Enbridge Inc

Good morning, and welcome to the Enbridge Inc. Second Quarter 2024 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, EVP and Chief Financial Officer, and the heads of each of our business units. Colin Grunding, Liquids Pipelines, Cynthia Hansen, Gas Transmission and Midstream, Michelle Herrodins, 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'd 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 questions to one plus a single follow-up if necessary. We'll be prioritizing questions from the investment community So if you are a member of the media, please direct your inquiries to our communications team, who will be happy to respond. As always, our investor relations team will be available following the call for any follow-up questions. On to slide two, where I will 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 filings. We'll 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. We appreciate you joining us on the call today. I'm pleased to be here to highlight the significant progress we've made on our strategic priorities and to discuss our strong second quarter results. I'll start by providing a mid-year update outlining the team's strong execution of our financial, operational, and growth priorities. We've accomplished exactly what we said we would, and then some, and look forward to continuing the momentum through the balance of the year. I'll give an overview on the utilities acquisition and highlight what the team has managed to accomplish since we announced the deal less than a year ago. I'll also provide an update on each of the businesses and highlight key developments there. And then before having Pat take us through the details of the financial results, I'll take the opportunity to share how we are seeing our scale and connectivity extending growth and providing opportunities across all our four business franchises. And more specifically, how we're seeing this play out in the market with growing power, natural gas, and oil demand. As some of you have heard me say, you can't run a full-time economy on part-time power, and Enbridge is in a position to serve our customers and their growing demand full-time through multiple service offerings. Once Pat wraps up, I'll close with a few key messages, and then our management team will be pleased to answer questions following our presentation. Before I jump into the progress we've made this year, I want to acknowledge everyone impacted by the ongoing wildfires in northern Alberta and British Columbia. We're committed to supporting our partners, customers, and communities during this challenging time. And while we've seen no impact on the operations to date, safety will be our number one priority as we continue to monitor the situation. Now onto the mid-year update. As you can see, we've achieved or made significant headway on the commitments we laid out at the start of the year. I'm pleased to share that the U.S. gas utilities acquisition funding is now fully complete. Moving forward, we don't see returning to the public markets for the equity portion of our capital needs, And consistent with that, we have now canceled our ATM program. I'm pleased to report our base business performance is very much on track through the first half of the year. Separately, you will see that we are recasting our full-year financial outlook by adding to that original 2024 guidance the expected contributions from the two U.S. gas utilities we have closed, the expected closing of PSNC, and all of the associated acquisition financings. Pat will talk more about this later in the call. Our balance sheet remains strong with debt to EBITDA well within our targeted range at 4.7 times, providing financial flexibility to execute on our capital allocation priorities. I'm really proud of the team's execution and focus on operational safety and excellence. So far this year, we've had strong asset performance with high utilization across our franchises. As an example, just look at what's happening in liquids. During the second quarter, we achieved record volumes on the main line and at our Ingleside export facility. As mentioned, we've closed two of the three U.S. gas utilities that we acquired representing what will ultimately be approximately 80% of the total annualized EBITDA and have reached a settlement in principle with the public staff for the North Carolina Utility Commission. PFNC remains on track to close in Q3. We're also pleased to have reached a prepackaged rate settlement on our Texas Eastern pipeline with customers. This reflects our continued focus on optimizing our return assets to ensure we are earning a reasonable return while delivering safe and reliable energy for customers. And I'm pleased to report that the FERC has now approved this customer settlement. On growth, we've made good progress executing opportunities in our development pipeline. We sanctioned the 130-megawatt Orange Grove solar project in Texas backed by a long-term PPA with AT&T. Through our Whistler joint venture, we have reached final investment decision for the Blackcomb pipeline, which will provide up to 2.5 BCF of much-needed natural gas egress for Permian shippers. And we sanctioned an expansion of our Gray Oak pipeline in our liquids business. With clear line of sight to the U.S. gas utilities acquisition Closing, let me take a moment to highlight our strong execution of that transaction. We're ahead in our plan to complete