Q4 2019 Earnings Call
<unk> fourth quarter 2019 financial results conference call.
My name is still well and I'll be operator for today's call.
At this time, all participants are not listen only mode.
The presentation, we will conduct a question and answer session for the investment community.
The question and answer session. If you had a question. Please press star one on your Touchtone phone.
Please note that this conference is being recorded.
Well now turn the call over to Jonathan Morgan, Vice President Investor Relations, Jonathan you may begin.
Thank you drew.
Good morning, welcome to the emerging fourth quarter 2019 earnings call. Joining me. This morning, our al Monaco, President and Chief Executive Officer, Golan grinding executive Vice President and Chief Financial Officer.
And you executive Vice President liquids pipelines.
And Bill Yardley Executive Vice President gas transmission and midstream.
As per usual.
This call is webcast I encourage those listening on the phone to follow along with the supporting slides.
A replay and podcast with a goal will be available today, the transcript will be posted to the website shortly after.
In terms of today, we'll prioritize calls from the investment community.
If you are a member of the media. Please direct your increase to our communications team will be happy to respond immediately.
Well again going to target keeping the call to roughly one hour and may not be able to get to everyone. So please try to limit your questions the worn and a follow up is necessary.
As always our Investor relations team is available for your detail follow up questions. Afterwards.
Onto slide to where I'll remind you that we'll be referring to forward looking information on today's call by its nature. This information contains forecast assumptions and expectations about future outcomes, which are subject to the risks and uncertainties lines 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 to Al Monaco.
Thanks, Jonathan Good morning, everybody I'll start off by kicking off kicking the Q4 numbers.
Oh, Okay, and then some developments since Enbridge day in particularly line three.
Then our mainline contracting application and sensors a lot of interest and then I'll provide a bit more of our thinking on it.
As you saw as well from our announcements will cover off securing longer term growth.
Call is going to take you through the Q4 and full year results the balance sheet and our financial outlook.
So moving to Q4 highlights slide three.
Operationally Q4 came in strong capping off a record financial year, and we made great progress on our priorities.
The good numbers the proceeds from asset sales drove down our debt to EBITDA metric to 4.5 at your rent.
Strong and of our target 4.5 to five times range. So we're pleased with that.
We delivered on highly capital efficient optimizations, and the revenue and cost capture we've been talking about namely more throughput delivered on the mainline we had a record December.
Very good rate settlement of Texas Eastern.
And then synergies from combining arbitrary utilities.
We put $7 billion of projects into the ground. This quarter, that's not an easy feat in this environment obviously.
And we moved our U.S. Gulf Coast strategy, along by securing new projects.
So all in we've come out of our post spectra three year plan in good shape, that's allowed us to increase our dividend again by 10% for the third year in a row.
Onto the financial highlights with flights for EBITDA came in at 13.3 billion for the year and DCF at 9.2, both exceeding our full year guidance by 300 million.
That translates into DCF per share for 57 or the top end of our full year guidance range.
This is a great outcome given the headwinds that we experienced as you know we were originally counting on line three to get those cash flow beginning in November.
Last year.
And that cost us eight cents alone.
Yes transmission costs were little bit higher this year, and we issued as you recall shares to buy in four sponsored vehicles in Q4, 2018, but rattled off set those and more with exceptional performance and liquids through your good results and gas distribution in storage and outperformance on energy service.
And we had some good cost management along way.
On the slide five full project execution in the Q.
Rail began service in Q4 that when it fits very nicely into our Gulf coast strategy, which I'll speak to a bit later.
On offshore wind a whole he say and the adjacent expansion started generating 609 megawatts of capacity and that's a large wind farm by any measure.
So with our UK Rampion project, we're now at about a thousand megawatts of operating offshore wind and we've got four more projects in development by the way offshore France with attractive P. P series and we.
We are execution on one of those right now.
Back to North America, We got line three Canada into services, you know, which.
He is a big deal for us it immediately enhance safety and reliability of the system. It gives us good flexibility to help E. Grass. So that's great news for our customers in terms of WCS be volumes Netbacks and the inner interim surcharge gives us cash flow 2020, before we bring the rest of the line on it.
The U.S.
And that no let me turn to the business update in line three in Minnesota.
The last week, BPC, recertify, E.S. and reinstated the certificate of need and wrote.
Obviously, it's good to see this process concluded because it sets the next steps in motion for the remaining permits.
We had excellent community support for the project and all the last five years. This project has been thoroughly vetted and everybody's had a chance to provide their m. <unk> well so that's lengthy.
The process made this project better I think gives people confidence that the environments protected.
The focus now is on the permitting agencies. So let me outline the big picture steps on slide seven. So this is the graphic views that we've been using to update you and it's divided into the two tracks.
And at a high level you can see a few more items have been checked off since Enbridge day.
On the P.C. track.
Now that the I asked the certificate of need a route or recertified.
PC <unk> issued an order followed by the petition for reconsideration period that same process that occurred last time around.
On the agency track the department of natural resources.
Pollution control agency and the Army Corps had been working in parallel through this period, where the I guess was being re certified.
The PCB has now updated their schedule as you saw and will initiate troubled review of the four one permit next week.
Followed by public consultation in early March so, they're moving things along well.
The additional public consultation at the Army Corps is already underway. So that's good and the DNR continues to work on the permits.
Once the state agencies in the core complete their work the PC will be in a position issue an authorization to construct so this is where the two tracks come together.
Now, we still don't have clarity on on specifically when permits will be issue. So our approach is gonna be the same as before once weve clarity on the final permits will be in position to provide and I guess the estimate but as we've said before once we have those permits in hand in are clear to go then concern.
Direction should take between six to nine months.
So in light of everything we're pleased with how this is moving along.
So, let's now move to the other topic mainline contracting onto slide eight.
So we filed or see our application in December and importantly that included 13 letters of support shippers representing about 75% of current throughput.
Now this is more important than just on the face of it the shippers have basically said in their letters that they support the offering including the tools and they're committed to supporting this process in front of the regulator.
The application itself speaks to why contracting isn't the public interest, which is the see our task here and we think the offering not just needs but exceeds that test.
First the offering maximizes producer net backs because we provide the lowest stable tools to the very best Mark.
