Q1 2020 Earnings Call
So the next slide proves that out and shows wire mainline has always been heavily utilized in virtually all market conditions.
Throughput increased from 1.5 to 2.85 million barrels over the last decade through low cost expansions and optimizations you've track those through the years.
And for the last six years, we've increased capacity and maximize utilization.
Even in the 2009 financial crisis in the 2015 commodity downturn in fact, we've had a turn away volumes, particularly heavy barrels with 40% to 50% apportionment in the last three years again, and that's because we delivered to the best markets and were directly tied to the strong.
This refineries.
In the case of our pad two in Ontario markets. They also lack sufficient storage directly in the region and depend on the mainline to deliver feedstock in all market cycles just in time.
But the uniqueness in depth of this downturn means everybody's affected so let's get to the mainline outlook on slide 14.
Obviously western Canadian producers have been hit hard.
Our estimate is that one to one and a half million barrels of production comes off in Q2 April was about 1 million as you can see here followed by gradual recovery.
How that reduction, though gets spread out depends on a number of things rail usually comes off first and fast given higher cost.
Then local refinery demand has impacted and then our ex Alberta pipes.
As the largest pipeline out of the basin not much of a surprise were affected with this scale demand disruption.
In April the mainline ran at about 2000 2.450 million.
Barrels on average so we absorbed about 400000 of the estimated 1.1 of shut in I talked about relative to our Q1 average throughput.
Based on what we see today, we're expecting the average Q2 mainline impact to be in the range of four to 600000 barrels per day with a GAAP to normal volumes tapering as we move through the year.
Along with the rest of the year shown here this outlook translates to throughput about 300000 barrels per day lower than Q1 on average for the next nine months.
And a high level 300000 barrels per day of volume for the next nine months works out to about 2% of consolidated EBITDA in Cologne will go through more of this in few minutes.
Given the strength of the mainline position in the refinery pull once demand picks up we'd expect volumes to return to previous levels.
All that to illustrate the diversification and strength across the business, including other parts of liquids makes the impact to the mainline manageable.
Let's now move to another subject of interest which is mainline contract offering on the next slide.
We filed our contracting application late last year, including letters of strong support from shippers, who make up about 75% throughput.
Based on a very recent customer sounding Z shippers remain supportive and will participate in the hearing.
That's important because after two years of negotiation.
Those shippers are essentially saying that the commercial deal, we struck including tolls works for them and they want to commit volumes in an open season.
It wasn't easy getting there at all but we landed on a good balance and the deal benefits everybody producers integrated companies and refiners.
In the case, a refiners and integrated producers contracting gives them access to reliable feedstock at stable and competitive tolls.
Producers get guaranteed access to our system. So while many havent historically been shippers the offering allows them to balance the playing field with refiners, which is usually the issue that we cared about.
And by the way they be securing access to the most competitive frightening market in North America. So we believe we will receive significant and sufficient commitments to contract the mainline.
For three reasons.
The strength of pad to pad, three refiners and our physical connection to those markets. The competitiveness of our toll and the fact that shippers representing about 75 arc of current throughput support the offering.
To illustrate that a bit further on slide 16 in total we have 3.1 million barrels of volume being pulled by premium markets.
We are directly connected to about 1.9 million of pad two in Ontario demand and nearly all of this is heavy refining capability.
These refiners rely on our system and have limited alternatives. So they are keen to lockdown access to Canadian heavy barrels.
We also have a million barrels per day of downstream take or pay contracts that draw barrels down the mainline through to come back Patoka Cushing and full path to the Gulf Coast.
The goal is hungry for Canadian heavy as Venezuela, and Mexico volumes are in decline. So we've got an opportunity here over the next decade for Canada to gain market share.
Slide 17 shows the status of the regulatory process and the milestones in late February the CRM issued the process for participation in the hearing and broadly defined the scope of it.
This would normally have been followed by hearing order and timeline, but the CDR is addressing submissions.
We filed our response to those submissions on May one and we expected decision sometime in May I'd encourage you to read that filing.
And hopefully we'll see a clear timeline soon so we can get the process moving again.
Switching gears now, but still with liquids now to the progress on the main and the Minnesota permitting and regulatory process for line. Three this is on slide 18.
This is our usual update on the two tracks a couple of more items checked off as you can see here since Q1.
On the regulatory track last Friday, the PSC issued its official orders confirming the recertifications of the Eas certificate of need and route permit.
