Enbridge Inc

Welcome to the Enbridge Inc third quarter 2022 financial results conference call. My name is Brent 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 one on your touch tone phone. Please note that this conference is being recorded. I will now turn the call over to Rebecca Morley, Director, Investor Relations. Rebecca, you may begin.

Thank you. Good morning, and welcome to the Enbridge Inc. Third Quarter 2022 Earnings Call. My name is Rebecca Morley, and I recently joined Enbridge as a Director on the Investor Relations team. Joining me this morning are Al Monaco, President and CEO, Vern Yu, Chief Financial Officer, and the heads of each of our business units. Collin Grunding, Liquid Pipelines, Cynthia Hansen, Gas Transmission and Midstream, Michelle Herodant, Gas Distribution and Storage, and Matthew Ackman, Renewable Power and New Energy Technologies. As per usual, this call is being webcast, and I encourage those listening on the phone to follow along 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 will remind you that we'll be referring to forward-looking information in today's presentation and in the Q&A. By its nature, this information contains forecasts, assumptions, and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed fully in our public disclosure filings. We'll also be referring to non-GAAP measures as summarized below. With that, I'll turn it over to Al Monaco.

Okay. Thanks, Rebecca. Good morning, everyone. I'll start with the third quarter highlights in our business update. Vern will then review the results and the outlook. capital allocation, and the usual ESG update. Before that, a couple of comments on the current energy and economic landscape. That landscape is characterized by volatility we haven't seen for a long time, high inflation and tightening monetary policy, energy supply shortages, and a looming recession. Those challenges appear set to continue through next year. Energy-wise, the situation in Europe has brought security and reliability back into focus, while ensuring we're on track to reduce emissions. The investment required to meet energy demand for both conventional and low-carbon supply is only half of what we need, which has led to sustained high prices. For our part, we've proved through COVID and many times before, our business model is built to weather storms like this. Our premier natural gas, liquids, and renewables businesses are well diversified, and we deliver energy to the best markets at very low cost. Our commercial underpinnings give us resiliency and predictability of cash flows through all market cycles, and our balance sheet is strong. And you've seen again this quarter, we have an increasing inventory of quality organic investments that will drive growth well into the future. So Enbridge is well positioned, not just to withstand volatility, but to grow and thrive in any environment. And Vern is going to expand on this a little bit later. So on to the highlights. In a nutshell, excellent progress on our priorities this quarter. Safety and operations-wise, we performed well, and utilization was high across all systems. That translated to strong Q3 numbers, and we're on track to achieve our full-year guidance. At this point, we expect EBITDA to come in above the midpoint of our guidance range and DCF per share above the middle. On project execution, we have roughly $3.8 billion slated for in-service this year, which drives cash flow in 2023 and beyond. More good news this quarter on organic growth, talking M&A and capital recycling. We secured another $3.8 billion of projects, the lion's share being our T-South expansion in BC. I'll come back to this later. That brings newly secured growth this year to $8 billion, which illustrates the embedded opportunities we've been talking about within our four franchises. We'll do smaller scale M&A where it makes sense. We executed two excellent deals this quarter, totaling half a billion. Lastly, we continue to surface value by monetizing assets at good valuations, over $1.6 billion this quarter. That adds to our financial flexibility, and in the case of the P66 joint venture, we've reduced our G&P exposure, which is now de minimis. To put the business update in context, this slide recaps our two-pronged strategy and the optionality we have in our businesses. Prong one is to continue to invest in conventional businesses. The fundamentals of our core franchises are stronger than ever, especially in the context of energy security, reliability, and affordability concerns. To ensure we're aligned with our emissions reduction goals, we're modernizing our assets, self-powering with renewables, and ensuring new investments have a plan to hit our targets. At the same time, we're ramping up low-carbon investments. As you can see, we're focused on proven low-carbon strategies that leverage our existing assets. Our conventional businesses are each progressing those opportunities on commercial terms that fit our low-risk model. Any way you look at things, low-carbon energy will mean two things to happen, transportation and storage. We have a lot of that. Having pipe in the ground will be valuable in any transition scenario we can see. A great example is CCS, which is a must in meeting our emissions goals, and that presents an excellent growth opportunity for us, along with hydrogen, RNG, and of course, wind and solar. On to the business update. In gas transmission, you've got roughly 