Positive from a WCS be economic perspective.
Second is good for the basin because contracted capacity walks in long term demand for western Canadian production.
It's also important to producers in the future of this base.
There is open access everybody will have an equal opportunity to move barrels to the best Mark.
And two examples of this process, we introduced what we call requirements contract. So no take or pay commitments are needed I think that requires a clarification as well and we reached.
A minimum threshold <unk>, a maximum threshold in 2000 barrels per day for a small shippers so.
We're basically inviting any small shippers to participate in.
And finally this offering provides a commercial framework for future low cost expansion on the mainline. So the point here is that we've gone to great links to ensure that the offering works for everybody.
And that our interests are aligned with producers as they always have been.
On C.P.S. and previous to that.
So let's take a look at what is probably the most important issue here, which is how we balanced the offering that we struck.
On slide nine.
When we began talking about the next rendition of Cts with customers. They told us universally that three things had to be either.
Because they were frustrated with the portion that they want guaranteed access to the mainline.
They want toll certainty to protect their margins and provide clarity over future upstream and downstream investments they need to make.
And for us to continue optimizing our system because it provides the lowest cost incremental capacity and why disturbed why to services and remember.
We manage operating and integrity cost foreign exchange interest rates in capital exposure on behalf of the shippers.
[laughter] after two years of negotiation and changes to improve the offering we landed on what is we think it very good balance.
If it's for everybody producers integrated companies and refiners.
So a few different perspectives on how we balance this.
Refiners and integrated producers have historically shipped most of the volumes on the main line about 90%.
So for them contracting secure access to western Canadian barrels that they need a stable and competitive tools.
Now on the producer in many producers have been satisfied the selling their barrels to refiners in Alberta, but this offering can change that game.
Producers cannot control their destiny by getting their own guaranteed access to our system, which will optimize your net backs because they can sell barrels to the best markets.
So while many producers haven't historically been mainline shippers this offering allows them the opportunity to control their barrels.
Now for those who don't want to participate we're reserving 325000 barrels a day of spot. That's a lot of walk up capacity, which will increase over time with further optimizations and expansions and let me spend a minute now on the tools.
So on slide 10.
First of all well you scan this anyone signing up including the requirements contracts, the non take or pay contract.
Starts with the base contract told a 570 barrels.
No its assistance fully utilize going forward, then all shippers small and large giddy 35 cents discount so that's down to 535.
Shippers, who sign up for longer terms are eligible for another 10 cents. So even the smallest shippers tool would get down to 525.
Higher volume shippers would see an added 14 cents discount, making the lowest contract will 511.
Now a couple of important things take away on this the discount so that is talking about here apply to all shippers small and large so everybody is treated fairly.
That's a negotiation that we undertook over the last couple of years results in that whole, that's lower than what the Cts extension Toby.
So in summary, we think this offering provides a very good balance for all parts of the value chain producers refiners and integrated.
And it's positive for basin Netbacks.
Not all that surprising that theres some debate as a there are many different perspectives as they're usually are in the basin here to balance and that's why the regulator will assess it from the public lands.
Slide 11 is the final one on this topic and gives a brief outline.
The CR just completed what they call their issues request process, which helps to determine the scope of their review we filed our response to that last week.
Next the CR would typically layout the scope and timing and then receive submissions by Interveners and ourselves and the timing around that will be of course up to them.
Excuse me that would be followed by a hearing in the C ours deliberations likely later this year.
We fully support a very thorough proceeding that considers all the issues based on the evidence and wants to see our makes its decision will study it and if we think it works for US then we move forward to open season.
Switching gears now to the future ER and the U.S. Gulf Coast strategy on to slide 11.
This chart provides context as to why.
The U.S. Gulf Coast is a very strategic part in North America for Us.
We think the golf will be the epicenter of how North America, where prosecuted its global energy advantage, which has changed on ultra low cost supply feeding growing global energy demand.
Gulf Coast Refiners as you know are the most competitive in the world and their configured to process roughly four and a half million barrels per day of heavy and medium sour.
But a third of the heavies are actually supplied by Canada, but we see that rising to 50% given mexicana somewhat and Venezuelan declines.
Blending heavies with like Permian barrels to create medium sour is also part of the value add here.
And then there's low cost light supply destined for export markets.
[laughter] excuse me.
On the natural gas side, we're excited about the Gulf Coast LNG Mexican exports and pet Cam fundamentals. The focus then overall, our more inline heavy and growing gas exports drives good it infrastructure opportunities for us.
Next couple of slides shows what I mean by that moving slide 13.
Just a few years ago.
Looked at this map, we would have had a zero position in the U.S. Gulf Coast.
Combined with the fundamentals today, our mainline Flanagan and Seaway pipes create an unparalleled heavy system slope out that gives us low capital intensity opportunities.
[laughter] with those pipes in the ground, we're now creating last mile conductivity refiners and export facilities on that path.
The plan Houston oil terminal will provide 50 million barrels a day of storage and connections to see weight refinery distribution network and existing Doc docs.
We're developing deepwater B.L.C.C. loading projects with enterprises, you know and that comes with ownership in their spot terminal.
As a great low cost solution for customers here that we've come up with because we're leveraging combined assets and limiting new capital.
Turning to slide 14.
We're also very well positioned with our gas business to capitalize on exports.
Texas, Eastern and valley crossing parallel coastline, Louisiana through Texas.
The border with Mexico.
The strategy here has been to leverage the footprint and create a set of options to capitalize on the future of LNG.
We're currently connect the three plants and we're moving ahead with the Cameron extension to the Calcs, who pass terminal.
We've got three other projects in development, including two new committed ones that we announced today.
That totaled roughly 2.3 billion of new projects with opportunity to grow from there.
So we've given you a glimpse of this at Enbridge day, but now they are secured so on slide 14, 15 for a bit of a description there.
The first project will serve next decades real Brandy LNG facility at Brownsville.
We reached agreement the by Rio Bravo pipeline development from next decade, as you saw which would connect premium supply to Rio Grande day through October Dolce.
And of course, they signed a precedent agreement with us.
The base investment here is 1.2 billion for the first two trains with good low cost expansion potential for additional trains.
