Q3 2019 Earnings Call
Welcome to the Enbridge Inc. third quarter 2019 financial results Conference call. My name is Sonia and I'll be your operator for today's call.
This time, all participants are no listen only about following the presentation, we'll conduct a question and answer session for the investment Committee.
During the question answer session. If you have a question. Please press star one on your threshold so.
Please note that this conference is being recorded.
I'll turn the conference over to job and Morgan Vice President Investor Relations.
You may begin.
Thank you Sonia good morning, and welcome to the Enbridge Inc. third quarter 2019 earnings call.
Joining me. This morning are al Monaco, President and Chief Executive Officer, calling grinding executive Vice President and Chief Financial Officer, Guy Jarvis Executive Vice President liquids pipelines, Bill Yardley Executive Vice President gas transmission Midstream and Vern, you, President and Chief operating officer liquids pipelines.
For usual this call is webcast I encourage those listening on the phone follow along with the supporting slides a.
A replay impart tropical will be available today.
And it transcript will be posted to the website. Shortly after in terms of queuing. They will prioritize calls from the investment community. If you remember if the media.
Please direct your inquiries to our communications team will be happy to respond immediately.
We're a game going to target keeping the call to roughly one hour and may not be able to get to everybody. So please try to limit your questions to one and a follow up as necessary.
As always our Investor relations same as available for he or she took follow ups afterwards.
Turning to slide too.
Well I'll remind you that we'll be referring to forward looking information on todays call by its nature. This information contains forecast assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discuss more fully in our public disclosure filings.
Well also be referring to non-GAAP measures summarize below with that I'll turn it over time article.
Thanks, Jonathan Good morning, everybody.
Before we get going I'd like to recognize Guy Jarvis who is retiring from enbridge. After almost 20 years, most that you'd have come to know guy over that time and the tremendous contribution he's made to our company.
We delivered a lot of value and profitability liquids from great operating performance to system expansions.
To improve customer service to the industry, leading safety results.
We're obviously going to Miss Sky, but he's leaving the liquids business in good position today.
Now we wouldn't be doing our jobs, if we weren't thinking hadn't succession planning as many of you know it's been a hallmark at Enbridge.
As part of that bring you will be stepping into guy shoes, and in the new year as executive Vice President liquids pipelines.
He has been the C O <unk> liquids for the last while where he's worked closely with guys are the transition will be seamless.
Many of you know burn as well over his 25 years, he's put together stellar record, including liquids and corporate development, where he's driven significant growth and been part of developing and executing our overall strategy as a company.
Looking across the table he's charged up and excited about this opportunity to run liquids.
I'll start with the big picture on the quarter that on slide four.
Q3 numbers came in strong as you saw we should have a did result this year.
It was roughly 68 billion of asset sales so the balance sheet isn't very good shape.
And at 4.6 times debt to EBITDA were at the low end of our target range.
The made solid progress on key priorities, namely our liquids mainline throughput optimizations and we remain confident in our mainline contract offering.
And a little bit more time on dot issued today.
And of course, a bill and his team has reached a very good rate settlement on Texas Eastern.
We're executing our secured copper program with some key projects coming into service shortly and renegotiation of line three hurting soda after the yes appealed so.
Oh Manny good quarter on all fronts, let's go to slide five in the Q3 numbers.
Strong operating performance in volumes drove another solid quarter.
The liquids in particular mid continent, and Gulf Coast demand for Canadian barrels continues to drive volumes through our mainline downstream types.
Same story on gas transmission, where we were full.
On gas distribution continues to generate solid results under the incentive tolling as well as strong utility growth.
So Q3 DCF per share was up 12%, which is a good results given the much higher share count on the by end of our school for sponsored vehicles at the end of last year.
Based on the strong nine month numbers, then we're confident that will exceed the midpoint of our guidance range of for 45 for the year.
Colin will go over the results in a few minutes so let's move to the business updates beginning with liquids on the next slide.
On the can lead to 0.3 were now complete.
He came in under budget.
A good outcome there I think and then not to mention good relationships built up with our first nations and May two partners.
Like feeling is underway and we should be fully operational by December one and we'll start generating cash with the parcel partial surcharge.
More broadly, though we're very pleased I'd be putting new pipe in the ground as it enhances overall safety and reliability the system and gives us more operating flux.
In Minnesota, the Supreme Court denied hearing the yes deals as you saw so finalization of the I guess in permitting is moving forward.
In fact on October one the PC directed the Commerce Department to complete the incremental spill modeling and submit a revised yes like December nine.
Let me outline the chronology of the remaining stops on slide so.
From here or there are two concurrent tracks.
On the regulatory truck once the revised yes, its finalize the PC.
Public consultation and determine adequacy, yes, followed by a process to reinstate the certificate of need and Rob Clements.
On the permitting track that's the Blue walks here state and Federal agency work has been moving forward and hurdle with yes. So that's good news will re file a four one hermine, including amendments to our initial application to reflect the agreements that have come forward with the pollution control agency since the original.
Once we have those permits in hand, there was a final authorization to construct the PC.
So that's the sequencing we expect them once we have timelines from the PC and agencies will be able to provide the next key milestones towards the start construction.
Now on slide eight and the status of WCS the grass optimizations.
On the name why we expect to bring in about 100000 barrels per day of incremental capacity by year end.
That extra 100000 comes from capacity recovery and optimization of receipt and delivery windows as well as leveraging line Threed Canada.
We're also moving forward with the 50000 barrels per day expansion to express to surpass for that should be rate in Q1.
These optimizations and expansions are exactly what we're focused on today.
Because they require minimal capital are highly executable they generate great return.
We're also good for customers as they provide much needed low cost incremental capacity to the best markets.
