. And some of the people around the table here today have been involved for a long time. premier event, so thanks for mentioning it. Short answer is sure.
spk08: You know, if you look at the fundamentals around being diversified, sources of supply for us, you know, it always comes down, of course, to whether we can get the right risk-reward profile just like any other project.
spk06: The good news is that, you know, with the renewables business that we've established there, we have some good experience in Europe. We've got some good partners.
spk08: We've also been, of course, in Europe before when we have. a large investment in Spain.
spk06: So we're familiar with the neighborhood, if you will, and it will depend on whether we can find something that fits the commercial model we like and return.
spk04: Great. Thanks, Al. Great. Good morning. Just thinking about your two-pronged strategy in capital allocation, you've got growing gas opportunities, that's evident, and you're also targeting the low-carbon strategy.
spk08: It's picking up steam. So if you think about those opportunities, but your capital discipline and the equity profiles, but if the portfolio of opportunities within your core footprint and strategy are growing, not change your capital allocation priorities. Okay. Okay, well, I'll start off and Vern can chime in.
spk06: Well, you know, in a nutshell, Robert, we're not changing the capital allocation framework that I think we're pretty happy with. um the the opportunity it provides but uh not only that it's just the the ranking process that we go through uh to to assure that we're we're generating good value so we as you know we've got five to six billion that uh we have available to invest And we said that, you know, roughly three, so Michelle's utility business, Cynthia's gas transmission business, and, of course, maybe lower capital intensity projects in the liquids pipeline area. got a lot of capacity aside from that $3 billion to deploy and have options to deploy either in new organic projects like the ones we're just talking about today, opportunities for talking M&A, obviously share buybacks is on that list, and as you know, Robert, it sort of went up in the order given the current valuation. which we see is attractive for buybacks. Or, of course, you could retain that capacity and pay down debt temporarily. So if you look at the numbers today, you know, it really eats into that $2 billion.
spk08: Really not that much annually.
spk06: So we've got a lot of flexibility still to deploy and we'll continue to be very careful to put that $2 billion to the best opportunities that we see based on that list of options that I mentioned. Vern, do you want to add anything to Robert's question? Well, I think you hit on the main point, Al, that the balance sheet has lots of capacity. That $5 billion to $6 billion per year is very ample, and that goes out over many years. The projects that we've recently announced all have spends that are relatively elongated, so in any individual year, it's not a lot of capital. And then I think as you see us pursue more low-carbon opportunities, Generally the capital associated with those are a little bit lower. We'll have partners with emitters and other indigenous groups and things like that so I'm not too worried about running out of balance sheet capacity anytime soon here yeah and that that's a good point actually if you if you look at the two product strategy I think there's a very visible runway here obviously with let's call them the conventional projects that that we've been used to but you're going to see the ramp up in lower carbon probably a little bit further down the road. And then it will start ramping up significantly. That's how we see it in carbon capture, whether it's hydrogen opportunities. Of course, you know, the renewables business itself has some good legs. But that will ramp up. So in the near term here. That's actually a good segue into the second question.
spk04: question I've got on the low-carbon strategy. Historically, you were big in North America and onshore wind when the opportunities were pretty plentiful and you can easily get double-digit returns. But you slowed that down when the returns were ground down. You actually exited some of those assets. So How do you think about what you did then, and where are we right now with the European offshore wind cycle? And can you maybe just frame where we are with that offshore side against some of those other low-carbon platforms that you just highlighted?
spk06: Yeah, that's a very good observation. These things go in cycles, and I think we were in very high development mode on the offshore side. I think what you're seeing is now a switchover to the point where onshore wind and solar in North America is really perking up, if you want to put it that way, just based on a lot of demand for PPE. PPAs, corporate-type PPAs that we're pursuing. And, yeah, so the good news here is we're well-situated with our own solar cell power business as well as opportunities that we see to utilize our land positions.
spk08: For example, you saw that happen in Ingleside where we're putting in the solar cell power. More thoughts on it. Thanks, Al. I think you hit it, and thanks, Rob. I think the big message is, given we recognize there's a lot of capital flows and it can get pretty frothy. So, you know, you're right about offshore. We're really fortunate to have a great pipeline, good construction projects,
spk06: great contracts, leases, and we'll build off that, but we're going to be disciplined. Discipline there is, you know, development using our advantages, which is both.
spk08: And as we talked about at Enbridge today, so we're going to focus on the development there. There's lots of demand. I think we're at 17 gigawatts of onshore PPAs, corporate PPAs signed. Got to maintain the commercial framework. That's great. Appreciate the color.