10 billion of projects in execution, including our annual modernization program, and recently secured projects. Gulfstream Phase 6 is now in service. We reached a rate settlement on our BC system and a good TETCO customer settlement. We're seeing strong throughput throughout our systems, and we recently recontracted capacity on the southeast supply header at very good rates. In gas distribution, we've got $3.5 billion underway. And we'll have five of the 27 new community expansions done by year-end. Earlier this week, we filed our utility rebasing application that will establish rates through 2020. You can think of this as carrying on under incentive rates. And we sanctioned two new RNG projects in Ontario. Renewables is performing well. We have $2.9 billion in execution, including 10 solar cell power projects. In liquids, mainline volumes recovered nicely in the quarter. We expect good utilization through year-end and 23. On our Wabamon CCS project, we signed our evaluation agreement with the Alberta government, and we expect to drill two wells in 23 to prove out the geology there. And on the Corpus Christi Carbon Hub, we're in discussions with our customers. So let's get into the exciting growth projects in our gas business. First, here's how we see the fundamentals and our opportunity set. Not much doubt that global gas demand will grow given its abundance, security benefits, and lower emissions. We see gas continue to be a critical part of the energy supply mix well into the future. North America's gas advantage will lead to growth in global market share with LNG exports tripling to over 30 BCS by 2040. We're really pleased with how we're situated to capitalize on these fundamentals, so here's what that looks like. Now, there's a lot in this picture here, but it illustrates well the reach of our systems and our growing LNG footprint. Domestically, we see the best markets totaling around 170 million people. We see growing residential, commercial, and industrial load, and gas will be critical to replacing 84 gigawatts of coal. And we're in discussions now with our customers in the U.S. Northeast to develop solutions that address price and reliability concerns, which are only getting worse. And I think the price pressures and reliability issues are really starting to sink in. Another big prize is LNG. We serve four plants on the Gulf Coast, soon to be five, and we make up 20% of U.S. LNG exports through our pipes. We've also secured precedent agreements with two more LNG facilities that are pending FID. That's Rio Grande and Texas LNG, and there could be more after that. If those do go ahead, we could see our LNG export market share rise to 30% or above. Related to that in the Gulf, we're also very focused on upstream expansion opportunities to connect growing Haynesville supply to LNG via Texas Eastern. So think of that as an upstream strategy on our pipes. And of course, we've just landed an investment in wood fiber LNG on the west coast of Canada. In BC, last quarter, we sanctioned a $1.2 billion extension of our TNOR system, that's Aspen Point, and launched a binding open season on T-South. So let me update you on that. The results of the open season were strong and carry long-term volume commitments So we've now sanctioned and are proceeding with a 300 million cubic feet a day expansion, which is comprised of looping and compression. This effectively replaces capacity currently moving volume to the Pacific Northwest, which will be utilized to feed wood fiber energy when it goes into service. Pacific Northwest demand is also expected to grow, so this expansion ensures reliability in the region. Our preliminary capital estimate is up to $3.6 billion. We'll finalize the cost once we've completed environmental and routing work. Importantly, we'll be engaging and listening to stakeholders and communities and seeking their expertise and look to form economic relationships there. The TESOL commercial structure is cost of service and we expect to file a regulatory application in 2024. Continuing with BC, today we also announced a binding open season for a further expansion on TNorth. Given the outlook for Western Canada's supply, we're seeing strong customer interest for more egress for LNG exports and downstream access. So in addition to Aspen Point then, there's now an opportunity to expand TNorth by another 500 million cubic feet a day. This also will include looping and compression at a cost of roughly $1.9 billion with an expected 2028 ISD. Again, this is cost of service model, which generates stable cash flows and good return. The open season will run to January 10th, so we'll see what that reveals and go from there. Now, these BC system expansions that I just went through represent about $7 billion of high-quality organic investment that are right down the middle of the Enbridge fairway. And they really illustrate the power of our strategically positioned system for low-cost egress to growing markets. Moving now to liquids, starting with mainline coal. We're continuing to ship our discussions on a new commercial agreement that works for our customers and Enbridge, so that's positive. Given the importance of the deal to industry and us, it makes sense to take a little bit more time to make a final call on which path we'll proceed on. Is CTS like incentive tolling deal or cost of service? And as a reminder, we've been on incentive tolling now for 25 years and it's worked out