On that topic on the slide nine and an update on our downstream market access points.
You know over the last five years, we've been executing our Gulf coast strategy by moving increased volumes in Western Canada, Bachman Cushing and more recently Permian.
On Seaway, we'll be launching an open season freight highly competitive expansion from Cushing accused.
In the Bakken. These Dakota access open season has been extended to include optical as a destination.
Finally, grail will be up and running shortly providing Permian production with a competitive outlet to local requiring an exports.
So again highly capital efficient expansions and new build supported by strong Gulf coast demand.
Shifting back up Scream at those pipes as you know we're in the process of offering long term contracts on our liquids mainline.
We expected to be assessing our open season results at about this point, but these see ours decision.
Regulator.
He is the regulatory review will now CRISI the open season.
Given there's been a lot of commentary out there on this topic I'd like to provide our perspective on it.
Starting with some very important context on slide 10.
First important to know who actually ships on our system.
The mainline has always been a demand pull system. So the vast majority of our customers are refiners integrated producers with downstream refining capacity most have been shippers for decades large volume.
That's because the mainline is directly connected.
Really 2 million barrels of refining demand.
And supplies, another 1 million to our downstream market access types now that's flanagan, so southern access and nine.
These customers depend on our system for feedstock. So there is supportive of our contract offering.
Because they want assured access to our assistant much stable low cost terms.
Western Canadian non integrated producers, our shippers have record for only about 5% prosody and most of them preferred shout crude to others in Alberta or they have contracts on other types, including Trans mountain and based Keystone.
Many of the objection letters that you've heard about actually represent a small fraction of our throughput and many don't ship one assistant.
Now, having said that we more than anyone understand importance of our mainline to these.
That's why we design our offerings to make sure all producers have an opportunity get guaranteed access to the system. So they can better control their barrels maximizing that box.
But if they still prefer to access our system in some cases on the short term basis, we set aside capacity for those customers as well.
Now to slide 11, and how our commercial model has developed which is an important factor as well so topic.
We've operated under incentive tolling essentially decoupling cost of service for about 25 years.
Reason for that is that our customers want us to be totally aligned with them and that's what we want to swap.
For example over that 25 years, we've significantly improved crude quality given the slate that we ship down to the best Midwest.
[laughter] key service metrics and critically important provided toll certainly that you saw certainty that you don't get with cost of service.
Over the course of Cts when you got a significant new capacity and kept costs low.
Our coal has risen by about 1% annually over that period as you can see venture to say that's very unique in our industry.
We've added over 700000 barrels per day of throughput since 2011.
Low cost innovative optimization and expansions that's benefited the entire base.
And we put a lot of capital to work to ensure high reliability in the system.
As we prepared for expiry of Cts coming out to June 21.
That's a lot of time understanding water customers priorities are today.
What we heard back was pretty clear in the last two years was that they want us to continue providing the lowest most predictable towards possible.
Even more low cost optimization.
But this time around they also want guaranteed access to our system to long term contract Ross.
So the point of all that is that the offering we design is based on water customers are asking.
And to assure the best outcome for all types of customers producers large and small finders integrated companies marketers.
On to slide 11, now where I'll summarize the offering the white goods are all of those categories.
Over the last 18 months listened carefully to industry and we made several changes to the offer.
We're offering customers a choice between traditional take or pay commitments and what we call. It requirements option, that's like acreage dedication.
Still gives customers guaranteed access to the system without the balance sheet commitment that goes with take or pays.
We're offering told discounts for larger and longer term commitments.
But importantly for all shippers when Throughputs are very strong so the benefit of increasing volumes out of the basin comes back to them.
The chart on this slide illustrates that the toll we're offering for long term commitments is at or below the toll we expect under the current Cts.
Our offering provides shippers with toll certainty for years to calm and shows how we have the competitiveness of our customers in mind.
And it will result in the best Netbacks to producers of any alternative out there as you see I'm not sure right.
For smaller producers, we lowered the minimum volume to 2200 barrels per day that's.
More or less a single batch per month.
For those who wants the status quo, we're putting aside a minimum of 325000 barrels per day for spot capacity plus they can use any contract capacity that's not utilized.
And as we further optimize the system and this is important.
I'll add that new capacity to the spot cool.
I want to emphasize that this offering totally levels the playing field.
Users finer and marketers are integrated companies can all participate.
Most importantly, and provide shippers with toll stability overtime, you can see on the chart and importantly.
Netbacks probably the base.
What was exactly because of these features that we received significant long term binding commitments to participate in the open season, even before it was scheduled to conclude that interest and more is there to date and delta.
Moving to slide 13, and the next steps in this process.
As you know the CR determined that the regulatory approval of the offering was needed before the open cheat sheet.
That's the path, we're on and we're preparing or application and Evan So what does that look like essentially it's about demonstrating public interest.
Filings going to show that are offering as available to all shippers is fair unresponsive to customer needs.
Demonstrate the support we haven't how we've taken the time to design the soccer and meet the needs of bulk customers.
Thats support will evidenced the competitiveness of our offerings with competing pipelines and alternative totally frameworks along with pricing at times.
No always expected a comprehensive review so we think theres ample time to the CR to complete the review and hold an open season prior to the expired Cts in the 21.
The bottom line is that we're committed to moving ahead with this offering because its water customers want and continuing to support.
Moving now onto the gas business update on slide 14.
This core quarter Bill and his team reached a settlement with our Texas eastern customer.
Given the size and scope of Texas Eastern this is a key milestones.
Yes, right that we agreed to strike the balance between ensuring we get a timing fair return on our capital while ensuring we remain highly competitive two key markets for our customers.
The new rate takes effect after FERC approval, which we expect to be in Q2.