the $19 billion acquisition of these three gas utilities that we announced just last September. This reinforces our proven track record of effective M&A execution and highlights the strength of our relationships with all our stakeholders, including customers, regulators, and governments right across North America. Federal approvals were all received in due course with the closing of East Ohio Gas occurring well before our expectations in early March. We look forward to continuing to build long-term productive relationships with all stakeholders in Ohio as we integrate that premier utility business. Next, we announced the closing of Questar in Wexborough in early June. Again, our experience and relationships helped ensure timely regulatory approvals were obtained to welcome a growing multi-state utility into our Enbridge family ahead of expectations. Integration is going well so far, and we will continue to provide safe, reliable, and affordable energy for our customers throughout the transition. In North Carolina, we are on track to receive regulatory approval and close in Q3. The team's dedication to executing these transactions, completing the financing, and integrating these assets which diversify our business and enhance our stable cash flow and growth profile has been first rate. Now let's jump into the exceptional performance at each of the BU's. We saw high utilization across our liquid system once again this quarter. This highlights the demand pull nature of our systems and continued need for crude oil to fuel everyday life in North America and beyond. The mainline transported record second quarter volumes of 3.1 million barrels per day and has so far been apportioned for all months in 2024. July volumes are also expected to be strong, and we're expecting apportionment again in August. The utilization year-to-date and the great macro backdrop keeps us confident in our 3 million barrels per day estimate on the main line for 2024 and underpins discussions with customers for expansions in 2026 and beyond. I will also note that this marks our first full year under the new mainline tolling settlement. The agreement has proven to be a win-win-win for us, our customers, and the markets we serve. And as a reminder, we have annual toll inflators for operating expenses and power that were effective July 1st. We are also earning in the upper half of the ROE performance color. In the Permian, we sanctioned 120,000 barrel per day expansion of the gray oak pipeline. following a successful open season this quarter and expect this expansion will come fully online in 2026. The incremental volumes will serve growing demand at our Ingleside facility and we expect the expansion to be capital efficient with an EBITDA multiple below five times. We now have 18 million barrels of storage capacity at Ingleside with an additional two and a half million barrels under construction. Of note, Ingleside also set a quarterly record for exports and saw a single-day loading record of more than 2.3 million barrels. This again underscores our belief that cash flow from that asset will be sustainable and growing for many years to come. Now let's take a look at gas transmission. We optimized our assets and advanced our U.S. Gulf Coast strategy during the quarter. As mentioned on Texas Eastern, we reached and the FERC approved a negotiated settlement with shippers effective October 1st. Base rates are expected to increase by 6% through 2025, with an additional uplift of approximately 3% in 2026. In the Permian, we closed the previously announced acquisition of an interest in the Whistler JV, which brought into service the ADCC pipeline on July 1st. That asset will support US LNG exports to global markets. In addition, The JV recently reached FID for the Blackcomb pipeline after securing firm transportation agreements. When completed in 2026, Blackcomb is expected to add up to 2.5 billion cubic feet per day of desperately needed natural gas egress for our Permian customers. The Venice extension, another project serving LNG exports on the Louisiana coast through the Plaquemines LNG facility, is on budget and on track to enter service later this year. Now let's move on to our gas distribution segment. As I mentioned earlier, we closed the acquisition of Questar and Wexpro at the end of May, and we are well on our way to creating the largest natural gas utility in North America and expect North Carolina to close in the third quarter. As a reminder, each of these utilities have attributes that position us for long-term growth. Enbridge, Utah is a fully regulated gas utility that serves more than 1.2 million customers and we are excited about the data center opportunities we are seeing there. Utah's projected population growth is 5% annually through at least 2028, which we expect to drive rate-based growth for years to come. Enbridge Gas Utah rates are effective until 2026. In Ontario, we have almost 4 million customers and expect residential and industrial growth as well as system modernization will backstop ongoing rate-based growth in Ontario. In Ohio, we have another 1.2 million customers connected to our utility. We expect to continue growing rate-based through necessary investments, which will modernize existing infrastructure, ensuring reliable and affordable energy for our customers. Enbridge Gas Ohio has a rate case ongoing with new rates expected in 2025. All of our utilities, including