well for industry and ourselves. Now, if we can't land on a reasonable deal, then of course we'll proceed with the cost of service application, which is ready to go and updated for the current inflationary environment. From a financial and commercial perspective, either of the two options are acceptable to us, as we said before. In fact, once we land on a commercial framework, we've got several cost-effective expansions that can give customers added egress. We're also accelerating our U.S. Gulf Coast strategy, which builds on last year's anchor investment of the Ingleside Export Facility in Corpus Christi. Good news here, we're seeing an uptick in export volumes out of Ingleside now, with 10 record loading days in October. We've also now sanctioned a 2 million barrel storage expansion at Ingleside, which allows us to track more export barrels to the terminal, and it's shovel-ready. We've increased our ownership in two key Permian pipelines serving the region and Ingleside, being Gray Oak and Cactus II. The increase in GRAIL came from our new P-66 joint venture, which I'll come back to, and we acquired another 10% of Cactus II, so that brings us to 30% with planes. Both deals bolster our U.S. Gulf Coast position and are financially accrued. Now to renewables. Just like natural gas, it's clear that renewables will be a bigger part of the global energy supply mix. Our European offshore wind business is growing nicely, and we've got strong commercial and execution teams in place and great partners. In fact, we've got the St. Nazaire project coming on later this month with First Power. But there's another big opportunity to accelerate our North American business, driven by a host of factors, including renewables targets and policy actions we've seen lately. Our North American strategy has evolved quite a bit on a couple of fronts. from primarily acquiring late-stage projects in years past to now leveraging our own assets, land positions, and load. And second, capitalizing on our development, construction, and operating experience built over the last 20 years in renewables. The acquisition of tri-global energy, though, brings our capabilities and strategy to yet another level. The tri-global team fills in what I call the front end of our renewables value chain, and gives us extensive origination capability, being resource assessment, site prospecting, land and environment, and grid interconnection. TGE brings a great development track record in a variety of markets, having monetized 6 gigawatts for 24 projects. The TGE front end is highly synergistic with our commercial, EPC, and operating capabilities. What we really like is that TGE allows us to quickly exploit our own lands and existing development opportunities. The deal also comes with a contracted revenue stream on monetized projects, so good early cash flows. And the big prize is three gigawatts in late stage development projects slated for in-service between 2024 and 28. And many of those overlap with our existing operations. Permitting and environmental reviews on those is advanced and in the interconnection queue, which is a big advantage given the time it takes to get through grid connection in today's market. Those development projects alone could drive over $3 billion of investment. That triples our North American near-term development portfolio, and there's even a larger early-stage backlog. So the tri-global deal drives outside value for us. It not only accelerates growth in our renewables business, but it moves the overall Enbridge growth needle. To put that in perspective, this slide shows the size and diversity of our renewables business today. We've got 47 facilities in operation or construction across four countries in North America and Europe. We've built a solid business here, generating close to 6 gigawatts of gross capacity. We have fully resourced development teams in North America and Europe. With a TGE acquisition, our global development portfolio has more than doubled now to roughly 7 gigawatts, with even more coming behind that. Before I turn it over to Vern, I'll speak to how we're keeping our eye on surfacing value from our assets and increasing financial flexibility. Over the last five years, we've recycled $11 billion of capital at good valuations while further strengthening our low-risk models. Our P66 joint venture is a great example, providing a trifecta of benefits. One, we reduced our exposure to DCP. This is a well-managed GMP business, but not fully aligned with our business model. Two, we increased our ownership in and became operator of GRAIL, which is a key element of our Permian egress and U.S. Gulf Coast export strategies. And three, the deal generated $600 million in equity to redeploy within our capital allocation framework. An equally important transaction is our regional oil sands deal with AII. This is a real gem as it establishes a solid economic partnership with 23 indigenous groups in Alberta. You can see the dots on the map here show the breadth of participation of Indigenous communities along the entire rights-of-way. This corridor is highly strategic to our customers and Enbridge, so this deal demonstrates the importance we place on alignment with First Nations in Métis. Part of that is gaining partners with in-depth knowledge of the land, water, and environment, which we place a high value on. The deal also releases over a billion in equity at attractive valuation, again, to redeploy