On his Tennessee, we filed the settlement agreement there, which the FERC approved on October one small rate reductions here, but not material impact on revenue.
We've also begun discussions with the Algonquin customers and we're hoping to reach similar settlement on that system.
More broadly, though you probably picking up that this is part of our strategy to pursue more frequent rate cases in the future.
On to slide 15, as you know building a team are working on several opportunities to expand our existing LNG footprint.
We're positioned well in the Gulf Coast from South, Texas to Louisiana, where we can play a key role in supplying existing and new export facilities.
We recently signed an important amamou with next decade, it's about the real Bravo pipeline, South, Texas that line would surprise supply their Brownsville LNG project.
And importantly, the line would be proximate to our valley crossing system and so we're in position to provide unique value to next decade.
This comes on the back of other LNG supply deal Stratton Ridge and the Cameron in Venice expansions more recently that we signed earlier this year.
We're pleased with the momentum here to serve growing export demand moving now to the gas utility update on slide 16.
Again, good progress here on synergies from the combination of two very large utilities.
And ultimately these synergies are going to drive out a very strong return on equity over our five year incentive based framework, which should exceed we allowed our weekly material.
In September we received an OE be decision on 2019 rates, which was in line with our projection.
Finally, we secured new growth of over 400 million this year and utility and made good progress on adding new customers again, demonstrating utilities reliable growth mom.
I'll wrap up on slide 17, with a summary of the secured project inventory list.
Making good headway on advancing this 19 doing projects rail because I mentioned his line filling with volumes ramping up 120.
What we say our German offshore wind project should be fully operational shortly.
In October we began generating electricity from the first phase and the adjacent expansion right next door will come in.
Before the end of year.
And with a combined capacity over 600 megawatts. This represents the largest German offshore wind project and our second European project.
Creation first ramping UK.
So with that I'll now hand, it over to call on the financial update.
Alright, Thanks, Alan and good morning, everyone, albeit on slide 18, with the year over year comparison of adjusted EBITDA.
As I mentioned it was another strong quarter adjusted EBITDA is up just over three point.
At $3.1 billion, and that's an increment of $150 million higher than Q3 of last year.
You can see here from the bridge visually this was really driven by the strength in the liquids business.
Liquids pipelines EBITDA was up 193 million and it's largely a continuation of the same trends.
We spoke of at the last quarterly call.
The mainline system continues to run full.
Merging around 2.7 million barrels per day.
And we also benefited from a 1% higher.
International Joint told that came into effect on July one.
Downstream continued to see strong volumes on finding and south and Seaway pipeline.
Thanks to strong demand for Canadian heavy barrels in the Gulf.
Similarly, North Dakota production is contributed to higher throughput on the Bakken pipeline system.
Moving onto gas transmission the chart shows EBITDA down $94 million quarter over quarter. Although most of this is the result of the asset sales in 2018, both the U.S. and Kt and GNP asset packages.
However in general we continue to see strong utilization across all our gas transmission assets.
We also had contributions from new assets like Nexus and valley crossing.
In the quarter, which were placed into service late last year.
Another factor impacting lower EBITDA is the increased integrity integrity operating expenditures.
Which I referenced on the last quarter's call.
This will continue into Q4, and we complete our current inspection program.
[noise] gas distribution EBITDA.
Were slightly lower for the third quarter.
For the full year. However, we continue to see higher distribution rights growth in customer base and synergies from the amalgamation efforts and our two legacy franchises.
So overall positive first nine months within our utility business.
And in line with our expectations.
Moving over to our power business, which was up $9 million over last year.
Two factors explain this.
The first is slightly stronger wind resources across many of our North American wind farms and secondly, the rampion offshore wind farm in the UK was placed into service in Q4 last year. So that contribution is.
This incremental this quarter.
[noise] energy services.
Mentioned on the call in Q2 that we had benefited from extremely profitable locked in margins over the first half of 29 team.
This quarter present, something much closer to a typical level, although still $17 million stronger in Q3 of last year, which was weaker than typical.
Finally, eliminations and other increased by $29 million year over year, thanks to a favorable.
Administrative cost recovery from our businesses and stronger foreign exchange hedge rates in 2019.
Moving on to slide 19 for the DCF perspective.
Consolidated DCF per share for the third quarter was a dollar four cents.
A 12% increase relative to the third quarter of 2018.
As you can see on this chart most of the factors in our DCF calculation were positive quarter over quarter.
With a significant portion of the DCF per share growth coming from the strong EBITDA performance just mentioned.
Other key drivers included lower maintenance capital.
Due largely to our 2018 asset sales and I'll speak to a maintenance capital to the full year outlook here in the second.
Similarly, lower financing costs from asset sales proceeds were used to pay down debt.
And finally.
Stronger EBITDA performance as I discussed earlier within our joint ventures with your equity accounted for.
Primarily seaway and or Buck in investments.
And along with new ventures placed into service like Nexus, we had a higher equity distributions then we recorded an earnings.
And finally, it's worth highlighting the impact of the 2018 sponsored vehicle volumes on our DCF per share calculation. It's really captured in two columns first the distributions to NCR <unk> were eliminated with Tobias. However, this is offset by the issuance of shares to execute the buy ins.
So in summary, strong year over year DCF per share growth underpinned by our strong operating results.
Turning now to slide 20 in our financial outlook for the balance of 2019.
As noted earlier on the call DCF per share is expected to exceed the midpoint of our guidance range.
First we benefited from stronger liquids performance over the first three quarters.
We also saw much better performance in energy services than a colder winter.
Until it is franchise in the first three quarters, where we are counting on more of this in Q4.
In addition, our original guidance included a December 2019 in service date for line three.
And like the line three delay as a reminder has a four cents per share DCF impacts for every month of delay.
So we won't see that eight cents this year.