Secondly, we have secured an expansion of valley crossing to serve the an old but LNG terminal.
That capital will be about 500 million and is underpinned by a long term take or pay contract.
In both cases were using our valley crossing footprint, so its capital efficient and we can manage execution risk well.
The commercial underpinnings of both projects are in the middle of our pipeline utility fairway and well within our equity self funding. In fact, you can look at it as if we're filling up part of the five to 6 billion per year and organic growth capacity that we have.
And both of those LNG plants are subject to final that's like these.
On slide 16, another focus of the gas businesses modernizing upgrading the system to reflect regulatory changes like New America Air emission standards.
These solid organic rate base type growth opportunities total about 800 million annually for the next while system wide and will recover return on capital through more frequent rate case proceedings.
I'll shift out of the gas utility on slide 17.
Great progress here on capturing synergies related to the Mel dimension of the Ontario utilities that should drive a strong or weak during our five year incentive based regulatory framework and we're just in year two that now.
We are advancing about $400 million of system expansions.
And on top of that Theres, another 500 million or so of core rate base growth annually from the 40 to 50000 per year in customer ads.
We're happy with this business and it should continue to generate very solid return and good growth.
So with that I'll turn it over to call him to speak to the financials the balance sheet.
Alright, Thanks, Alan good morning, everyone.
I'll start with some high level remarks, and then walk through our performance and outlook.
So from a high level when I step back from our year in its totality and consider it in the further context of the culmination of our three year plan since the spectrum acquisition I.
I'm pleased with our execution.
Simultaneously, we've simplified our structure.
The restart business mix through noncore divestitures.
Delevering our balance sheet significantly.
And all the while creatively growing our per share financial performance. So.
Challenging task individually, but a good achievement.
All at once and a a time they wanna relative to where the industry. It is adding going so.
With that behind Us I'm very excited about our future.
Some comments now in our 2019 performance on slide 18 on a full year adjusted a basis EBITDA is 13.3 billion.
Or about 420 million higher when compared to 2018.
The growth came from three areas. The medically first we've optimized our base business, creating incremental pipeline capacity.
A number two filling that capacity with strong demand pull fundamental fundamentals.
And thirdly, as you know incremental contributions from our new capital growth projects that we brought into service in 19, and then also.
Later in the prior year.
For the quarter as expected our fourth quarter EBITDA results were slightly lower than last year.
Primarily due to an exceptionally strong energy services reported a contribution in the fourth quarter of 2018.
I'd say, we also have some unusual quarterly variances. So there maybe some limited predictive value.
From a some of our segment results this quarter and I'd.
Moreover, guide you to our 2020.
Our results if you're looking for a for patterns and run rates.
Turned to liquids pipelines, our EBITDA was relatively flat for the fourth quarter, but up significantly 424 million for the full year.
And again relative to the guidance, we gave last year for that for this segment.
For $250 million versus that guidance last year. It enriched Dave So I think a good accomplishment.
And again overcoming it probably about 160 million of delayed line three contribution which was embedded in that guidance.
Back back at Enbridge day, a 28.
18.
For the full year the mainline system ran full and in fact, we achieved record annual throughput averaging about 2.7 million barrels per day.
Our total also benefit from our annual Inflator effective July one as per usual.
However, this incremental revenue was offset by lower effective rates on the hedges, we used to convert U.S. dollar total revenue to Canadian dollars.
And I think these hedge rates are quoted in.
In the a fine finer points of the news release.
The Gulf Coast in mid Con system benefited from higher volumes on the Flanagan, South and Seaway pipeline due to strong demand for cane heavy barrels in the Gulf.
We also commenced initial operations of the grille pipeline in the middle of the fourth quarter.
The Bakken system also continued to perform very well benefiting from strong production growth in North Dakota.
Looking at the liquids quarter in isolation relatively flat results were due to the timing of operating and maintenance expense, which was unusually heavily weighted in Q4 relative to the prior year.
This should normalize going forward.
Moving to gas transmission EBITDA was flat for the fourth quarter and down $200 million for the full year with the majority of this decrease as a result of the U.S. Acadian GNP assets that were sold in the second half 2018.
[noise] GTM saw a partial year uplift in 2019 from our Annualization of new assets placed into service like Nexus and valley crossing.
These are placed into service late in 2018 year old call.
And as I've referenced in past quarters, our gas transmission team continued to progress a comprehensive integrity program, resulting in higher integrity operating expenditures in the back half of 2019.
Now the cost of this program should normalize downward somewhat in 2020 as already reflected in our Enbridge day guidance.
Gas distribution storage EBITDA was up $29 million for the fourth quarter and 93 million for the full year.
Utility benefited from higher distribution charges as a result of the growing customer base.
Colder weather as well as cost synergies.
From the amalgamation of EGD and Union back on January one 2019.
Our power business was up $20 million in the fourth quarter, but.
But down 11 million for the full year.
The fourth quarter results were positively impacted by contributions from our German offshore wind investment how he see which came online and we look forward to its full year contribution in 2020.
The segments full year results were a little lower largely due to less favorable wind resources and availability at certain U.S. when facilities.
Which again, we anticipate improved performance from in 2020.
Moving onto the energy services as mentioned earlier in 2019, we had benefited from very attractive locked in margins, which drove our strong full year 2900 results.
Small loss in the fourth quarter 2019 was expected.
Given the weak market conditions for energy services.
Including.
Lower basis differentials in the Gulf Coast, given new pricing dynamics there.
In contrast, Q4 2018 was exceptionally strong with wide basis differentials.
As I noted, we anticipate normalized results in 2020.
Got it.
Finally, eliminations and others was 14 million favorable for the full year.
And I'd say the unfavorable variance in the quarter was unusually large and is again timing related.
I'd refer you hear also to our 2020 guidance.
Moving to slide 19 for the DCF perspective.
Absolute DCF was up 21% for the full year.
And as I've referenced in the past the sharp year over year increases largely driven by the buying of our sponsored vehicles, which means we now retain all of the cash from those assets.
The Pershare metrics of course reflect the equity issued to fund the buy ins.
Full year DCF per share of 9.2 billion or $4.50 per shares up 15 cents over 2018.