spk00: Okay. Thanks, Robert.
spk02: Thank you. We have reached our time limit and are not able to take any further questions at this time. I will turn the call over to Jonathan Morgan for final remarks.
spk06: Sorry, operator, I think we'd like to take a few more calls, so let's continue.
spk03: Operator, let's continue the call, please.
spk02: I'm sorry, Linda Ezegellis from TD Securities.
spk10: The outlook for extensions and expansions of your main model given that you are going into apportionment in August, but there is a competing pipeline potentially coming into service, which might provide some egress relief for Western Canada.
spk07: Can you comment on what factors need to be in place to proceed with any sort of initiatives and provide a colour of what the timing is
spk06: Okay, Colin? Yeah, thanks, Al. Thanks, Linda. It's a timely question. I think the conditions, it's a good way to put it. The first is a commercial foundation on the mainline itself to provide that clarity and commercial framework to take care of return of capital and return on capital. I think your lay of the land is right.
spk08: We do expect production over time to fill the main line back up. That's dependent on a variety of factors, including policy and producer capital allocation. but we do expect that to occur.
spk06: And, you know, the basin has been egress constrained for a couple of decades here. So I think even beyond the need for physical capacity and the, moreover, the associated net bag that goes with every barrel, not just the incremental barrel, I think industry will also be looking to Enbridge for optionality and to get to the best market. So I'd say also we're keeping those expansions of the mainline and downstream market access pipes warm. We've mobilized some early long lead supply chain things and permitting parameters to enable that for when it's when it's triggered. So I think there is a continuing joint alignment to make that happen. Yeah, and Linda, you know, I think Colin's covered it really well. You know, bigger picture, if you look at the basin in Western Canada and what's been done on emissions and lowering of break-evens, and really sort of setting themselves up for the long term. This good opportunity, at least in our view here, obviously it's up to the customers to move volumes up, especially on incremental basis going forward. We know the Permian is really well set up, and that's all driven by exports, particularly for light barrels and products exports.
spk08: So we're setting up well here for an export-driven environment,
spk06: especially given what's happened with what we call the inflection point around energy security. So it's setting up well, and it sort of flows into what we'd like to see with respect to the commercial arrangement that we're just negotiating here. There's some level of urgency to make sure that we're providing the service that our customers are trying to do with the mainline arrangements.
spk10: Thank you. And just as a quick follow-up, you know, your company has been one of the earlier pipeline companies to pivot to an export orientation. But my sense is your commitment to extension upstream into gathering and processing has a few times.
spk07: I'm just wondering about your updated appetite for providing upstream into gathering and processing. I guess more on the natural gas side, are there situations where from... I'll go and then we'll get Cynthia's comment too.
spk06: The short answer is we've kind of been there, done that.
spk08: I mean, there's always, I think, some level of strategic...
spk06: rationale you could, you know, use to, say, underpin projects is, you know, it's probably a supply risk profile that we're not excited about.
spk08: I think that's, you know, that's good sense. Don't get me wrong for a lot of companies, but the business model we have really doesn't call for a lot of G&P type in the portfolio.
spk06: Do you want to say anything else on that, Cynthia?
spk09: Yeah, I can just add that we are focused on the transportation side, so that will continue to be our primary focus.
spk02: Thank you.
spk05: Okay, thanks, Linda.
spk02: Robert Cotelier from CIBC Capital Markets is on line with a question.
spk03: Yeah, I just have a follow-up question on wood fiber on the risk-return profile. I want to make sure I understand it here. Just with respect to construction risk, exposure to cost overruns on the project, and if you do need to make an additional contribution, is there a mechanism in place where you can earn a return of a non-capital for that?
spk08: on the capital cost is in the first place.
spk06: So at the project level, you've got a fully permitted FID project here. The design and cost estimates are pretty well advanced, and you're dealing with a brownfield site. And, of course, as we mentioned earlier, it'll be a little unsung. EPFC contract. So that actually gets triggered in April when we've got, let's call it, a substantial amount of engineering design to lock down what we'll call the final estimate. Don't forget here, we've got a modular design and floating storage, so that helps mitigate risk as well. And of course, pretty much existing pipeline route through the Florida. The structure of this thing, preferred equity structure, so we're not really susceptible to call it LNG merchant exposure here.
spk08: Now, cost estimate.
spk06: sometime in Q2, let's say next year, there's always execution risk. But remember, by that time, you've pretty much locked everything down to what would be our satisfaction as part of the project execution here with the EPFC contract. So we think that's low, but ultimately I suppose there could be...
spk08: changes to costs after that point in time.