And that's our largest guidance headwind.
We also expect.
Higher integrity expense.
In our gas transmission business in Q4.
Plus generally maintenance capital is seasonally higher in the fourth quarter across the enterprise and this will offset some of the strengthen our operations.
So title back together, we expect to see full year pretty 19 results to be above the midpoint of our guidance range.
That's for 2020, we're finalizing the budget then we'll be sharing that outlook at Enbridge day on December 10th along with our annual dividend guidance.
Moving on to slide 21.
I think the message here is that our balance sheet continues to be in great shape.
We've now received 6.1 billion of the 8 billion in proceeds from the 2018 noncore asset sales.
And we anticipate the remainder of the proceeds in the fourth quarter.
As a result, our credit metrics are well inside our longer term target range, it's consolidated debt to EBITDA.
The end of Q3 sitting at 4.6 times on a trailing 12 month basis.
And that should remain at right around that level for the rest of this year.
So to summarize financially.
We are now almost a full year into our equity self funded growth mode.
Had strong financial performance, we've made great progress on the balance sheet and our credit metrics are strong.
Maybe before I turn this back to al I'd offer a brief comment on our capital allocation mindset.
We continue to be disciplined on how we allocate shareholder capital.
And we have been for years and it's now part of our cultural.
Your name.
Here's how we think through our capital allocation choices.
First our overarching priority is to maintain financial strength.
And this means protecting a robust balance sheet and living within our equity self funded model, which we've adopted for a while now having turned off our drip program last year.
Next we want to return capital to shareholders through a steadily growing and sustainable dividend.
First of all maintaining a strong payout.
Currently we return.
Approximately $6 billion annually.
Or around 65% of our cash flows.
And finally.
Well executed our secured projects, including line, three which will create significant further financial flexibility.
And will also take on new capital efficient expansions and optimizations of our system.
Where we can earn great returns and strengthen our competitive position.
Of course, we keep a close eye on a risk and we compare all investment decisions against return of capital options.
So together, we think this remains a shareholder value maximizing equation.
I'll wrap up here on slide 22, with a quick reminder, that we have our Investor conference coming up on December 10th in New York and will be webcasting that lot of of course.
Followed by an Investor lunch. The next day on December 11th in Toronto.
This will be an exciting day for us where our leadership team can showcase our resilient business along with our injure enduring.
You proposition.
We look forward to seeing you there.
I'll turn it back to to wrap up the thanks Collyn.
Just to close off here and summarize as you see on the slide here.
As another strong quarter financially.
Line three the Canadian side will come into service and the Minnesota.
Regulatory process is moving forward.
On the mainline we're committed to the contracting of the system as I went through earlier, we've got strong support for the value proposition that we're offering.
Secured roughly two and a half billing of new capital year to date, which will help extend our growth post 2020, and our balance sheet. As colleges went through is very strong. So all in we're pleased with quarter and the progress that we've made on the priorities we laid out last Thursday.
So with that ill turn it over to the operator for questions.
Thank you we will now begin the question answer session. If you have a question. Please press star one on your Touchtone phone if he wants to be removed from the Q. Please press the pound sign or the husky, if you're using the speaker phone you, meaning to pick up the headsets for before Precima numbers. Once again, if you have a question.
Please press star one on your Touchtone phone.
And our first question comes from Robert Kwan of RBC capital markets. Your line is now open Greg good morning.
If I can I just ask her first about.
All three are and construction schedule I think previously roughly speaking I think you were looking at call. It six to nine months construction window, just wondering with the delays.
What you find out contractor wise and also is that a linear kind of window with respect to whenever you get the ability to construct.
Would it be six to nine months or is it dependent on what season.
Actually get that notice to proceed.
Well I'll start off Robert gel.
The six to nine months is a good range and should be.
Be consistent.
Depending on when.
We start weather winter for summer so thats part of the reason why we're we're going with the six to nine month window that you referred to so I think generally.
That's a good a good.
Estimate to use for construction on on the rest of it is it's not a along build as you know it's roughly three 300 miles so it's doable within that within that timeframe.
Hi on contracting can you explain where we're not sure we've been very active on the contracting side.
For a number of reasons, obviously, we want to secure them, but more importantly, our contractors have been important.
Force behind the coalition of support that we've had in Minnesota, So they've been.
Supporting us throughout the state and with the elected officials and regulators.
In terms of.
Demonstrating support for the project and how they're willing to come into these communities and build it very safely.
The other element of it is in conjunction with those contractors.
We are looking to again.
Provide a lot of business opportunity into the tribes in Minnesota and that effort is underway in conjunction.
With our contractors and there's an opportunity and contracts being sublet into some of those tribal businesses already so we're very pleased with way that's going.
That's great and if I can just finish on the mainline contracting given you can't make everybody happy I'm. Just wondering if you can give some thoughts on the ability to actually get a regulatory decision maybe thread the needle or the other part we heard a lot of opposition upfront do you think that those who you've got support.
And some of which may be amongst the largest shippers on the mainline today do you think there will be.
More vocal in their support as you get into the regulatory process.
Yeah, I'll start off Robert.
I think.
We will see more support I think some of the.
Supporters are people that.
Provided initial commitments through the open season, while we were doing that certainly expected that they would be providing vocal supporter of the hearing.
Certainly I think with the process being reversed now.
You're going to see that support comes through out the hearing more loudly that it came through in first part guidance out on that no higher degree.
That's great. Thanks.
Hey, thanks.
Thank you and then next question comes from Rob Hope of Scotiabank. Your line is now open.
Good morning, everyone.
Maybe maybe to start off online five we saw.
Positively goal.
Decision recently, just want to get what you think the next steps are in terms of getting the tunnel potentially in place and then secondly, an update on the easement discussions and potential opportunities with the first nations on a on the southern shores of Lake Superior.