In line with or even a little better than our expectations and towards the top end of our 2900 guidance range.
A significant portion of a DCF per share growth came from the strong EBITDA performance just mentioned.
Other drivers include distributions in excess of equity earnings which were higher throughout the year due to strong operating performance and <unk> related higher cash distributions on assets like Seaway, and then the Bakken as well as it.
New joint ventures placed into service like Nexus.
Maintenance capital was slightly lower and 29 team.
Again, due largely to our 2018 asset sales.
So in summary, strong year over year performance from all of our assets.
Which remain well utilized.
Turning to slide 20, I'd like to highlight the strength of our balance sheet.
During the quarter, we closed three noncore asset sales and in fact in totality, we exceeded our original asset sales program target with over $8 billion in proceeds.
As shown on the graph to the right our credit metrics have really strengthened over the past few years and are now well inside our longer term target.
Our prime metric here is debt to EBITDA and this a few years ago was as high as six.
Times.
At the end of 29 team in contrast, it's now sitting at 4.5 times on a trailing 12 month basis.
This of course positions us very well to equity self fund additional future growth.
Moving to slide 21, I'd like to remind you about our capital allocation priorities.
Preserving our financial strength, while executing our secured growth is our number one focus.
This will support a growing returned to shareholders through a dividend in the near term, which is our second priority.
Once we have executed the secured capital, we'll have about $5 billion to $6 billion of annual capacity.
We're going to be very disciplined about how we allocate this capacity to maximize long term value and that's our third priority.
Within this category, our preference is to grow organically optimizing extending and expanding assets. The theme here is efficiency.
Size wise will be looking at singles and doubles in this category, which are more executable and deliver solid returns.
Well also consider share buybacks to once we're through the secured capital program and more particularly line three.
We currently have about 11 billion unsecured organic growth projects.
These are well diversified geographically and by business line and fits squarely within our low risk business model.
They'll add considerable EBITDA to creating further financial flexibility and are all fundable within our equity self funded model.
I'd note that our projected balance sheet metrics in 2022 for example could be even stronger than our target range given this dynamic.
Even so during this period, we will continue to evaluate opportunistic noncore asset sales as we have and recycle capital like the metal sale announced today for example.
So turning now to slide 22, a real recap.
2020, and our out of your guidance.
In a nutshell I'll reiterate our messages from Enbridge day.
Our 2020 EBITDA guidance.
Means approximately 13.7 billion, which translates into 2020 Bcf per share in the range of for 52 to 480 per share.
Again the growth in 2020 is expected to be driven by a number of factors, including strong performance utilization across the board, including volume growth and system optimizations, particularly on the liquids mainline including line three Canada contributions.
Secondly, uplift from a full year of operating cash flows from the 9 billion of projects he brought into service and 29 team.
Offset partially by the impact of asked itself.
And within the utility new customers community expansions in cost synergies and within GTM rates up let's.
From a new rate agreements.
As we look even further beyond we expect our DCF per share growth.
In the range of 5% to 7% annually on average again coming from from two sources.
First one or 2% from embedded opportunities in the core business I E capital light opportunities and the second bucket, 4% to 5% from newly secured capital investment opportunities again, all within our self equity funded model.
So thank you Oh back you.
Okay. Thanks, Colin so.
All in 2019 was a financially and operationally strong year, but as they say that's in the past. The teams now focused on building for the future with a keen eye on capital allocation and by that I mean executing on the secured projects, we have including the U.S. portion of line Threed.
Optimizing the base business through embedded growth within the system, there's plenty of that opportunity.
And it means securing new projects that will extend growth well into the future as you saw with our LNG announcements.
This call Im just covered well, we'll be disciplined by investing in low capital intensity organic projects and living within the equity self funded model and of course, the balance sheet and financial flexibility will continue to be the overarching priorities. So with that we'll turn it over to the operator for questions.
Thank you.
I'll begin the question and answer session. Yeah. The question. Please press star one on your Touchtone phone.
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Rob <unk>.
From Scotia Bank is online with a question.
Good morning, everyone.
Just a I realize that you're not providing an estimated in service date for line three but based on what you've seen from the permitting agencies in terms of their proposed progress to date as well as your conversations there I'm just trying to get a sense. If everything is unfolding as you would have is had expected that would allow construction for the summer.
Maybe I'll just start off and burn you can take on.
I would say from everything we've seen Rob.
The agencies have been working diligently through this whole piece and.
You mentioned discussions obviously, we were engaged with them and we have good good discussions on on all the work that's being done obviously we are.
Being quite.
Responsive in terms of information Thats required and.
The same time, they've got to work through their process, so, but everything that we've seen indicates that they've been working hard and are on track. So.
Vern if you having add on that well I think the only thing I would add al is the agencies are very mindful of making sure that their decision records are very strong.
That everything is well documented so that.
That in the future there's no ground for these things to be overturned.
Alright, and then switching over to line five just want to get a sense of your thoughts on rerouting the pipeline on the southern edge of Lake superior as well as when you could.
That would be around the bad river band as well as when you think you could actually start.
Doing more fulsome total construction.
Across the street.
Okay, Rob I'll take those.
First with the Bad River.
The tribe has indicated to us that they wanted us off of their reservations. So we've been working with that in mind, where we've now filed for our permits to reroute I'll give their reservation.
So we filed with the <unk>, Wisconsin.
Public Service Commission, the Wisconsin, Deanna are and the Army Corps and we've been actively auctioning land for about a 40 mile Rerate.
So we've been doing this too too.
Need their desire of getting off the reservation as quickly as possible.
And I think we're well on track for that but we are still opened up further discussions with them. Thank you change.
On to line five tunnel.
We've seen with the recent quarter claims decision upheld the tunnel authority agreement.
That effectively gives us so an avenue to pursue the permits to build tunnel, we completed the Geo technical work in the fall and there are no surprises there.
Tunnel authority is up and running now and we expect to starting.
Shortly and once we've done that we'll be in a position to file all the necessary permits to start construction.
For the the tunnel so we are.
Making all efforts to be on track to meet the early as possible in service date of 20 to 24.
All right that's helpful. Thank you.
Okay.
Thank you.
Jeremy Tonet of JP Morgan is online with a question.