spk03: Right, and then how would the investment respond, and would you get an additional return then on any additional funds as I've contemplated in the Q2?
spk06: So from there, you know, the return will float, but based on the sensitivities we've done, we don't see a significant after that second quarter when all the costs are in.
spk05: Okay, thank you.
spk07: This is online with a question.
spk01: You have a number of irons in the fire on the low-carbon side, but I want to specifically focus on CCS and just how big are you competing for in both Canada and the U.S. on the CCS front?
spk06: Well, boy, that's a broad question, Andrew. It's a good one.
spk08: I'm not sure we have a great answer in terms of the alternate size.
spk06: I do know that we're pretty well positioned.
spk08: And basically, it's basically where we are. Number one, we're perfect there.
spk06: As we mentioned earlier, in terms of export capabilities in the Gulf Coast, that's another area of opportunity. ...position in eastern Canada in the Sarnia area. So, you know, I think at this point we're sort of developing options and opportunities there. But, you know, we haven't put a figure on that potential. I think the main thing is we've got... areas, and we'll just have to see what... Okay, I appreciate that.
spk01: I'm going to take it from the really broad to maybe a little bit more narrow, but not too narrow. Just on the tax support side, emerging credits into the future, whether it be in the Canadian regime or the most recent Inflation Reduction Act proposal earlier in this week, How do you think about the tax credit environment and what do you really need to see the industry be spurred along?
spk06: On both sides of the border, we're much happier with what's happened, certainly in Canada with the investment tax credit. I think that's going to get these projects moving. And as you know, we need to see action on carbon capture. Remember, though, in Canada, it's also about ensuring that there's a price of carbon that producers can have clarity on. So we'll have to make sure, they'll have to make sure that they're getting the right revenue profile related to carbon. In the U.S., certainly yesterday announced, you know, moving that 45Q number up to sort of that 85, five dollar mark and including both blue and green hydrogen as part of that i think that's very positive so the bottom line is in order to achieve uh the emissions targets that we have you know both system captures so i think that's now being recognized and and this will help get investments off the ground for sure
spk02: Patrick Kenney from National Bank is online with a question.
spk05: Yeah, good morning. Lots of discussion on inflation already. Potential T-South expansion, given the $2.5 billion price tag has been out there for a while.
spk08: On the construction front here since Enbridge Day.
spk05: And I appreciate there's now a plus sign added to the $2.5 billion estimate. perhaps on your T-South expansion or even the T-North expansion, won't spiral out of control like we've seen from, you know, some of the other larger scale developments.
spk06: Okay, we're going to give that to Cynthia.
spk09: Yeah, thanks, Patrick. I think Al kind of touched on this earlier in his comments. We do have, obviously, some pretty extensive. capital projects of this size. And you heard Fern go through all of the things that we do when we get into project development to lock in our costs as soon as we can. I would say the other thing just to note, though, on the T-North and T-South system in particular, regulatory regimes. So, you know, we're going to do everything that is prudent to control costs, but at the end of the day, our exposure is pretty limited when it comes to our total capital spend.
spk06: I think that's right, Patrick. The only thing I'll add on that is, you know, going back to what it is about pipe in the ground.
spk08: So to the extent we can add compression
spk06: or do some minor looping, and you're doing that in your right-of-way, and where you have existing relationships with Indigenous groups, that's part of the shape with all that Cynthia said, and then the fact that we're in the existing right-of-way helps.
spk05: Great. I appreciate that, Collar. And then just as a follow-up on the CCS hub, alongside your customers there on the the capture infrastructure part of the value chain.
spk08: And I can't, you know, they select Savant in your interest level to invest upstream on CCUS. Yeah. Yes. With a comma. And then like I've been saying all morning, subject to the right commercial model. So full value chain does interest. strategically.
spk06: Our focus on the pipe and storage at this point, but we remain open to the upstream element you talked about subject to the right conditions. You know, it's a little bit like what we said before. It's still infrastructure, so that we've indicated this is all about costs. And so to the extent we can bring our expertise, to the extent we can bring let's call it a utility-like model to infrastructure, including, I guess, capture.
spk08: It could make sense, but that will have to depend on how our partners feel about it too. Got it. Thanks, guys. Much appreciated.
spk05: Thanks, Matt.
spk02: We have reached our time limit. We are unable to take any further questions at this time. I will now turn the call over to Jonathan Morgan for final remarks.
spk06: Great. Thank you. And we appreciate your ongoing interest in Enbridge. As always, our investor relations team is available following the call for any additional questions you may have. And once again, thank you and have a great day.
spk02: Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Have a good weekend.
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