You want to go yes, so its guy.
First off obviously, we're pleased with the decision from the courts around the tunnel agreements, we spent a lot of time.
Negotiating those and making sure that they represented a feasible path to build the tunnel as fast as possible.
So to have them validated is an important step for us.
The Geo technical work that we've been doing straights will be coming to conclusion here shortly given.
We're running out of the season and not Geo technical work.
Is giving us confidence that we're going to be in a position, but probably in the first quarter of next year to start making the necessary applications.
To pursue with the completion of the tunnel and Thats exactly the path that we're on.
In terms of a bad river, we've gotten an offer out into the community and.
Our ability to to address more people in the community is generating a lot of constructive feedback and conversation so.
We are not in a position to suggest that we've got a deal in any way shape or form just yet, but certainly a lot more broad engagement.
Alright, Thanks front and then as my follow up I, just wanted to delve further into your kind of capital allocation.
Discussion, where we're seeing some weakness in your U.S. peers could we see M&A trickle back into the mix and secondly, what are your thoughts on the 2020 dividend or you still committed to the 10% growth.
Okay, well on the first part of that Robert.
You know.
We always look at all the opportunities and what you pointed out is right I mean, there's.
Some changes going on in the U.S side and word relatively good shape this call and describe but I would say the M&A focus is not ours at the moment.
We've obviously done the repositioning that we wanted to do around natural gas transmission bills business, and then utility business that we out in Ontario. So the focus there was to reposition.
Part of the the asset base to more natural gas. So I think that's what we intended to do that's what we did so that's.
That's pretty much where what we needed to do and no real further expectations.
Large scale M&A at this point.
Rob on the its calling on the dividend.
We're going to come to get that dividend guidance.
At Enbridge day in conjunction with our budget and strategic plan outlook.
Rather than an isolation today, but I, but I would highlight that Oh, we have increased the dividend.
Consistently and substantially for the last 25 years concurrent with the return of capital mindset I referred to in my remarks.
Just to connect.
Another point on that Robert I mean, as calling alluded to.
The dividend with dividends as you know has always been aligned to the multi year look cash flows and given where we are.
Overall in the business performance has been good and 18 19.
Asset sales.
We're in good shape, the balance sheet strong and were in self funding. So overall, we think our business is positions quite well and but as he said, we'll we'll be speaking to that.
In a few weeks.
Great looking forward to thank you.
Okay.
Yeah.
Our next question comes from Michael Lapides of Goldman Sachs. Your line open.
Hey, guys handful of question. Some thank thank you for taking my first of all the surcharge on line three in Canada. When does that go into effect the 20 cents.
Well as in on December one, yes, we began operations so thats the deal Hey, guys, Yes, Thats correct.
So how do how does.
If I'm, a producer or ship or how did those barrels get to market. If line three U.S. Hudson I mean are they.
Are they just coming down in serving some of the Canadian refineries or just trying to think about kind of the flow of flow of volumes off of Canada line three.
Well, yeah. So obviously the the limitation to what we can do on line. Three is that we are not changing our operating parameters in in the United States until line three and is approved and constructed in Minnesota. So once you hit on a piece of the element. This does allow us to deliver.
From incremental volumes within Canada.
If you think back to Enbridge days last year, we talked about how we had identified a delivery window in rejoin us, whereas as we delivered off into the co-op refinery if we could find a way to get some some crude into tankage there in rejoined and we could reinject back into the line and.
And move the barrels downstream. So that is one of the things that were able to do now with the new line three be an in service so.
I think you kind of have got the key ones already identified.
Got it.
One or two other things just on a tetco rate case.
How big of an uptick are we talking about.
The EBITDA impact.
Yes, so it's bill.
Really positive outcome with the customers bandit between 50, and 70 million dollar uptick from a revenue perspective, which translates pretty well into the EBITDA.
Okay, and then last thing and this one's kind of small piece of your of your pie, but just curious if you've had thoughts on it.
One of the largest European wind developers or said just dramatically or significantly revised down its guidance for when the output.
And even some of the costs associated with building new offshore wind just curious I think there are one of the biggest players in Europe . Just curious if there's any read across to your existing or development projects, where your desire to continue doing these type of projects.
Well you know given burns just come out of the that area, maybe we'll let him talk to.
That question for.
Okay. Thanks al.
A wind resource was something that we were very particular in modeling when we made these investments and we as being conservative took definitely took a hair cut in how is the third party consultants.
Modeled in wind resource. So I think it's fair to say that we took two or 3% haircut on availability based on primarily.
How do you the turbines are to interact with each other and a couple other factors. So I think.
From what we've seen to date on our farms.
The resource is tracking to what we had.
Model and then on the the actual construction costs.
I think we take we took a different models and oersted or studs, mostly done all of their wind farms, where they've taken the capital cost risk.
Farms that we have invested today, we've transferred that capital cost risk to the.
Project Constructors.
Just maybe had one thing.
That I recall or talking about that was presenting challenges, which is the week effects. So where you are lining up projects next to each other as long as occurred said.
Those situations I could be even more conservative just given the as we learn more information you always get smarter about these things, but we're trying to be conservative I think there was another part of your question the talked about what does it mean anything to us in terms of our opportunity set I think what they're doing sorry, what they're doing.
But we're focused on a pretty good inventory of three or four projects in the next little while that you curious through quite a while so I think we're in good shape on on the development Chuck.
Got it. Thanks, guys. Appreciate you taking my question.
Okay.
Thank you Yeah and our next question comes from Linda Ezergailis at TD Securities. Your line is now open.
Thank you and congratulations I wish you best.
With respect to the mainline regulatory application I'm wondering if you can help us understand if the application evolved in any substantives away from you original open season.