His took a bit longer than expected, but it is a good outcome.
On permitting in late February the pollution control agency issued the draft for a one and closed their public comment period and April.
The draft permit was comprehensive the concluded that our construction plans meets its standards so thats important to.
They are now considering the public comments before making a certification decision.
The DNR and Army Corps are making progress in the core concluded their supplemental public comment period.
Once these agencies are done their process, the PC will be in position to issue and authorization to construct and we've said this before but once we have better clarity on the final timing of permits will be able to provide in I asked the estimate and again once we land on the permits we've said construction should take.
Between six to nine months.
My final comment on the business update as to summarize the priorities.
This is now on slide nine team.
Since the IPO set of coded and related oil price shock about eight weeks ago.
We scrubbed the entire business to make sure we stay strong and prepared for an extended shutdown if that happens.
The priorities, we outlined at Enbridge day, or the same but we're also taking some near term actions. The first so I mentioned is to protect the health and safety of our people and the operational liability of our asset so we keep running well and thats in very good shape.
Reducing cost by 300 million.
We've increased excess liquidity to $14 billion.
And because of some slowdowns related to covert about 1 billion of capital spend will be deferred into the next year.
These actions along with our low risk approach to the business will make us even more resilient.
So now over to Kolon for the financial review.
Thanks, Al and good morning, everyone ill start off with our financial results discuss our financial position, including bolstering actions that finished look.
Speaking on slide 20, our financial results came in better than expected.
The results highlight the resiliency and diversity of our business.
I'll run through the results in an abbreviated manner.
Liquids pipelines had a very strong first quarter adjusted EBITDA increased $190 million. The mainline system was once again full and oversubscribed.
Delivering an average of 2.84 million barrels per day, reflecting the capacity optimization work conducted in 2019 in which we talked a lot about last year.
We also benefited from a full quarter of the 20 sent tariffs surcharge from the line three Kadien segment, which entered service in December.
And as well the Gulf Coast mid Con systems, and the Bakken system, all had another strong quarter as well continuing the trends over the sequential quarters.
In gas transmission EBITDA was up around $60 million. Most of this is from incremental revenues on Texas Eastern from its recent rate settlement effective June of last year.
The settlement provides.
Approximately Canadian a 120 million of annualized EBITDA uptick to us.
There's a little better than we previously guided.
Gas distribution EBITDA was down 84 million compared to last year. This is largely a function of warmer weather this year and colder than.
Usual weather last year.
Further we continue to grow utility rate base through customer growth in the area of 40 to 50000, new customers per year, and we're achieving our targets synergies from the amalgamation.
Our power business was down slightly for the quarter EBITDA was positively impacted by our German offshore wind farm being placed into service late last year and its adjacent expansion placed into service in January.
However, these contributions were offset by lower EBITDA at cutting in wind farms due to less favorable wind resources.
Energy services was down 189 million from the first quarter of last year.
As we've mentioned before Q1 of last year was exceptionally strong, whereas the small loss were seeing in the first quarter of this year reflects narrower location differentials and unlimited storage opportunities.
That didnt fully cover some of the facility demand charges. So thats why this quarter's contribution is slightly negative.
Finally, eliminations and other was 25 million favorable compared to the first quarter of last year. This is primarily due to higher realized foreign exchange hedge settlements as well as the timing of on a cost recoveries from the business.
Moving on to slide 21.
DCF for the first quarter was a $1.34 per share compared to $1.37 last year.
As we just discussed EBITDA is fairly consistent quarter over quarter as you look through the rest of these drivers. They can consist of a number of smaller puts and takes.
Collectively financing costs maintenance costs and taxes are trending as we have been expecting just some timing difference is showing up during the quarter.
So in summary were ahead of where we expect it to be at this point in the air.
Ill now move on to slide 22, and discuss our secured growth portfolio.
Executing on our secured growth program remains a priority.
This now 10 billion dollar portfolio of high quality projects is well diversified commercially down the fairway and generates strong returns.
Of the $10 million capital program overall, and I think some overlook this about four and a half billion is spent already are will be project financed leaving a very manageable five and a half billion to spend.
And we've got ample capacity to fund this within our equity self funding model.
Turning to execution, we've put health protocols in place in the field and execution of the program overall is continuing to progress well. However, we expect coded and regulatory slowdown to delay plan.
Spending in a few select areas by about a $1 billion in 2020.
