Enbridge Inc

Good morning and welcome to the Enbridge fourth quarter and year-end 2023 financial results conference call. My name is Rebecca Morley and I'm the Vice President of the Investor Relations Team. Joining me this morning are Greg Ebel, President and CEO, Pat Murray, Executive Vice President and Chief Financial Officer, and the heads of each of our business units, Colin Grending, Liquids Pipelines, Cynthia Hansen, Gas Transmission and Midstream, Michelle Herrodance, Gas Distribution and Storage, and Matthew Ackman, Renewable Power. 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Please note that this conference call is being recorded. As per usual, this call is being 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 will be limiting the questions to one plus a single follow-up if necessary. We'll be prioritizing questions from the investment community, so if you're 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 follow-up questions. On to slide two, where I'll remind you that we'll be referring to forward-looking information on today's presentation and Q&A. By its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filing. will also be referring to non-GAAP measures summarized below. And with that, I'll turn it over to Greg Ebel.

Well, thanks very much, Rebecca, and good morning, everyone. Thanks for joining us again. I'm pleased to be here today to recap a record fourth quarter and 2023 results. Throughout the year, the Enbridge team worked hard to execute on our strategic priorities and ensure Enbridge remains the first choice for energy delivery in North America and beyond. These efforts further enhanced our long-term value proposition, which we'll talk about today, along with providing you an update on our businesses. Pat will then walk you through our financial performance, our capital allocation priorities, and our outlook. And as always, the Enbridge team will be available to answer any questions you may have at the end of the presentation. You know, folks, I'm really proud of the Enbridge team for all its achievements in 2023. We met our financial guidance for the 18th straight year and once again exceeded the midpoint for both EBITDA and DCF per share, demonstrating the low-risk, predictable nature of our business. Sustainably returning capital to shareholders remains a key priority, and our investors are benefiting from that as we increased our dividend by 3.1% this year, marking our 29th consecutive annual increase. Our debt to EBITDA, including the pre-funding, was 4.1 times, leaving ample balance sheet room in preparation for the closing of the U.S. gas utility acquisitions in 2024. In addition to the outstanding financial performance, we had an equally impressive year operationally. Enbridge employees matched our best-ever company safety performance. We had high utilization rates across our systems and set record throughputs on the mainline, Grey Oak, and at our Ingleside export facility. We also concluded open seasons on Flanagan South, Southern Lights, and Algonquin Gas Pipeline, and are about to initiate an open season for the expanded capacity on Grey Oak Pipeline, which we expect to be very positively received. On the execution front, we filed with unanimous customer approval the mainline tolling agreement with the Canadian Energy Regulator and expect approval in the coming months. The settlement we filed is consistent with the terms we outlined for you in May and is a win-win-win for the customers, for industry, and for Enbridge, and I'll touch on that more later in the presentation. The sale of our interest in Alliance and Oxable continues our track record of recycling capital at the attractive multiples and put us in a position where we have largely completed the funding for our utility acquisitions. I'm extremely proud of the organic growth projects we announced in 2023 securing an additional 10 billion to our growth backlog, which will help to drive low risk returns to shareholders for years to come. We announced the acquisition of three gas utilities, which will create the largest integrated gas utility in North America, as well as several accretive tuck-in acquisitions in other business units. These transactions will enhance our service offering to customers and blend and extend our growth for years to come. Lastly, we placed over $2 billion of growth capital into service, primarily through our GTM modernization and utility growth capital programs. Of course, sustainability continues to be a key component of our license to operate. Last May, we published our 22nd annual sustainability report, which highlights our industry-leading performance on environmental, social and governance issues, as well as progress on our Indigenous Reconciliation Action Plan. Today, I'm pleased to report that we've already met 10 of those commitments with continued efforts on the remaining elements. When it comes to emission reductions, our approach continues to be leading edge, not bleeding edge, and our recent RNG investments, as well as the Ingleside Blue Ammonia Project we're partnering with Yaron, are strategically aligned with this philosophy. Before I move on to the business, I want to take a moment to highlight our record financial performance. 