Oh, it sounds like it substantially the same and I'm wondering if you're just continuing discussions this fall with the shippers or if that's paused pending the actual formal process.
And.
Kind of as a as a nuance for for some aspects that that I'm curious about how might you. It's not clear to me how you will treat the line three replacement timing.
Would you add habit allocated to spot to might you pro rate.
The contractual capacity until it's in service or or might there be some other treatment and.
Any sort of off ramps or any other attributes that you are considering would be appreciated.
Mandates guy. Thank you for your earlier comment.
In terms of the application our approach the application is largely unchanged we always knew.
They did not proceeding we were going to have to address the public interest.
Requirements.
Of the CR review.
So clearly some of the issues that that were raised in the proceeding.
In front of the CR around impacts to producers and whatnot, we fully expected that we would have to address that any way and we're going to be in good shape to do that.
In relation to the customers, we're always talking to the customers.
One of the circumstances that we found through the process that has been run is that despite our best efforts to communicate with as many people as we can theres still some misinformation out there about what our offering isn't isn't so we're we're taking some steps to make sure that people are making decisions about how to move.
Fourth with that filing.
On a common understanding of how the deal operates.
I think the critical factor is that we have a huge amount to support from a group of people that negotiated for 18 months with us to land on.
Ts they amounted approach and.
We're committed to moving forward with that.
The last part of your question around line three is the way the way the.
Well first off we still believe and hope that line three is going to be in service before the end of the Cts. So that it will not become an issue as it relates to the potential contracting in the mainline but the way our deal has been set up with shippers is that the contracting will not begin until line three is in.
Service and if that means that there is an interim period beyond July 1st 2021.
We will likely go with the continuation of the Cts towards but they would be subject to refund any refund that might result.
When the contracting has implemented.
That's helpful context, Thank you and maybe as my follow up just further to.
Some considerations around how you allocate capital I hear you loud and clear no large M&A, but on the flip side I perceive kind of them that youre asset sales have been substantially completed.
You don't need to sell assets.
If you get approached four.
As a very compelling price for any of your less core businesses are assets would you entertain any sort of asset sales and Mike that help maybe in closing I perceived to be a gap in valuations in the public equity capital markets versus private money or might there be other liberty, we can say.
At her to kind of close that gap, whether it be through jvs with pensions et cetera.
Yes, the short answer to that one Linda Intel.
Is yes.
We're always looking at opportunities to recycle capital, where it makes sense to release value. So.
There is if theres a few things we have any we've largely eliminated the assets that don't fit the pipeline utility model, which is great.
But there are a few things.
Things here and there that we would act on if we got some compelling value for them. So.
I think your point around closing the valuation gap is a good ones. So yes, we will recycle we won't hesitate to do that.
Or whatever is left and the non core category.
Thank you.
Thank you and then next question comes from Jeremy Tonet of Jpmorgan. Your line is now open.
Hi, Good morning, just wanted to start with the mainline here and it seemed that the volumes came in quite strong this quarter and kind of exceed our expectations and I'm. Just wondering is this kind of a.
Run rate that you guys. Thank you can sustain or was there anything that was happening here in the quarter or just kind of continuous effort to to optimize capacity.
And also with mainline I think there was a comment that you had said before during the remarks, where you've got the mainline could discount.
Below current tolls I think for long term contracts, just wondering I know what kind of premature here, but your expectations for for EBITDA impact and with a with the next settlement do you expect much of a change from from where you guys are right now.
Hi, Jeremy its guy so.
Our objective around as it comes to volumes in throughput and optimization. This is to achieve exactly what you asked that we're in a position because sustainably.
Move as much crude as we safely Ken so.
We've got a team here that is highly focused on that day in day out in may have been very successful and I think it's one of the.
The biggest accomplishments that we've got within our business units. So that is absolutely. Our plan is to continue to deliver that stuff on a sustained basis you as it as it comes down to the your question around mainline contracting on balance we expect that the outcome of that mainline contracting effort is going to be pretty much.
Similar to almost like a cts continuation so to speak from a from an average tool and revenue perspective.
That's very helpful. Just one more if I could on DCP. Your partner there took a write down.
On DCP, so I wasn't sure if your tax thesis was impacted as well here and if that could impact I guess your future plans for DCP or has anything changed with the IDR simplification as far as NBS view of the DCP.
Hey, its call on.
The first part of the question the IDR transaction does not affect our underlying tax basis.
And secondly.
Yes, I want to comment on our partners accounting practice, but.
They they may have been carrying.
Their investment in BCP at a different carrying value than than we were having I guess acquired interests in DCP at different points in time.
Watered question Jeremy.
I think I think you know our position on this but maybe just to reiterate.
The the business itself doesn't fit perfectly with the rest of what we do at Enbridge in terms of the pipeline utility model on the other hand.
DCP is certainly migrated its commercial.
Underpinnings to have more fixed fee and of course they have some good.
Long haul pipeline assets, so it's not as far off as it has it was perhaps in the past so.
We're happy to hold the asset and.
Really our partners in us are focused on how can we continue to grow the business and deliver strong cash flow contributions from that business and that's where we'll have our focus.
That's very helpful. That's it for me thanks.
Okay. Thanks.
Yeah, and our next question comes from Robert Tell Ya CNBC capital markets. Your line is now open.
Hi, Good morning, I, just had to two clarifications here one on slide seven the line three replacement milestones.
It doesn't really speak to any of the legal actions that might be possible. So appeals of the permit or.
If we could have a need so.
To the extent you received regulatory approvals.
Are you willing to proceed with construction, while those appeals are pending.
Yes, it's guy.
We've done that a number of times before with projects of this nature and I think our expectation.