PSNC, which we expect to close in the coming months, have attractive returns on equity and are located in natural gas supportive jurisdictions. That was turned to the renewables business and we made great progress on the growth commitments laid out at our investor day for that business. We previously announced a plan to develop the Seven Stars Wind Project in Saskatchewan with FID expected in 2025. This 200 megawatt wind farm will have greater than 30% indigenous participation and is backed by government loan guarantees. The project is expected to provide emissions-free power to more than 100,000 Schedule 1 homes and is a great example of how the cross-pollination of our business units is generating growth. Moving on to solar, we expect to complete our investment in Fox World Phase 2 and Q3. Similar to Phase 1, Phase 2 is backed by a long-term PPA with Amazon for 100% of the energy production. We also sanctioned the 130 megawatt Orange Grove solar project in Texas with an in-service expected in 2025. This project is backed by a long-term PPA with AT&T for 100% of the offtake. In our conversations, we're finding more and more that hyperscalers value the reliability, experience, and proven track record that Enbridge brings to the table as a truly diversified energy provider. And finally, FACOMP is now fully operational, supplying nearly 770,000 people with low-carbon electricity across the Seine-Maritimes region in France. With four growing franchises and gas utility acquisitions almost complete, let's take a look at Enbridge's collective offering and why we're positioned to benefit from growing global demand. Our asset footprint makes up North America's first choice energy provider. In fact, we don't just have assets, we have franchises. in each of the businesses where we're involved. Each of those franchises contain super systems, which are integrated value chains connecting the best supply basins in North America to key domestic demand markets and export terminals. Strong relationships with governments, regulatory, and tribal bodies makes us the first choice for energy delivery within the jurisdictions we serve. We have a strong track record of operational excellence, utilizing technology and innovation to drive efficiency. Diversification and asset interconnectivity makes us a one-stop shop, which attracts high-quality customers and partners like AT&T, Amazon, Exxon, BT, Suncor, and NextEra, to name but a few. Lower carbon optionality exists throughout our balanced conventional portfolio, and we plan to focus on investments that match the pace of global energy transition. And importantly, we believe all these growth opportunities can be equity self-funded and through our strong balance sheet and disciplined capital allocation. Scale and connectivity are key competitive advantages that are driving new growth opportunities, so let me touch on those briefly. Our large incumbent asset position allows us to provide differentiated service offerings that is driving value for our customers. It's still in the early innings for us, fully realizing the advantage of our vast position, but we're seeing growing opportunities across our footprint. due to increasing natural gas and renewable power demand and their interconnectivity. As an example, in our gas utility business, data center growth in Utah is being driven by the need for reliable and affordable energy. New this quarter we added 50 megawatts under contract and have numerous additional inquiries to provide natural gas for up to an additional 1.5 gigawatts of capacity. Throughout our utility footprint, we are engaged in additional early-stage discussions with data centers that we expect to translate into future growth. In gas transmission, our assets are ideally located and well-connected. We are within 50 miles of 45% of all natural gas power generation in North America. In fact, in July, we achieved seven of our highest-ever daily deliveries to U.S. power plants from our gas transmission system. We've had a range of customers in the U.S. Southeast expressed interest in securing approximately 700 million cubic feet a day of transmission capacity to serve up to 5,000 megawatts of new gas fired demand. In renewable power, our scale, financial, and execution capabilities are differentiators. Data centers need baseload power solutions, such as natural gas, to support the 24-7 energy demands of hyperscalers. But many customers are balancing that reliability requirement with their renewable energy commitment. It's not always possible to co-locate or develop behind-the-meter power solutions to support new data centers, so we are having discussions with large blue-chip customers to provide traditional and virtual long-term PPAs. Virtual long-term PPAs are where customers may look at signing long-term off-take agreements to support development of clean energy projects to offset emissions produced elsewhere in the business. We have over 2 gigawatts of regionally diverse wind and solar projects and development that we talked about at Investor Day, which are capable of serving new data center load with in-service expectations in 2026 and beyond. The collective strength of our franchises lends well to the growth opportunities in front of us, and I'm confident Enbridge will play an essential role delivering energy everywhere people need it. With that, I'll pass it over to Pat to walk through yet another strong quarter of financial results.