Importantly, there are no cancellations in this slow it list, it's really more so a shift by weeks or months of of spend.
For example.
For coated related matters, a deferral of our utility customer adds until next year due to temporary housing construction.
Our pause in the GPA.
In the permitting category, we are seeing delays on Penn East.
And as we discussed we received our line three US Minnesota power you see written order, but it was delayed a little bit. So we can see spending shift.
By six weeks or so as we refine our construction plan.
And as a reminder, we conservatively planned in 2020 being substantially the entire rest of the lines for us spend of $2 billion. So consider this about about a 300 million dollar.
Refinement down to 1.7 for line three use for example.
Importantly, we don't anticipate any material impact to in service dates given the flexibility and contingency built into our project plans and prior guidance.
Once in service the secured growth will add an incremental two and a half billion of highly reliable cash flows and advance our strategic priorities. So execution pace is obviously still our objective.
On slide 23.
We came into 2020 with the balance sheet in great shape and ample liquidity to fund our growth program.
In Q1, we've taken additional actions to further bolster excess liquidity.
Weve proactively issued 4 billion of term debt at attractive rates through April of this year, including an issuance from our eight rated utility which was the second excuse me or third issuer post coded which helped to follow the kt and debt capital markets.
We also added $3 billion committed credit facilities from our large banking group in early April.
Now after considering Q1 maturities in capital spending.
Our available liquidity now stands at about $14 billion.
This liquidity gives us plenty of access to funds all the way through 2021 without tapping the debt capital markets.
And remember we're in equity self funding mode to so our equity component is being funded internally.
In terms of balance sheet metrics for the full year, we continue to expect debt to EBITDA to be well within our four and a half to five times target range.
Turning to slide 24, we've sold another 400 million of assets. This year as we continue to recycle or high grade our capital.
This includes the sale of the Montana, Alberta timeline.
It was our gas system, which combined total about a quarter of $1 billion.
Neither of these assets were quarter, our strategy, but we are attracted to others. So we fetched good value again.
We've also announced a further step.
In our partnership with CPP IB.
Whereby they've purchased a 49% interest in our 50% share of three offshore wind French projects, which are in development.
The proceeds represent.
Promote and their share of expenditures incurred to date and then they will contribute proportion proportionate capital going forward as we develop these projects with our other local partner MDF.
To be clear, we still like these assets and this business.
This transaction will boost our return syndicate, our development risk and expand our partnership with CPP IB who are also keen to grow this business.
Together these three asset sales reflect our continued focus on capital allocation discipline and further reinforce our financial flexibility.
Let's move to slide 25, now where I'll highlight another key component of our financial strength, namely our customer base, which is 95% investment grade.
Individually as you can see each business is very strong with over 95% investment grade customers respectively.
But our best credit assurance is that we delivered to end use markets as mentioned, where our last mile transport is typically scarce and valuable to remember hold it.
Our customers are generally comprised of utilities refiners integrated companies and our own utilities end users.
One thematic critic credit area that we are monitoring closely is some of the gas producing community who ship on our Interstate Interprovincial systems as mentioned, we carry very good collateral.
However, if more drastic action was required we expect we could remarket, our long haul capacity with others at or near existing rates.
As a reminder, these are not gathering lines those have been divested.
On the whole we believe this customer credit strength differentiates us from the peer group and ensures were financially resilient.
Turning to slide 26, our rating agencies value, our financial strength and resiliency too.
All of the agencies assess our business risk as either a our excellent which is among the best in our sector and reflective of our low risk pipeline utility model.
Let me spend a minute on this as it's an important input into ratings.
Our diversity scale competitive position commercial model and simplified structure all matter a lot in this environment and in this risk determination.
They are all things that are dear to us and central how we run the business.
Some forget we have a big utility in the portfolio, an a rated utility which can be forgettable. It is unique in our midstream space.
And our other operating companies are similarly, while rated.
Texas Eastern for example was recently upgraded by one of the agencies to a credit.
Last month.
We have actively strengthen our financial credit metrics to and believe they firmly support strong investment grade ratings at the Triple B plus level.
We continue to be in regular contact with each agency, providing ongoing business updates and based on our discussions we have no reason to believe that their assessments have changed either in fact Fitch just reaffirmed images triple B plus credit rating in mid April.
On slide 27.
In addition to bolstering our financial strength and liquidity, reducing costs by $300 million for the remainder of 2020, we believe it's prudent to do so under the circumstances with unique volume situation and given uncertain industry times.