Is that once again that if we have an authorization construction the public utilities Commission, we're going to start construction.
And there may be appeals that are running concurrent to that but we plan to move ahead.
A couple things just steps.
Sorry, no change maybe just a couple things that you'll notice on one of the blocks. There. There is a time allowed for petitions for reconsideration by the PC. So we blocked out in.
But after let me see if I can add this up about 48 months now of regulatory review.
And having the PC come down on certificate of need and route clear with fun.
The multitude of work that's been done.
I think we would be as guys setting in good shape to proceed.
I'm now on those on those.
Our strengths.
Sure I understand and then just one more quick one on.
Page 12 on the.
On the CGS contract framework.
That first hurt in the middle that timeline seems to have 2024 plus.
Well I think.
I understood. The intention was to have a much longer contracting timeline. So.
We to interpret that 2024 points I think it this is just to illustrate.
How the toll stays very steady and Thats frankly, one of the biggest attributes of this I think the contract offering includes.
Hi, there take or pays or.
The other form of contract for up to eight to 20 years I think as the number correct.
Okay understood.
Yes.
Congratulations guys on the retirement.
Thank you.
Thank you and then next question comes from <unk>, Yes. Your line is now open.
Hey, good morning, everyone. Most my questions have been asked and answered, but I'm going to try them a little differently I guess.
With respect to the comments about returns and so forth.
We really appreciate the comments at the end of your prepared remarks Blake.
I was wondering how we should be thinking about capex going through this period, where.
MPS are talking down production growth.
Rig counts have fallen over 20%.
How do you think about the next set of F. ideas and how we think about Capex for 2020 and 21.
Are you only going to focus on projects with a very high return hurdles like a four times EBITDA multiple.
Just wondering like how you are responding to the to the current environment and so should we be thinking that capex will be on the lighter end of your typical $5 billion to $6 billion range and will the projects be mostly the ones that are kind of into the.
Low EBITDA multiple return hurdles.
Ishares, calling yet so we'll talk more about this December 10th but but.
This is a teaser.
I think.
We agree Directionally with.
With what you're talking about I think we used the words capital efficient number of times in our prepared remarks today, which is.
Purposeful and I think highlights our mindset on this.
So for us.
A lot of our businesses our utility like.
And.
I think we're going to target more of our investments.
In franchise, so to speak so asset renewals.
[noise] optimizations like we've talked about.
So.
They are executable high confidence and enhance our competitive position even defensively so.
We think of.
We think of that is checking a lot of the boxes in our utility pipeline.
Mindset so.
Yeah, I think I think I would agree with your overall assessment, maybe just a quick point to add onto what caused that.
Okay.
It's a it's a good observation about how things maybe are changing over that again in certain basins, particularly in the U.S. and have syndicates and Canada already.
For us other than being efficient with capital the commercial underpinning of these things is critical to us.
So in other words.
We're not as naturally inclined to.
To take volume risk and may be brought on the legit bid in terms of what future production might look like that is drilling dependent. So we're really focused on on areas within franchise as Colin said, but also.
Areas that give us the right commercial underpinning, where we're looking at strong predictable cash flows over a longer term. So that's that's another governor if you will.
On the capital allocation process for us.
Oh really appreciate the color.
Maybe it's a follow up question just going back to the CR and I'm sure we'd beat missed one a little too much but.
I really appreciated your views in the clearly appear to be grounded in precedent, but.
But I was wondering if we can talk about the risks a little bit here because given the decision a few weeks go by the CR that already wasn't impressive and so I'm kind of wondering if the CR cares about what you've negotiated with the shippers and what the shippers have told you.
Or are they going to pursue their own independent study.
You know kind of its a go forward just trying to understand how that.
So the processing your expectations are.
Yes, so its guy out I'll take a crack at that no one of the things that I think we want to caution people go to both the CR decision that was made was.
Yes, the CR has not seen our offering.
They have not seen our application than they have not seen our evidence. So the decision that they did make.
Was on a pretty narrow view of concerns being raised by people, who who think they need to be opposed to it.
You know Weve. Our view is is that the CE ours job is to listen to everybody in the process, they're going to have to listen to our evidence and our experts they're going to have to listen to people who might be taken countering views.
The CR has staff, who will be advising commissioners on on viewpoints to come out of it but I think that again at the ended the day that driving the guiding light if you want to call. It that is the public interest.
And that's why we have always been focused in terms of how this is going to play out how we conducted ourselves to this stage in being able to demonstrate that what we're planning to do is in the public interest and we're confident that our funding is going to demonstrate that and just to to tag onto what I just said.
If you go back to the slide that refers to the public interest.
Thanks.
What we outlined there there is four point determine mall.
Open access.
Which will be clearly able to demonstrate just and reasonable poles and if you think about the chart, where we're saying you know we sold the been just and reasonable for long time based arms maintenance provided by.
The shippers over Cts period, now if you look at where the future tools are looking to be.
Check Mark.
Being responsive to the customer needs as a big part of public interest and demonstrating that it'll be good from the basins perspective from a pricing perspective. So those are the things that.
We have to demonstrate and we'll be putting forward in the application, but as you point out I'm sure there'll be differing views on all of that.
Alright, perfect really appreciate the color guys. Congrats in retirement and have a great we come to everyone else.
Thank you.
Thank you and our next question comes from Ben Pham at BMO. Your line is now open.
Okay. Thanks, Good morning, I wanted to go back to L. Three are in slide seven the sequencing of the milestones and and I guess, you've you've dealt with these timelines before and it seems quite quick visible from your perspective and my question is.
In terms of in service dates are you.
Not updating that right now because you think second half 2020 is still achievable or you need to see that today line move a little bit more to the right.
[noise] It's guide.
You can paint a plausible scenario.