2023 EBITDA is up 6% from last year, primarily due to the strong performance from our liquids business unit. DCF per share is up 1%, even after absorbing the dilution impact from the upfront $4.6 billion equity issuance in September to finance the utility acquisitions. And our balance sheet is well positioned ahead of the closings of the gas utilities at 4.1 times debt to EBITDA. Altogether, another excellent year of financial performance ahead of the midpoint of our guidance and in line with our multi-year outlook. Pat will walk you through the main drivers of the strong fourth quarter shortly. As we reflect on 2023, I want to remind everyone why our business is a first choice investment opportunity. Our assets generate strong, reliable and growing cash flows that are underpinned by low risk commercial frameworks and a stable balance sheet. We consistently and sustainably return capital to shareholders and late last year announced our 29th consecutive annual dividend increase. 2023 was a hallmark year for growth at Enbridge with approximately $23 billion of announced acquisitions and $10 billion of new projects adding both greater visibility and duration to our growth outlook and consistent with our vision we continue to develop Enbridge's lower carbon strategy benefiting the enterprise and supporting an appropriately paced global energy transition Enbridge is operating from a position of strength and its predictable cash flow growth low business risk and strong total return profile makes it a first choice investment opportunity so let's take a minute and revisit the low risk nature of Enbridge's businesses. As I mentioned earlier, 2023 marked the 18th consecutive year of meeting our financial guidance. And as indicated up front, we achieved this without needing to adjust the bought deal equity issuance from our financial results. 2023 showcased the predictability of our business amid continued geopolitical instability, persistent inflation, and rising interest rates. This is as a result of the 98% of Enbridge's earnings being generated from either cost of service or take or pay contract assets. Our debt portfolio is less than 10% exposed to floating rate volatility. Our customer base is over 95% investment grade and 80% of our EBITDA is earned from assets with protection against inflation. We're rated BBB plus by all rating agencies and remain committed to our long held leverage target of four and a half times to five times. Our business risk is sector leading amongst our midstream peers, and the gas utilities acquisition will only enhance that. Now, let's spend a few minutes on the key accomplishments of each of the business units, and we'll start with liquids. Liquids pipeline really delivered record utilization once again in 2023. The mainline transported over 3.2 million barrels per day during the fourth quarter, and averaged 3.1 million barrels per day for the full year. These numbers are a new all-time high and result from our team's continuous efforts to optimize our pipeline network. Growing production out of the Permian Basin and increased export demand continues to draw record crude oil volumes through our integrated gray oak pipeline and of course Ingleside Export Terminal. We also concluded an oversubscribed binding open season on Southern Lights, which will lock up 165,000 barrels per day of existing capacity that was coming up for renewal in 2025. We filed our mainline tolling settlement with the Canadian Energy Regulator in December and expect an expedited review process. Our customers will receive the competitive and responsive service they're accustomed to. Enbridge will earn attractive risk-adjusted returns and the Main Line will continue to feed North American and global markets with a long-term source of safe, secure, and affordable energy. When approved, the Main Line will continue to earn an attractive risk-adjusted return on equity between 11% and 14.5%. The agreement also includes customer support for Line 5 capital expenditures, ensuring that this critical piece of infrastructure remains operational and Enbridge can continue to deliver reliable and affordable energy to Michigan, Ohio, and Eastern Canada. The settlement was unanimously approved by the representative shipper group, and we're grateful for the support from our customers. Downstream of the main line, we successfully concluded the 110,000 barrel per day open season on Flanagan South pipeline. This secures full path transportation from Western Canada to the U.S. Gulf Coast, ensuring the mainline remains well utilized. Earlier in 2023, we sanctioned the initial phase of the Enbridge-Houston oil terminal. This greenfield project, located at the terminus of the Seaway Pipeline, will provide shippers with 2.7 million barrels of premier storage that is accessible by the Houston refineries. In the Permian region, we're still planning to initiate an open season for the Grey Oak Pipeline in the coming months, that will offer full path export service from the Permian Basin all the way to our Ingleside docks. And on the low carbon front, we're progressing the feed engineering for a blue ammonia production facility at Ingleside. This potential investment highlights the value of existing and diversified infrastructure to the energy transition. The proposed facility will source feed gas from our Texas Eastern gas pipeline, and the associated emissions will be sequestered in a nearby carbon storage facility through our partnership with Oxy, all of which further underlines the value enhancement opportunities our integrated liquids, natural gas, and lower carbon platform offers customers and investors. Finally, we continue to advance the technical evaluation work for the planned carbon capture utilization and storage hub in the Wapamin area. So let's move on