to other opportunities. In the bigger picture, we think this is an ideal model for how energy infrastructure will be developed and owned in the future, a model that fully aligns safety, environmental, and economic interests with indigenous groups, and one that we hope will be applied across our asset base on both sides of the border. And now we'll return. Thanks, Al. Good morning, everyone. Before we review this quarter's results, I'd like to follow up on Al's comments regarding the uniquely challenging macroeconomic conditions we are facing. The financial markets have been very volatile. Inflation is driving interest rates up and weakening the Canadian dollar. In addition, society's climate change ambitions and the war in Ukraine are driving up energy prices, creating challenges for households globally. Enbridge is well positioned to navigate through these risks, and I'll cover that off now. Typically with the recession, you see demand destruction, but we are continuing to see strong energy fundamentals with tight supply and demand dynamics. Supply-wise, we expect further tightening given the recent OPEC Plus production cuts, the ban on Russian oil, and a wind down of SPR releases. Demand wise, Enbridge has connected the best demand for markets for both crude oil and natural gas. In addition, we have strong commercial underpinnings that drive predictable cash flow and global energy security concerns are leading to more investment opportunities for us. Inflation has resulted in the most significant monetary policy tightening that we've seen in the last 40 years. but we're still in pretty good shape here. We have built-in inflation protection for about 80% of our EBITDA, with toll escalators or the ability to capture higher cost increases through rate filings. On interest rates, we have about 90% of our debt in fixed rates. Rising rates are a headwind to our floating rate debt program. We're actively managing this risk with our hedging program. The energy transition is creating a lot of exciting growth opportunities, and the recently announced IRA is providing a real catalyst for low carbon investments. Finally, we're well positioned to leverage our existing infrastructure to transport more North American energy to global markets. Let's go review the quarter. Our third quarter results were up notably over 2021. with strong operational performance across all of our businesses. We're now seeing the full benefit of the $14 billion of capital that we brought into service last year. In liquids, the mainline moved over 2.9 million barrels today. This is in line with our expectations following the completion of customer remains in Q2. Gas transmission utilization was high, and we just continue to see growth driven from our 2021 capital investments, such as the $1.4 billion expansion of our BC pipeline system. In addition, we've begun recognizing higher rates on Texas Eastern with our unopposed settlement that we reached with our shippers this quarter. The utility continues to perform as expected, with summer gas used lower than normal due to seasonality. Strong wind resources and high energy prices in Europe, where we have a small amount of spot exposure, have made a positive contribution to our renewables business. Energy services remain below expectations due to narrow basis differentials and price backwardation. Finally, financing costs are up as a result of rising interest rates. Benchmark rates have risen almost 4% at the beginning of this year. Q3 was a very strong quarter, and the business continues to operate well. Let's move to our full-year financial outlook. As we head into the end of the year, we expect to come in at the top half of our EBITDA guidance range and just above the midpoint of the DCF per share guidance. Our systems have been highly utilized in 2022, and we expect that to continue for the rest of the year. Mainline volumes strengthened in Q3, and we are on track to meet our 2022 volume outlook of 2.95 million barrels per day. Timing of the maintenance capital should provide about a $100 million tailwind this year, and we expect that work to slide into next year. The utility is tracking the guidance and the renewable business is tracking to slightly above guidance on good wind resource and higher European power pressures. From a financial perspective, the US dollar strengthening has provided a slight tailwind. In contrast, we expect energy services to remain a headwind for the balance of the year. Additionally, we're seeing some pressure from higher power costs driven by both higher throughputs and higher power prices. We'll provide our 2023 guidance later this month, but I'll provide a brief overview on how that's shaping up now. We expect the business to remain strong in 2023, and the capital we've deployed this year will drive EBITDA growth. We'll benefit from customer growth and higher rates of utilities. Our capital program within gas transmission at EBITDA will have the full-year benefit from the recent Texas Eastern rate settlement. Energy services should improve in 2023, as we'll see a number of our legacy contracts expire. A stronger U.S. dollar is providing an opportunity for us to layer on additional hedges for 2023 and beyond at very attractive rates. And as we've already mentioned, we'll continue to see higher power prices next year. Interest rate wise, about 10% of our debt next year is subject to floating rates. Given today's inflationary environment, it