Hi, good morning.
Morning.
I just want to pick up on the LNG side here seems like some really.
Interesting developments and so far as new projects here and just wondering if you'd give us kind of your thought process as far as you know the cost of these pipelines and I guess, maybe more specifically what costs you would incur if any ahead of that ideas and how do you think about the balance of of timing there and would you have been.
Just to go kind of further upstream there and take a you know stakes in any of these facilities just any of these the you know thought process here would be helpful.
I think bill the kind of just pure Jeremy.
It's bill Yeah, So really really good story here I appreciate the question.
Well, we've tried to minimize any cost pre f. I'd.
For any of our activities and so far that's been holding pretty well so.
I think you're well aware of what we've done that connect to LNG facilities with Cameron Freeport. We go into this would be in head or.
Today, we've got the nice project, we're working on under construction now that has that fight due to the venture global in Calcutta issue.
And then these kind of these three that.
That are coming down the pike here with venture Globals Blackmun's, the an open and Rio Grande.
Today so.
Pretty minimal dollars up front, we'll be watching the F.I.D.'s closely and that's kind of the beauty of footwear, what our strategy has been which is to simply.
Make sure we're the ones that can connect here and then if they go we're in a great position.
You know as far as timing on the on the pipes go obviously, we've got some more to do with some of them.
The preferred activities.
Benefit of Rio Bravo is that we're buying a FERC permitted.
Project, that's pretty impressive these guys have done a really nice job so.
So that's a that's a benefit their costs were not seeing anything anything different than our because of what would we typically see in our execution I think we've got these.
Pretty well nailed down, especially where they are we've got a lot of experience was that for example would valley crossing in South Texas as far as interest in upstream I think was the last part of your question or not the upstream, but the terminals themselves.
Yeah. So we have a small stake in Nova.
Brownsville.
Basically we'll watch the business model carefully there and if you know if that's something that fits our low risk business model. Then, we'll we'll continue with that and you know not opposed to it it's probably just not our you know our planet if that makes sense.
I think Jeremy itself just at a high level. If you go back to.
The the fundamentals behind the spectrum deal itself.
I think this is a great example of how the footprint. We were looking for is really giving us an optionality play on a number of projects and I think bill and the team has done a good job to to set up those low cost option. So like you said whatever happens down there in the Gulf and we know that the Gulf and.
The U.S. generally is really well position for global LNG, given the supply and obviously the low cost. So we're really well situated there and very happy with these two projects we lined up.
That's helpful. Thanks, and maybe just continue with natural gas here just wanted to touch on maybe some projects that don't get as much airplay and you know a penny and then maybe as well as well as the frontier project can NBC I'll. Just wondering if you could provide updates on some of that.
Yes, so it's bill again, Jeremy So you know pennies is a man it's a struggle we.
With a couple couple of points to make your first.
We've got our go to the Supreme Court, if they will take us a two to here.
Our objection to that the third circuits.
Decision we.
It's it's something that I don't know breaks precedent with 70 or 80 years of.
The ability of projects Interstate projects to.
You know to use.
Condemnation on.
On.
On state.
Stayed on land and and so that's that's going to be that's going to be a big deal really for the industry and not just for Penn East.
More specifically to the project on 10 East we were filed for a bifurcation, where we'll we'll go ahead and.
If they'll let us build the.
Pennsylvania section in the first phase and then go to the second phase in New Jersey sometime later.
Pennsylvania will at least get.
The northeast Marcellus producers access to.
Other pipe like Adelphia, and Colombia, and then will will yeah.
Figure out what to do the second phase if anything later on.
You know what's frontier.
In Western Canada.
With.
Basically we're we're kind of on a and a holding pattern here, we're talking to a lot of folks.
To try to get a solution to the to the to the growing issue, there, which will become an issue in a few years of.
Liquids in the pipe and we ran into this and Apple Asia. You May recall. This you know some six or seven years ago and.
Basically it's it's an opportunity for the producers to monetize some of the.
Some of the heavier hydrocarbons going into the to the system. So we really think there's a solution there, but not a not a lot of of updates to give you right now.
That's great. Thanks for taking my two Nat gas question.
Okay.
Thank you Robert Kwan from RBC capital markets is online with a question Hey, good morning, I'm, just first questions around project development Slash M&A and calling you made the comment that efficiency is kind of a key themes I'm just wondering you've executed a number of projects where you've bought into later stage.
Developments, whether that's into joint venture out right. Just wondering I guess is that a preference and then second as you think about just.
Maybe larger scale acquisitions.
You become particularly adept at asset monetization. So I'm just wondering what your appetite as to acquire a business that maybe how some assets that you covered but others that you don't want would you be open to doing.
Doing not if it meant hyping off a material part of somebody else's business.
Yeah. Thanks, Robert that's call on I think.
Big picture, we're not real focused on larger scale M&A at this time.
Even with the possibility of funding it with.
With the sell down or recycling.
I think as we've talked about our focus is really organically and.
More efficient.
You know projects in our in our core nor in our franchise. So.
I guess.
Theoretically possible ministry of its not really something we're laser focused on right now.
Okay, and then just the kind of buying into later stage projects is that kind of almost a core strategy at this point to help de risk the development side of things.
Well I think.
You know as I reflect on the.
Some of the project, we've been kind of buying into.
Top of mind, our European wind projects, which you.
Directionally I think you're seeing is coming in a little bit earlier on those to capture.
Some more of the Oh the value there with with strong partner, So I guess where marrying together.
That.
Joint venture Wise, I think you know spot with enterprise is a good example.
Perhaps not later stage, but.
No it's mid stage and.
Efficient capital wise so.
Those are couple examples where I think we're trying to team up.
Use our balance sheet efficiently and sound strategy I think maybe just going back to what.
Homestead about offshore wind is a great example, Robert.
In our ability to recycle and so we got in on those projects.
When they were developed they had PPA days.
Now I think with a new partner coming in that we've just recently brought in.
We're in a position now where we can essentially promote the project and we obviously like that opportunity because it helps.
Most what was already a very strong return for us. So if we can chip away at things like that and bring in capital minimize our own.
Capital deployed and boost our return that's all part of our focus on capital allocation and discipline and minimizing capital deployment.