to gas transmission. Starting in Canada, we closed the acquisition of Aitkin Creek Gas Storage, a 77 BCF working capacity facility in British Columbia, which is uniquely positioned to support local demand and upcoming Canadian LNG exports. And in December, we sold our interest in Alliance and Oxable for proceeds of $3.1 billion, continuing our track record of surfacing value for shareholders through ongoing capital recycling. This transaction reduces our commodity price exposure, and proceeds help to finance the upcoming utility acquisitions. We've also refined our engineering estimates for the 300 million cubic feet per day expansion of the T-South gas pipeline in British Columbia. The total project is estimated to cost $4 billion, up from $3.6 billion originally. The increased costs are based on recent Class IV estimates, which includes extensive engineering analysis, community consultation, and also includes lessons learned from recently completed projects in the region. Of course, before proceeding, we will ensure that the full investment and return is recoverable through our cost of service framework on the West Coast Pipeline. In the US, we continue to extend our LNG service offering as we progress the Rio Bravo Pipeline and the Venice Extension Pipeline which we expect to place into service later this year. We've concluded an open season on the Algonquin pipeline system for additional gas delivery to New England, and we're pleased with the results and are currently evaluating potential options to satisfy our customers' needs. In March, we acquired Tres Palacios, which adds 35 BCF of working gas storage and enhances our customer service offering in the area. This facility is a key piece of infrastructure that serves local gas fire power generation, LNG exports, and pipeline capacity to Mexico. Finally, we announced the acquisition of several high-quality operating landfill waste to RNG assets in Texas and Arkansas from Morrow Renewables. These investments align with Enbridge's utility-like cash flow framework and are underpinned by long-term off-take contracts. The landfills we acquired are expected to double in size by 2040 with minimal capital investment, which will supplement our growth for years to come. The moral renewables investment aligns well with our corporate strategy and supports our energy transition and growth expectations. Turning to gas distribution and storage, Enbridge Gas had a strong year. We added 46,000 new customers, which was ahead of expectations. We invested 1.2 billion modernizing and expanding the distribution network during 23 to support the growing needs for reliable and affordable energy in the province. In December, the Ontario Energy Board issued its decision on our rebasing application for 2024. And overall, we're not pleased with the outcome as it doesn't align with the provincial government's policy on the future of natural gas within Ontario, nor the affordability and reliability of gas for our residential, and industrial customers. While the decision itself isn't material to Enbridge's 24 guidance, we filed a notice of appeal with the divisional court and a notice of motion with the OEB regarding several aspects of the decision that we believe are inconsistent and amount to an error in law. In the meantime, we will continue to focus on delivering safe and reliable energy for our customers in Ontario. Now moving to the gas utility acquisitions in the U.S., We continue to be very excited about the transaction, including the fact that it was executed at a historically attractive valuation of 1.3 times the forward rate base. The assets all operated supportive and transparent jurisdictions and will add low risk regulated earnings and quick cycle rate based investment opportunities to our backlog. As you can see on the slide, we've pre-funded approximately 85% of the aggregate purchase price since we announced the transaction in September last year, and all three are on track to close in 2024. So with that, let's jump into the renewables. Our scale and diversification and investing approach to renewables allows us to continue to find attractive opportunities, even as returns compress for many across the sector. In Germany, we acquired additional interest in the Hohe See and Albatross offshore wind farms. These are high-quality operating assets that we know well, and the transaction is immediately accretive to our DCF. In France, we continue to approach the commercial operation dates for both FECAMP and Provence Grand Large in early 2024, and Calvados is scheduled to come into service in 2025. Enbridge was also awarded the right to develop a one-gigawatt offshore wind farm in Normandy. which we expect could enter service around 2030. We'll be developing that wind farm with EDF, continuing a partnership of successful developments in the renewable space. And then last November, we extended the partnership onshore in North America, where we jointly are constructing and operating the 577 megawatt Fox Squirrel solar facility in Ohio. The initial phase of this project generates about 150 megawatts and was placed into service in December 2023. Our portfolio of late stage onshore development projects continues to approach the construction ready phase with expected 2025 in-service dates. And finally, we also placed three solar self-power projects into service during the year, adding some 30 megawatts of capacity and reducing our mainline emissions footprint. So now I'll pass it off to Pat to walk through our financial results.