Weve combed through the business over the last eight weeks looked at everything identified several actionable areas of focus for cost reduction as you can see on this slide.
These include reductions to outside services and supply chain costs companywide salary reductions and finally, a voluntary workforce reduction program.
Combined our approach.
To operating cost actions have been carefully targeted.
Art, intending on eliminating jobs on an involuntary basis in this environment and the salary reductions are a shared communal lifts so to speak.
Our team is up four and we're aligned with customers and investors and Moreover, we will be even more resilient over the long term as many of these costs action sustain.
Moving now to slide 28, where I'll bring it together with some of the financial sensitivities that have informed our 2020 outlook.
Let's begin on the left where you'll see we've provided an approximate EBITDA impacts for various mainline volumes scenarios.
We provided you a few here to help translate barrels to dollars.
As discussed earlier, we currently expect as much as roughly 300000 barrels per day on average of lower throughput on the mainline over the last three quarters of this year.
Reflects a trough in the second quarter and a recovery over the balance of year.
This translates into production to our 2020 EBITDA of about $300 million or about 2% of our consolidated EBITDA.
Well that is our expectation we further stress tested the business given uncertainties and there's a cushion to handle a further 200000 barrels per day of volume loss on average for the balance of the year and still maintain guidance.
For example at 500000 barrels per day under the stress test. This is roughly 3.5% of consolidated EBITDA.
In terms of tailwind sensitivities, we are benefiting from a stronger us dollar foreign exchange rate in our considerable U.S. dollar EBITDA, which even after hedging program could yield as much as 10 cents per share at current exchange rates for the remainder of the year.
Lower interest rates will help to on both our new issuances and our floating rate exposure. For example, we're setting rate resets on our preferred shares historically attractive coupons in the 3% even.
Territory.
Also our strong first quarter exceeded our plan, providing an additional five cent running start and cost management actions provide approximately 15 cents per share of bolstering sport.
Let's move to slide 29, with the solvency of this all means for our 2020 DCF per share guidance.
Combined our tailwinds and bolstering actions or expect to largely if not fully offset our headwinds.
To recap there is some strong tailwinds for the manner the year, our first quarter, Texas Eastern.
The announced cost reductions stronger us dollar and lower interest rates on the headwind side, a small impact from our commodity sensitive businesses acceptable energy services and DCP distribution reduction, but these businesses.
At fully budgeted levels combined are less than 2% of EBITDA.
For the mainline or allowing conservatively for that bigger up to 500000 barrels per day.
Sensitivity.
With the pace of recovery is slower than we are currently forecasting we should have some room to absorb that within guidance.
So stepping back looking at things today, when you entered I'll up we remain very confident that will generate DCF within our original guidance range of for 50% already per share.
Al back over to wrap up okay. Thank you column.
So what is in the face of.
Probably the worst economic and energy.
Downturn and history, our resilience has once again protected us the diversification of assets cash flows and commercial underpinnings allow us to weather the storm well.
But we havent has been standing around watching this we've been taking action to preserve our flexibility no matter how long the downturn Laos.
Given the strength and stability of our business in the factors that Colin just reviewed.
We are maintaining that DCF guidance range of 450 to 480.
Finally, we are not losing sight of the future either we remain very focused on executing our secured capital program that will drive near term and medium to long term growth in EBITDA and a growing dividends.
So we're now into the queue any just given we're not on the same location here and to keep things moving I'll do some handoffs where needed on the couponing so onto that section. Please.
Okay.
We have a question. Please press star one single touch telephone if you wish to be removed from the key please press the pound fine or the house.
If you are using the speaker phone you may need to pick up the him before pressing the numbers. Once again, if you have a question. Please press star one of your cash telephone.
Rob Hope from Scotiabank is online with the question.
Good morning, everyone.
First question is just on.
The move of capital from 2020 into 2021 for line three I just want to get a sense is this being driven by a view that permitting is going to take longer in a coven 19 world or is it that.
Hi, you're baking in some additional contingency on the construction side there.
Hey, good morning, Rob its calling yet its.
It's fairly mechanical so weve favorably received the Minnesota PVC written order here.
Last week, although it took a little bit longer so as you recall we had.
Budgeted and guided for the full spend during this year on what I'll call them, the best plausible timeline and recognizing that.
And a six week delay if you like in the in the order.
We're just basically moving that.