makes sense for us to be at the lower end of our 10 to 25% floating rate debt range. And we're actively managing our residual floating rate exposure. Interest rates have been a headwind this year, and we expect that to continue next year. We're also expecting some pressure in cash taxes from legislative changes in Canada and the US. At this point, we're waiting on clarity on certain aspects of the alternative minimum tax in the US, so we don't want to go into a great deal of detail on that now. Our initial assessment is that it's purely a timing issue, as we expect to pay less cash taxes in the future as a result of this. And overall, we expect this to be NPV neutral over the decade. Overall, we believe we're in a strong position to navigate a challenging macroeconomic environment and deliver continued growth to our shareholders. Let's move over to the Secured Capital Program. Today, our Secured Capital Program sits at just over $17 billion. We have almost $4 billion of capital entering service this year, which will drive cash flow growth in 2023 and beyond. As Al mentioned in his remarks, we've grown our backlog by adding a number of exciting new projects to the secured bucket this quarter. These new capital requirements fit well within our self-funded model where we live within our means. Going forward, under our self-funded model, We still have ample investment capacity available for further organic growth, tuck-in M&A, debt repayment, or even share buybacks. Now let me remind you how we approach capital allocation. Our priorities here remain unchanged. A strong balance sheet is still job-like. We have continued to recycle capital into new opportunities to the tune of $11 billion since 2018, and $2.8 billion since the middle of last year. We continue to return capital to shareholders in the form of the dividend, where we paid $7 billion this year, and we've used $150 million of our approved $1.5 billion in our share buyback program. We have sanctioned $8 billion in new organic growth capital this year, and our secure capital program now sits at $17 billion. All of these opportunities have met our low-risk business model, exceeded our risk-adjusted hurdle rates, have a strong strategic fit, and align with our mission reduction goals. As always, we'll continue to evaluate opportunities to selectively recycle capital and further bolster our financial flexibilities. So I'm now going to finish up with our quarterly ESG update. Our newly created regional oil sands partnership is a win-win transaction for both us and the 23 Indigenous communities along that right of way. Our relationships with the Indigenous communities along all of our right of ways is something that I've always been very proud of. And we plan to continue to be a leader in Indigenous engagement Indigenous economic participation and reconciliation. We released our Indigenous Reconciliation Action Plan in September, which articulates and tracks our progress against our commitments. The plan built on our success we've had working with communities through the construction of Line 3 and the East West High Line, which entered into service earlier this year. We're also very excited about the Guam and Carbon Hub, and we see further opportunities to develop our economic partnership across our entire asset footprint. Our commitment to the communities where we live and where we work will always be a huge part of our success. With that, I'll turn it back to Alan. Okay, thanks Vern. As you know, I'll be retiring as CEO at the end of the year, and Greg Ebel will take over leadership on Jan. Just for background, I informed the board at the beginning of this year that I may wish to retire from Enbridge, which kicked off a nine-month-long process to identify the next CEO. Since the announcement, Greg and I and the management team have implemented a transition plan to ensure a smooth changeover and maintain momentum and consistency throughout And that's well underway. As usual, we'll deliver 2023 guidance at the end of November and speak to our dividend so the timing there is normal. And then we'll follow that with Enbridge Day on March 1 and March 2, so after the Q4 results, where Greg and the team will lay out management's priorities and outlook. Please save the dates and join in either Toronto or New York. Over my time at Enbridge, the last 11 as CEO, I'm proud of what our team has accomplished, but I believe the best is yet to come. I've been honored to lead Enbridge and I'm confident that Greg and the management team will continue to grow the business well into the future. Before we open it to questions, let me close like we always do with a few takeaways. The business is well positioned and our low risk model provides resilience in all market cycles. This downturn is a great example of that, as we continue to deliver strong results and execute our strategies. The last several months have seen significant volatility in global energy markets. I think it's really proven that our two-pronged strategy to focus on both conventional and low-carbon investments is the right one. As very noted, our capital allocation priorities are unchanged and will continue to be disciplined, putting capital to work. With that, I thank you for continuing support of our management team, Enbridge, and especially our highly skilled professional and very dedicated workforce. We'll now open the call to questions, and the team is here with me to respond.