Thanks, Greg, and good morning, everyone. I'm very pleased to present a record quarter and full year of financial results here at Enbridge. And as Greg mentioned earlier, we exceeded the midpoint of our 2023 EBITDA and DCF per share guidance, representing our 18th straight year of achieving or beating our outlook. Year over year, fourth quarter EBITDA was up over 5%, and DCF is up 3%. Our DCF per share is down 2%, including the dilution related to the de-risking of the financing plan for the gas utility acquisition. These quarterly results cap off a fantastic year for Enbridge and are underpinned by a high utilization across all our systems. In liquids, our mainline transported a record 3.2 million barrels per day during the fourth quarter. Our mid-continent and Gulf Coast assets also delivered strong operational results, with Ingleside and Grey Oak setting new quarterly volume records. These record volumes were partially offset by the lower mainline toll which took place on July 1st. Gas transmission is down marginally over the quarter due to the timing of revenue recognition related to the Texas Eastern case in the fourth quarter of last year. EGI continues to benefit from higher distribution rates from EGI's incentive rate mechanism despite a mild winter negatively impacting fourth quarter results by about $30 million compared to normal conditions. Our renewable business improved during the quarter primarily from the increased interest in our German offshore wind assets, which closed in early November. Energy services results improved compared to the same quarter last year due to the expiry of transportation commitments, as we have noted in prior quarters, and less pronounced backwardation in commodity markets. Realized foreign exchange head losses were lower in the fourth quarter as our hedge rate was right around the spot rate of 135. Below the line in DCF per share, and as expected, higher interest expense, the effect of the bought deal I mentioned earlier, and lower distributions and excess of earnings from our equity investments partially offset the higher EBITDA and operations this quarter. With that, let's quickly review the year ahead. I'm pleased to reaffirm Enbridge's 2024 EBITDA guidance range of $16.6 billion to $17.2 billion and DCF per share guidance of $540 to $580 per share. This represents 4% EBITDA growth versus the 2023 guidance midpoint. As a reminder, our 2024 guidance is set on the base business, excluding the EBITDA, CAPEX, and associated financing impact of the US gas utilities expected to close throughout this year. The reason we chose to issue guidance excluding the acquisition is that we want to showcase the strength of our base business and how it is performing relative to the growth outlook we shared our investor day last March. There's some uncertainty around the timing of the close for the LDCs, but we do expect some level of contribution from all three utilities this year, and I'll discuss that on the next slide. There are a few key assumptions underpinning our 2024 guidance. Our 2024 mainline volume forecast is approximately 3 million barrels per day. This estimate was struck using TMX's public and service date estimate when we released guidance. For reference, apportionment on the mainline rose throughout the fourth quarter, and our December throughput averaged 3.26 million barrels per day. Today, we have more conviction than ever that the mainline will continue to be very well utilized for years to come. We also included the sale of our interest in Lionshawks Sable in the guidance we provided in November. As is practiced at Enbridge, we've minimized our foreign exchange and interest rate exposure for the upcoming year. The US dollar denominated DCF is almost entirely hedged at the 135 and less than 10% of our total debt portfolio exposed to interest rates volatility in 2024. Now let's look briefly at the EBIT implications from the expected closing of the gas utilities. We continue to expect staggered closes of the utilities throughout the year. Each will provide incremental contributions above our base business guidance. Given that the timeline for regulatory approvals are fluid, we've omitted the associated incremental contributions from our guidance. That being said, if the utilities close on schedule, our overall EBITDA could exceed the upper band of the guidance range, while per share metrics in 2024 will be impacted by the full year of share dilution. Let's turn over to our secured growth outlook. Our secured growth program sits at $24 billion. New to the table this quarter is the addition of the Fox Squirrel Solar Phase 2 and the incremental capital for T-South Sunrise expansion, as well as another year of utility growth and GTM modernization capital. In 2023, we added an additional $10 billion of new secured capital to our backlog, adding visibility and duration to our multi-year growth outlook, which I look forward to discussing more at Enbridge Day in March. We placed over $2 billion of organic capital into service, primarily from our utility growth program in Ontario and our GTM modernization program. With that, let's revisit Enbridge's capital allocation priorities before I turn the presentation back to Greg to wrap things up. Our approach to capital allocation is focused on maximizing shareholders' returns. We're excited by all the opportunities ahead of us, but we're going to grow in a disciplined manner while sticking to our leverage and payout targets. Enbridge is fully committed to our leverage guardrails of four and a half to five times debt to EBITDA, and will continue to operate within this range post the utility acquisitions. With the announced sale of Alliance Knoxable in 2023, we continue our track record of successfully high-grading our capital and will continue to look for opportunities to recycle assets at attractive multiples. In November, we announced a 3.1% increase to the Enbridge dividend, our 29th consecutive annual increase. Our long-held dividend payout policy is 60% to 70% of DCF, and will continue to grow the dividend up to our medium-term DCF per share growth. And with that, I'll turn it back to you, Greg.