That that six week spend from 20 into two into 21 mechanically.
All right, that's what about 300 300 million yet.
All right and then when we take a look at a $300 million a cost savings were any of those realized in Q1 and do you have a sense of how much could be also.
Being able to be sustained into 2021.
Beyond the first part of the question.
Zero basically in Q1.
These these programs are.
All coming into effect here.
Immediately.
On the sustaining question.
I think a good part of it could sustain.
We'll have to see on some of it but I would to ballpark it at about.
Two thirds at this time.
Thanks.
All right that's helpful. Thank you.
Thanks, Rob.
Patrick Kenny from National Bank financial is online with a question.
Hi, good morning, everybody.
Just with respect to the Army Corps permits still required for line three.
I guess the line five tunnel as well.
Any concerns on being able to obtain these permits just given the recent decision about channel on.
Can you still just wondering if you see any negative or you through there for your approvals.
I'll hand that one driver.
Okay. Thanks.
We don't see any material impact on the nationwide based on this decision on the nationwide 12 permit.
Each and intervene each project has different.
Permitting requirements by the course at the core can either choose usual local permit or a nationwide permit.
For the vast majority of everything that we're doing we're we're all under local permits for this.
Decision from the Montana Court doesn't impact schedule.
Okay great.
And then just looking at the mainline volumes here I appreciate the detail.
Quarterly outlook here.
Just wondering if you could provide an update on what the split is between lights and heavy use moving down the system and how you might be able to optimize volumes through any blending opportunities.
Given the current space right now.
Right.
[music].
I think.
We are.
As as we always are on a proportionate basis moving more heavy then light should we expect that to continue over time.
And as as refinery demand picks shop in the us Midwest and elsewhere on our system, we expect that that demand for heavy will pick up first so there are some opportunities for us to move more medium grade crudes by blending lights and heavies.
As the economy recovers, if we see a slower pickup in lights, so that is.
A slight benefit for us as we move forward.
I think that if you just look at the.
Crack spreads over the last month or two here to go to Burns point to.
The heavies have held up pretty good and so that's why we are saying earlier on that.
When things return those should even being better position. So that's how we look at them.
And on this recent initiative to store barrels down the mainline any other near term opportunities for downstream storage.
Or perhaps if storage congestion does lost into 2021.
For the old my three is.
Decommissioned.
How are you thinking about optimizing storage.
Later into 2021.
And maybe I'll go first on that.
For us or sorry pod.
We've we've got basically two segments of storage in the business, it's a fairly large storage position overall, but the majority of it relates to operational storage that we need to manage the mainline and I think we're in very good shape, there and it's critical that we maintain that flexibility in that operation.
Storage on the other parts of it though.
We do have.
Let's call it commercial storage within the energy services business.
A good chunk of that though is contracted for term at fixed fees.
But there are parts of it though that we do have some opportunity to gain from the from the contango that you're seeing right now and we'll see what happens this quarter on that we should we should do okay, I think but in the bigger picture of Enbridge of course, it's it's not a huge business, but yes. There are so.
Some opportunities that we're trying to capture in energy services.
Okay, that's great I'll jump back in the queue. Thanks.
Thanks, Matt.
Robert Kwan with RBC capital markets its online poor question.
Good morning.
Maybe just to start on the mainline just wondering if you could talk about what the current slows and what the May nominations are but just even higher level as you think about contracting.
Reconfirms.
Yes, the 13 shippers that submitted the letter.
But that they are still absolutely onboard and specifically.
As well that that there is potential as they initially stated to take even more volume and are currently shipping.
Go ahead burn you want to take the first shot at that.
Okay sure Hi, Robert.
With respect to May volumes it. Thank you.
Joel generally talk about what we're seeing ensure model just because of commercial and market sensitivities, but I think it's fair to say that worse.
You're seeing refinery utilization tracking upwards.
As we progressed through this through April and into May.
With respect to mainline contracting on our 13 shippers, we have absolutely reconfirmed with them.
They are still highly interested in mainline contracting.
Back to all of them have reconfirmed in most of them did provide.
Commentary to see our on April 24th to that effect.
Saying that they would like the mainline contracting hearing process continue and pickup chase.
I think your your second part to that question was there are number of.
Those shippers who are interested in even more space than they are currently shipping just because of.
Volume ramp ups or changing refinery configurations.
And Brian Big Reconfirmed that that there's still interest spawned you regionals letters of support in terms of more than than what their ships.