Got it and maybe if I can finish then on something similar on the when side al.
Our sustainability SG related topics driving your strategy and I guess, historically renewables was a place where you could leverage or permitting construction and operating expertise when you've got into the onshore side of things for growth.
But at the end of the day. It seemed like you are still financially driven first pulling back on onshore wind when it kind of became a cost of capital should out and then eventually just selling out given the amount of value could achieve.
How should we think about.
New goals going forward, especially the offshore platform.
Yes, I think your observations good around the onshore renewables I mean, obviously.
I think we were probably way ahead of the game on renewables generally in the team did a good job of building up a very good portfolio.
But basically what we saw is that the growth was going to be more limited in North America.
Particularly for independent renewable projects and at the same time as you know we have an opportunity to monetize.
The assets that pretty good multiples when you know frankly the growth was wasn't as strong as what we saw in the offshore side of the business. So recycling that capital into what is very growth the outlook for European offshore wind with PPH frankly that are very very strong.
Ron.
And line up extremely well with the rest of our business.
In terms of where it fits as GE wise.
I think there's some obvious benefits there I mean, if you look at.
All of the parts of our SG position I think you could fairly say that were leading on on just about every count we tend to.
We intend to kind of keep it that way there, but the renewables really are maybe a supplement to the as chief strategy first and foremost.
There are great projects, they've got good growth in them and most importantly, the risk reward profile lines up extremely well so.
It's a part of the SG story, if you will but certainly very strong projects on their own and we've got enough inventory now that we're pretty incredible player I think in this space going forward and with Great partners in Europe.
That's great. Thank you.
Okay. Thank you.
Thank you Snapfish I knew it.
Yes, that's all my other question.
Hi, good morning, everyone.
No I'm sure you can legally comment on this but with respect to mainline be contracting.
There's been some intervenor arguments.
Local about them.
You can talk about there any deficiencies in her comments or some new alliances with the MBR proposals that make it department and weak their arguments.
I'm.
Just trying to understand.
If there is some comments that you can sort of make about how you've changed the process for example.
Capex requirements risk.
It's a different that's LNG just curious what you can say.
Well, maybe I'll start.
Well that Vern speak to it you know when you really look at this a high level Shiners we've got.
You know essentially a strong track record.
With our customers have really aligning with him and the best evidence about is probably the last two renditions over the last 20 years of of Cts, where as you point out.
We've essentially.
[noise] taken on the risk of investing capital in the business.
Foreign exchange interest rates operations, we've taken all that on them essentially provided a high degree of total certainty for the customers. When you look at this particular offerings.
All of that is still there, except we're providing something more which is the two things that they asked us to provide guaranteed access to the system and total stability and when you look at this from a producer.
Perspective in particular in the basin overall, having that certainty over the next 810 12 or 20 years, depending on what they sign up for that provides a lot of certainty for their investment decision, making I think it protects their margins and as we said in the comments.
That really I think solidifies their netback story just given.
The low cost tools, so I think.
It's it's unique but it's built off of a long track record of our customers.
Trusting us to provide excellent service I mean, we move.
Multiple different kinds of crude that nobody else can do frankly, and we do it an extremely low cost. So we think we've got a great.
Offerings here that really as I said in my comments tries to balance.
This is a dichotomy of issues between producers refiners and integrated so I'm not sure if that gets to it but may be very and if you want to add anything this time, yes, okay. Thanks, so up.
I think one of the key things that we should point out is our customer base is very diverse and the individual interest of all of these companies.
Very quite dramatically.
And you can see that the it's extremely hard to get consensus.
Within the basin and all the players in the basement and you can just look at the recent experience the industry's had with curtailment in Alberta, where there is some very strongly diametrically opposed views.
So given that circumstance.
For us to have around 75% of the volumes on the system supportive into this commercial offering is quite quite an accomplishment.
We think the people who are posted this are doing this for a number reasons their own particular commercial circumstance.
And the timing of the offering and the three optionality to potentially Enbridge system provides for that.
There are some who like contracting, but just would like to see a different whole outcome.
We have a few customers that want us to perfectly matched their upstream and downstream contracts and unfortunately, we can't do that in the regulatory format. We have and then finally.
There are a whole bunch of smaller producers, who never really use the enbridge system more any pipeline system in fact over their history and it's been a it's our challenge going forward is to continue to educate these customers on the potential benefits of this offerings. So I think as we spend more time over the.
The next year as we go through the regulatory process I think we will be in a good position to build stronger support as we move on.
And just one final comment.
You know.
We keep saying it but this this offering has been built up over a period of two years.
We didnt just drop a regulatory application on the table.
And if you go through it objective Lee you'll see that the team has been I think a great job of listening to particularly the smaller producers lowering the threshold for volumes.
Coming in at a tool, that's very cost effective and lower than would otherwise be and a myriad of changes in the contracts that have demonstrated that we're listening very carefully. So I guess at this point, we'll have to see what a regulator thinks about it.
No that that makes sense and really appreciate the color on it maybe pivoting a little bit here.
When you look at the pace of declining rig activity in the U.S.
I do recognize that you have $11 billion capital program for 2020 and beyond what do you see a scenario where the overall growth spending slows to a point.
Were you you basically pivot to a temporary higher level of return of capital maybe part of your buybacks you know until activity levels resume I'm just kind of wondering what's your your thoughts on how you're thinking about it.
I think it at this point I.
I mean, we have to be very disciplined and objective about this so we're not going to push.
Capital investments just to.
Achieved a growth rate that that we may have had in the past. So as you saw at Enbridge day, we're going to be very clinical about how we deploy this capital at this point in time I would say if you look good bills business Burns business since his business and you throw on the offshore rig.
Newbuilds theirs.
Ample amount of opportunity with in those core franchises without having to stray too far from what we really good that and the growth that's embedded in there. We've also got member.
Probably 1% to 2% of growth.
It is already sort of embedded I guess in in the growth rate from rate escalators ramp up ramp up of volumes and and some of the capital projects that we just talked about in the gas business or customer adds in the utility. So we've got this good part of 1% to 2% that's.
Fairly easily achievable.