That would potentially allow us to be in service in 2020.
We we will be ready.
If the P. you see in the agencies.
Our able to move fourth on that schedule.
But at this stage of the game, we certainly don't have enough line of sight to the timeline that this diesel various steps are going to take and until we get further through some of those milestones that we really won't be in a position to give give a narrow down when we think we can come into service. So the approach that really I think.
As we need some further clarification on timing I think will we know there's a December nine.
Data out there for the I asked to be finalized I think as we get through that and we get more timing guidance from the PC and agencies that we can go from there. If you will it's just very hard to.
Put an in service date estimate.
Without further clarity and we think thats the prudent thing to do in this situation.
Okay, and the Clos on some and I My next question needed for calling in.
I'm just curious direction.
Think about the dividend payout to next.
A few years.
When you look at your total return.
Position I mean, historically its been 10% growth.
2% to 3% yield so you know kind of double digit low double digit total return.
So are you at a point now where your your cash flows are more stable you're contracting a mainline that it's it's going to be more of.
The total return to the Sandy can payload that more and you have in the past.
Hey, Ben.
I think I mentioned, our current payout around 65% of.
Of cash flows and.
We think that's.
Sustainable.
And prudent.
Target.
And I think will.
Remain.
In and around that.
That proportion going forward.
You are certainly right the utility pipeline model affords a high payout and.
Uh huh.
Returning capital as I mentioned is important to us so.
I don't think Theres any change Ben if you're looking for a vector here.
That that a proportion has served us well in the past and we see it as part of our value proposition going forward.
Okay. Thanks, Roger just wanted to check and just just given that seen assist huge de risking of your cash looking a balance sheet, but thanks for that.
Thank you.
Yeah, and then next question comes from Patrick any of National Bank Financial Your line is now open.
Hi, good morning, and congratulations to both going burn.
Appreciate the updated DCF per share guidance for 2019.
But as we think about 2020 I guess this might be another teaser head of Investor day, but.
At a high level, maybe you can just walk us through some of the headwinds and Tailwinds that youre seeing at this point between 20 to 2019.
Obviously mainline optimization express and see way would be positives for the liquid segment, but just wondering about some of the other moving parts into next year.
Sure Mike I can appreciate the communities.
Interest in sharpening 20 estimates so I'll stop short of providing of that guidance, but maybe I can give you like I say few big rocks.
To help.
Formulate a preliminary view here so.
I think to start.
Hi level 2020 should should be as at least at least as strong as 2019.
I'll give you.
Three.
[noise] detractors year over year in three growth drivers.
On the on the minus side.
I think we'll see moderating energy services contributions pretty 19 was fairly strong we'll probably also see normal weather at least will pull budget for normal weather in contrast to colder weather in 2019, and certainly we'll have a.
The absence of asset sales.
Closed in 20.
In 2019.
On the growth driver side I think your identified a few of them already.
And then the liquid segment, we're going to see a the line three Canada surcharge.
Because effective December one as we mentioned.
We'll see a mainline volume optimizations, we've talked about to the to the top end up 100000 barrels per day range.
We'll see a is still in this bucket the.
The tariff inflator.
And the express.
Capacity.
And probably a similar quantum will see contributions from some of the assets that we've put in service recently.
The German wind farm or investment in Gray Oak Atlantic Bridge and other investments annualized.
And thirdly err on the positive side.
We should see.
Contributions from bills gas transmission business, including a rate case settlements.
When they become effective.
So.
Some some some.
Headwinds, but but certainly some.
Some some opportunities as well and I think just to add maybe one point as a clarification.
I don't think this point we're.
Anticipating any line three.
Contributions from the U.S side.
So I think last year, obviously at Enbridge day, we we've had.
Soon that for 2020, but thats not the case now so that's sort of just as background.
Okay. That's great much appreciated and then I might've missed but was there an update on the commercial contracting front for Texas colt or the timing on when you expect to have that project fully committed.
Yep, Pat there isn't really much of an update right now if you recall our Marat application has been stopped we had two.
The.
Design and make part of our application vapor recovery units, which wasn't part of the initial scope. So that work is underway I think we're hoping to get that back in in submitted and the clock started.
It really is the first quarter of next year, obviously lots of conversations continuing with lots of customers.
Try and too.
Drum up.
Underpinning commercial support and while there's a lot of conversations what we don't have anything to report just now, but we're certainly confident in the positioning of that asset.
Vis-a-vis the a range of upstream crudes that can get there.
Right Thats, great guys I'll leave it there thanks.
Great. Thanks, Patrick Thank you.
Yeah and then next question comes from Jones Chairman of Morningstar. Your line is now open.
Great. Thank you congrats on the quarter, but just one quick question about Albert as new.
Potential easement of the curtailment producers can move mark to market by rail have you talking about any impact that may have.
In the next year.
Yes, we've we've been watching mainline volumes visa be curtailment.
Since before curtailment was announced.
We've been actively engaged on a very frequent bake basis with the province in keeping them up to speed on our plans to be able to offer more capacity so that they can consider.
That additional progress as they contemplate how they're going to manage.
Curtailment on an ongoing basis.
The addition of the of rail is something that as is causing us to look at this even more closely.
So we continue to be highly engaged I think while we all have to watching very closely I can tell you that whether it's the producers or whether it's the people we speak to within the government if theres pipeline capacity available, that's where they all want the barrels to move first.
And.
We fully expect that that's going to happen.
Great. Thanks, that's helpful. I appreciate the insight.
Oh.
Thank you and this includes the question answer session I'll now turn the call over to Jonathan Morgan for final remarks.
Thank you Sonia as always our IR team is available to take any additional follow ups you may have and thank you everyone for your time in interest and Enbridge and have a great day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.