Yes.
It will vary customer by customer, but to support and the levels are very strong.
Yes.
Great. If I can just finished with a question on me.
Since I guess, it's typical enrich form you've got the arrows.
Those tailwinds and headwinds are about the same so overall kind of story.
Roughly to the midpoint of guidance and and at a higher level whats the big risk or uncertainty in your view is it really mainline volumes or is there something else.
Hey, Robert adds calling so.
Yes, there is some artistic depiction there, but its intentional weve, it's a fairly narrow range honestly to begin with right. It's a it's it's basically.
A 13 and a half billion dollar EBITDA business with the guidance range of plus or minus 3%. So we feel that's fairly.
Tight already I'm not going to make specific commentary on where in the range. We have a range and I think you put your finger on I think mainline volume sensitivity is.
Is probably obviously the.
The biggest that make us moving part there so we've stress tested it as noted.
Great. Thanks very much.
The Shani from GBS is online with a question.
Hi, Good morning, everyone. Good to hear everyone is safe and well I'm really appreciated the detailed outlook on on the being line that you tried to 2% today and the explanation about will be impacted first in coming back last Doug will make sense, but you're trying to navigate.
He is unprecedented environment for North American crude markets.
Typically investors.
We have looked at transportation differentials to figure out when the call on crude actually will occur and so forth, but I'm wondering if you can sort of talk about how this could be different or how you're thinking about it from a modeling perspective, but when the refiner start off and they get closer to full utilization.
Is there a scenario where the heavier crudes are actually favored by the refiners and you can actually be a bigger pool. The western Canadian production. Then you would typically expect in normal circumstances and trying to understand how that impacts are colors your outlook or we're being in light of volumes for this year.
Well sure. It's out here, then I'll hand, it off to earn I'll go first.
I think the answer is yes.
Where where they've got to some capacity to move the heavy processing. After they will do that because we referred to that's where the margins our greatest and that's where just given where we are on throughput today theres, probably a good opportunity for them to ramp up.
And and fully utilize that access to heavy barrels. So I think thats one angle. The other one is of course, a as I said production is likely to lag here.
The demand part of the curve and so given that we've got a lot of storage pent up in Western Canada, I think we'll be able to utilize as much of that increased demand that refiners want to through this period here. So.
That's how we see it at a high level, but during you can add if if you like.
Sure.
I think the big issue is with Cove. It it's really been at Tim.
Our refinery and transportation fuel demand.
Shoe for what crude is required where so as the economy picks up and mass transportation fuels began to return to normal.
You will see refinery demand go up and you're absolutely right heavy crude will be the first crude polled because it though that type accrued provides the best.
Refinery margins are crack spreads for each of our refineries. So we'll see.
The pad to pad three heavy refiners move up.
In utilization a lot quicker than you will see light crude refineries move up and utilization.
Perfect.
Make perfect sense, and then maybe as a follow up question you know with the Keystone XL approval and so forth trying to understand yes, and how you could potentially impact your mainline re contracting process.
You know it at a high level.
Are you able to share with us whether you believe you are proposed rates.
Our competitive but with the Keystone XL rates moving forward and so you know shippers would continue to support your process.
Okay Fair way to think about it any color on that would be helpful.
Maybe I'll go first and then on the rate comparison bring you can address that I think.
Firstly, I would say shneur that Weve I think you're aware, we've always assume that excel.
Go forward in our projections.
And if that was the prudent thing to do.
And our view is that even in that scenario.
We still see a lot of demand for access to our system and to be contracted and it goes back to what we were saying about direct connections and minimal alternatives and that's the 3 million barrels a day that we were talking about that is directly connected or as downstream pull so the car.
Combination of that with our lower tools and and us accessing the most competitive markets I think that puts us in very good position. The other part of this of course is [laughter]. After what it was at three or four five years of lack of the grass.
I think one thing that that XL coming on on its shed Joel and TMX does is it does allow for.
Additional production volumes to come on obviously investment has been curtailed, particularly the last two three months in the oil sands, just like the Permian and other spots, but I think that could unleash some new volumes coming under the basin that would certainly.
Further bolster what we're doing on contracting.
So thats the big picture and then on rates Brian.
Yes, I would say that we are very competitive to all markets. We feel like will definitely had the lowest toll into the U.S. Midwest and eastern Canada and back from both of those markets are almost no alternatives, but the ambridge system.