Then, we'll see where it goes from there so in the franchise like these opportunities that we just announced today.
I think we've got plenty of those but if it gets to point, where we're running out of those and the returns don't match up to what we need them to be then for sure.
You know different options will come into play in I think we've said once we get through line three.
In executing line. Three then certainly all options are on the table, depending on what to the organic opportunities are.
Alright, perfect. Thank you very much guys didnt have a great weekend.
Okay. Thank you.
Thank you Linda Ezergailis from TD Securities is online with question.
Thank you I'm wondering if you could.
Give us a sense from a capital perspective, what the.
Outlook is for the next year in terms of your backlog if opportunities I appreciate that there's a lot, but I'm wondering if for example, with some of the decline in activity on the producers side and the U.S. and there might be a little bit of a mall maybe on the on the pipeline side.
And Ah.
Are you seeing more perhaps then in Canada or offshore to kind of get to deploying your five to 6 billion of Oh.
Free cash flows.
This year and next year I guess I'm looking at your 11 billion dollar secured capital bucket and I see about a two year backlogs I'm just trying to figure out the cadence of.
Securing new projects have the next half year here.
Maybe I'll just start and then Colin will chime in I think the way to think about this one to at least for the three year plan that we have out there through 2022.
So what we have embedded in that business in terms of those items I mentioned earlier around.
Tools and volume ramps.
And some of the other things that we talked about.
And the $11 billion that is secured through 2022. So I think were good to go on this three year plan as far as achieving.
The growth that we had talked about in the 5% to 7% range I think what we're doing now is tacking on opportunities like the ones, we announced that start to.
Contribute beyond that 2022 period end and we're working on a number of other opportunities that will help fill that and including some of the offshore ones that you mentioned, so I think that's how to bifurcate. It it's out through 2022, I think the 11 billion.
Gets us there and then beyond that it's more organic growth to be secured.
So.
Yes, it's a great answer I think.
You asked what do a 2020 growth Capex was that you know we disclose that members is 5.5.
Billion of growth Capex too.
A satisfying and execute on.
The first of other three years to got Celeven million.
And as Bill said as we consider new projects, we're really looking to see that.
The spend years, if you like on on those those newer secured projects fit with.
This capex profile and that our balance sheet can.
And accommodated handling.
Yeah, I guess I, Yeah, I was asking more in terms of securing new projects that it's kinda back filled so two in three years out maybe I can just follow up with.
Your existing operations.
And maybe that's the question for Bill I'm wondering what's sort of discussions you're having with your producer customers in the U.S. northeast are they asking for any sort of a toll relief any sort of blend and extend how are you seeing your volumes even on your secured capacity trending.
Well so in my business line to say.
We're a long long haul long line FERC regulated.
Fully contracted.
The pipeline system and.
I would say number one no we're not.
No we're not in any discussions with blend and extend or.
Any type of discounting I think one reason for that and.
Maybe this is maybe this shouldn't be hard to get but these contracts are pretty much in the money.
Meeting.
We we get out of for example, when you get out of Appalachian as a producer and you hold one of the contracts that they hold on us they're getting to places like the arc city or you know the reversals. We did they are getting to the Gulf coast right. So those are and they're pretty they're pretty inexpensive rates relative.
Really speaking so so far I think they're very heavily utilized and you know they are they're very valuable contracts for them. So no. We just we haven't had those you know we don't we don't have GNP right, where we're just the long haul reservation based pay us and we'll get to somewhere.
Kinda pipeline system.
Good.
Thank you.
Thank you Michael the PTC some Goldman Sachs is online with a question.
Hey, guys I'm just a question about what's assumed in guidance around the mainline toll going forward kind of the guidance growth rate not the 2020 guidance. Just curious do you we assume no 570 per barrel.
Or should we assume one of the kind of the discount rates or some kind of weighted average when thinking about kind of the average told that you'll collect on the mainline and starting mid 21 and beyond.
Yeah, well, we used for our financial projections is kind of being weighted average tool.
So assuming that theres contracted tools you minute hanging around what we've shown on this in the presentation today and that the spot toll would make up the difference.
Meaning the weighted average with somewhere be between the 510 in 530 a barrel range.
And can you remind us what that spot toll would be.
This bought toll would be close to the Cts exit tool.
Got it so close to the five seven.
Yes.
Okay I appreciate it guys. One last question Youre, you'll made the announcement today about Rio Bravo and previously had made announcements around Inova just curious given.
How weak global LNG prices were before the beginning of this year in and then the massive dipped down that's occurred in the last month or so.
Specially in the Asia, U.S. and Asia, Canada spread how are you thinking about the likelihood of those projects actually going if I'd in the near future in those pipelines actually getting built.
Yes, so it's bill.
Certainly the global prices.
Brought about by a number of factors are causing from some short term issues. But these are these are facilities that are in that next round.
Well that friday's so.
Yes. These are these are entities that are looking for offtake contracts and supply agreements over the course of the next year or so but not to be in service till 2020, 320, 425, and that's kind of where the that inflection point is as you get into.
That's some folks think 21 other was 22.
You get to a point, where you get a better sort of a rebalancing and a need for global LNG and spin out I don't know I haven't seen anything.
That says that LNG globally.
Or the demand for LNG globally isn't isn't going to be pretty strong over the course. The next couple of decades. So you know these these folks are yeah. There are beating the bushes, but you know we have a we've a lot of phase. We obviously got a really good insight into their activities over the course of our negotiations for the for the pipes and.
I.
I'm not going to count any of them out, but that's our.
Our work right now we hold Optionality, if they do F.I.D. and we know we have.
Pretty good view that they're in good they're in good position I think competitively, though some right bill.
From a cost supply cost perspective, given where those two projects are and how competitive they are proximity wise to markets and so forth.
You know I think we feel pretty good that projects go these are likely to be them. So that's that's a good spot to be in and that bill and his team have captured. These now we'll see what happens from there.
Got it I appreciate it thanks guys.
Okay Mike.
Thank you Ben Pham from BMO is online with a question.
Okay. Thanks, Good morning, I'm on the no real problem project.
Where do those projects it in your those four buckets of adult multiples as an over three to five times, and Rio probably little bit, but higher than that you're getting a little bit later in the project.