Thanks, Greg, and good morning, everyone. It's been a very strong quarter for Enbridge, and as Greg noted, we had continued high utilization across all of our franchises. Questar closed in May, and we've now brought in roughly 80% of the total annualized U.S. LDC EBITDA in-house. I'll be speaking to adjusted results on this slide, inclusive of the utility acquisitions. Year-over-year, second quarter adjusted EBITDA is up 8%, and DCF per share of 134 includes a higher share count from all the pre-funding of the U.S. gas utilities. Liquids volumes were high across the board, with the mainline transporting 3.1 million barrels per day, a second quarter record. Ingleside also broke its previously quarterly and daily records for export volumes. In GTM, lower operating costs, as well as the Aiken Creek and Tomorrow R&G acquisitions, more than offset the sale of Alliance and Uxable on April 1st. A full quarter of Enbridge Gas Ohio and partial contributions from our Quester acquisition added approximately $175 million of EBITDA as compared to Q2 in 2023. And in Canada, a higher distribution margin and customer additions over the last year helped offset the negative impact of warm weather at our Ontario utility. Below the line, higher financing costs on floating rate debt and new issuances and the higher share count that I mentioned before impacted per share metrics. As you can see at the bottom of the slide, the base business continues to deliver strong financial results. So let's look ahead to how the rest of the year is shaping up. With two gas utilities in the door, all the financing complete and a good line of sight to closing PSNC, we're pleased to be able to recast Enbridge's 2024 financial guidance. We're raising our 2024 EBITDA range to $17.7 to $18.3 billion. This increase reflects partial year contributions from each of the U.S. gas utilities and assumes we close PSNC mid-third quarter. Even with the partial years of EBITDA, and all of the funding completed for these transactions, we're still maintaining our DCF guidance range of $540 to $580 per share. I'm also reaffirming our near-term financial outlook of 7% to 9% EBITDA growth through 2026, 4% to 6% EPS growth, and approximately 3% DCF growth per share. All in all, it's shaping up to be another strong year with Bay's business performing well and great execution on both the closings and the full financing of the U.S. gas utilities. Now let's turn to the balance sheet. In reaction to closing Questar and the progress on the acquisition funding plan, DBRS and S&P took positive actions on our credit ratings during the quarter. DBRS upgraded Enbridge to a low and S&P removed the negative outlook, affirming Enbridge's BBB plus stable outlook. Fitch also reaffirmed our BBB plus rating. While not unexpected, we're pleased to see that the agency's share of you that our long-held leverage target of 4.5 to 5 times is a sweet swap for Enbridge. As we previously communicated, we expect leverage to peak after closing the PSMC acquisition and decrease throughout 2025 as we earn annualized EBITDA contributions from all the utilities. With that, let me move on to capital allocation. Our priorities remain unchanged and we're laser-focused on the balance sheet. We cancelled the remaining ATM this morning as we return to our equity self-funding model. We're well within our target debt-to-EBITDA range, despite only partially EBITDA contributions from our newly acquired US LDCs. The dividend remains a staple of our investment offering, and we're committed to extending our 29-year track record of responsible dividend growth by continuing to grow the business in a very sustainable manner. Our $24 billion of secured capital backlog, which is underpinned by low-risk commercial terms, will be funded entirely through internally generated investment capacity. We plan to deploy approximately 6 to 7 billion per year in growth capital, leaving us another 2 billion that can be allocated towards the next available opportunities, whether that be sanctioning new strategic projects, accretive tuck-in M&A, or debt reduction. With that, I'll pass it back to Greg to close off the call.