Hey, Ben it's called maybe maybe built to supplement, but I think I think you're generally right I think be these both of them fit.
City squarely in our traditional build multiple range of six to nine times, an almost a little more efficient.
Yes, yes, right were negotiated these yeah from a financial standpoint, the write down the fairway with our what projects we've done in the past.
Okay, and I know some questions on the five to 6 billion and security not post 2022, and you'd be teams worked hard on that and I'm just looking at your slides. It it seems though and he you felt like it and French gas gas transmission offshore wind it seems like there's an ongoing so damn a one or 2 billion yourself.
That that you're seeing and long term.
But when you when you put a product like a nova in their three to five times 0.5 doing you asked a capex is isn't I like spending or putting like 1.5, knowing that that five to 6 billion.
I would assume there are multiple bill.
That's right when thinking about it yeah.
I think generally you're right I mean, not all capital spend is treated equally right.
Indeed, some of the capital efficient projects.
You know punch above their weight so to speak in terms of EBITDA contribution so.
That's the most important metric.
This is EBITDA contribution coming from them in their kind of you unit of.
Efficiency.
Okay, and that's about five to six don't out that's still that just eight to nine times, because that's a very theoretical high level assumption you guys are using.
Yes, yes, that's right.
This is actually a very good question, then because we've kind of talked around here or on the organic opportunities in the five to six but I like to think of it is if you look at the four businesses now.
You know, you're probably looking at between 1 billion or too.
Each of them per year to fill that five to 6 billion and you pointed one out there that is pretty much locked in with the gas distribution business.
Around a billion certainly bills opportunity set is certainly in that category at least Burns and then we've got as we said earlier the offshore wind. So it doesn't take long when you look at the four franchises.
Two.
To get to those kinds of numbers in just with organic growth.
But obviously you know these things don't have naturally every year I mean, there's probably bumpiness to this and not so and that's just part of organic base growth. So I think we feel pretty good above the five to 6 billion and getting there with within the core franchise.
Alright, great. Thank you.
Okay.
Thank you pennies cities and Wells Fargo. It's all my other question.
Thanks. Good morning, just what kind of interest are you seeing from shippers to expand seaway. It seems like Theres a lot of capacity now out of Cushing. So just wondering what the competitive advantages of the project.
Okay, it's right here.
So we've seen some pretty good interest on the Seaway open season.
It's probably one of the lowest tools for light crude from Cushing to the Gulf coast, but having said all that the shippers have come back to us instead, they want more flexibility as far as different fruit types that could be moved.
And then we have the advantage of being the really the primary conduit heavy crude into the Gulf coast. So we're going back and.
Amending our t. assays to allow for the different crude types, allowing shippers to bring heavy crude to the to the open season. So we're pretty I'm feeling pretty good that with those changes that will have a good path to move forward.
Thanks, and then can you just give us an update on Bakken gas takeaway and just whether theres been any progress on an alliance expansion is this something you can tackle and maybe a phased approach.
Yeah. So it's bill Yeah, we're still plugging away in the Bakken I think.
We're hoping to have something this year for sure as a a as a small private project out of there and then perhaps take it and then phases.
Okay. Thank you.
Thank you.
If I caveat CPC capital markets is online with a question.
Hi, good morning.
Touched on this a little bit through your answer to other questions, but I just wanted to dig down on the mainline a bit.
I don't want to be dismissive of tools.
Hi, everyone, but other than tolls is or a common refrain you're hearing from shippers that are not.
The only supportive of the mainline contract offering and there is there anything you can do operationally such as enhanced connectivity.
Storage or anything like that to help ameliorate the situation [noise].
Hi, its burn those are that's a great question because.
From a producer perspective tools are obviously important but having the ability to.
To compete month in a month, though with the refineries is also a very important.
Thing for them so.
We are in the background working on additional downstream points for those producers potentially tankage at Flanagan potentially longer term more access to patoka more access downstream of fine again to Cushing and the Gulf Coast, which will ultimately make this more.
Attractive to the producing communities so.
There are many of these little tweaks that aren't involved with the main line, but involved with downstream assets that will.
Potentially make this more attractive to producers as forward.
Okay. So.
Hi, guys Thats, just going to run in parallel.
It's not explicitly part of the.
Certainly not part of the hearing, but I guess it runs yes, it's not as it's not part of the hearing but it is a way for us in parallel to build more or with a pretty soon community for what we're trying to accomplish.
Okay, and then just on the.
Very low interest rate environment I'm wondering if there is.
For Trinity further opportunity to take advantage of that in a way that benefit shareholders or.
Both more asset sales or.
Ways to bring in partners into existing projects to.
Monetized.
Hello under leverage rate currently but it.
So you can take about it.
Hey, Good morning, Robert calling you interesting question I think we're all observing these low interest rates generationally.
Low rates I guess at a first principles basis, where we.
We tend to.
You know de risk interest rate risks or.
So we're obviously our our debt portfolio is.
It's currently.
Termed out.
And and our floating rate exposure would be sub 10%.
By design.
However, within that bucket, we are being as creative as we can be.
And were hustling for every every basis point trying to capture it.
We're likely to see some.
Tailwind from this theme on our Canadian.
Rate reset preferred shares for example, those are those are rolling it.
At lower rates than than expected.
And in a variety of other things like that that will contribute smaller contributions to our our outlook.
You mentioned a in a bigger picture you know lower interest rates provide a tailwind for for a strong PE bid, which I think.
Well you know support continued asset recycling again on the margin.
So those are maybe a couple of barbell examples.
How we can participate in this.
But as on in fact, that's what if you look at the recent the asset sale on the battle.
That's exactly what happened it got to the point, where you know we got bids and we decided to capitalize on it for exactly the reason you're pointing out.
Very strong interest a good valuations.
Okay fantastic. Thanks.
Thank you.
We have reached that time limit and I'm not able to take any further questions. At this time I tend to call it to Jonathan wagon for final remarks.
Thank you joelle as always our IR team is available to take any additional follow ups you may have and thank you to ever on for your time and interest and hemorrhage and have a great day.
Thank you ladies and gentlemen, we appreciate your participation. This concludes today's conference you may now disconnect.
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