And then to the downstream markets and choco crushing in the U.S. Gulf Coast.
We are very very competitive in fact, our us Gulf coast tools should be the lowest tools available.
Okay. So it would you effectively saying is that it wouldn't be an impediment and and you have a very good offering for your for your shippers.
Absolutely.
Perfect. Thank you very much guys really appreciate the color today and stay safe.
Great. Thank you.
Linda ethic galas from TD Securities is only one question.
Thank you I appreciate all the.
Wilson update today on the mainline, especially.
I realize there's still a lot of uncertainty in a lot of moving factors I'm just wondering how the man It management and board is revisiting how you're going to execute on your strategic priorities over the next couple of years.
Specifically I'm wondering if there might be some sort of the shift in how you approach you aren't you ask Gulf coast and export strategy I know that was a focus in an interesting possibility still that that.
Is unfolding for you and also I'm just wondering with.
Youre York <unk> your five to 6 billion of capital capacity for investment annually I know your priority is to grow organically, but I'm just wondering at what point to the extent that organic growth might dissipate in this environment, whether or not like what factors would need to change and what would need to be in place for enbridge to.
Consider acquisitions.
Okay, it's out here Linda.
So first of all a great question on the overall strategic.
Priorities that management the board's thinking about you know I think I would break it down into two pieces Linda for sure.
We're very focused on the near term and medium term in terms of protecting the business. So as I said earlier the cornerstones are.
In this next the rest of the year, let's call it.
The safety the people and reliability this system that's critical.
Making sure that the balance sheet is strong and at the same time, making sure that we continue to move our execution program along so I think it's making sure that we keep resilient is the first priority, but I think at the same time. We also have an eye on making sure. They we continued sustained sustained growth in the big.
Business and you mentioned the export strategy you know at this point unless you believe that we're not going to return to the basic fundamentals that we're driving.
Exports in the first place, which as global demand for energy and that stemming from as you know very well.
Population growth urbanization standards of living I think you know, we could see a bit of.
A slowdown, let's just say in growth, but generally speaking I think.
Our view is that we're going to get back on track as to.
The capital investment you referred to the five to 6 billion again I think.
Obviously with potentially a slowdown the economy you could see overall growth slowed down in energy I think from our point of view.
In that environment, if that happens a you know we're not going to be chasing growth at all costs, if things don't fit we won't pursue them, but that being said I actually think we're very well positioned for a downturn here. If you look at the asset base and the opportunity set that comes out of it.
And you circle back to the five to 6 billion per year.
It's it's one to 2 billion for each of our main businesses, which I think is very achievable on the gas side.
Again very.
Focused on LNG, we're well positioned there.
Expansions of our existing systems Valley crossing Sable Trail.
Bills got a bunch of modernization capital on the shelf there that needs to move forward.
The utility through additions and expansions of the communities is there and then of course on the liquid side, So I actually think.
On the organic side, we're pretty well position and I don't see major disruption in that flow.
In terms of.
M&A I think it's a good question.
Obviously were scarring things all the time, that's what our corporate development people get charged with but I would say thats pretty low on the list for us.
As you know very well, we essentially reposition and did what we needed to do.
About three years ago now with the spectra transaction, so I'd say in terms of capital deployment.
It's not very high on the list, we're going to be very disciplined in the next three to five years as we have been in the past.
Thank you and just as a follow up.
Youre a sale of your interest in your offshore French when to CPP shows that a discipline and capital allocation and high grading I'm just wondering.
If if there are opportunities to continue to do that.
What what might be possible on that front with potential financial partners, maintaining partnership with you or or other ways that you could continue to high grade and take advantage of a strong demand for it the types of assets that you hold.
Yes, that's a good point.
Again, it's another thing were scarring and making sure we're always investigating.
We certainly look at.
The three year plan and we always evaluate whether we can bring in financial partners, maybe a little bit tougher in this current environment just given some of the.
Debt markets and so forth at or may be less applicable for private equity. These days, but we'll continue to do that this as you're pointing out as it was a very good example, there may be a few out more opportunities to do that.
Throughout the entire business, we'll we'll keep tracking and see what's out there for us to capitalize on when we see it.
Great. Thank you.
Okay. Thanks Linda.
Jeremy Tonet from JP Morgan is online with a question.
Hi, good morning.
All right.
Just wanted to take a step back here and looking at the first quarter. It looked like you know.
Operations came in pretty good better than than we were expecting and appreciate that theres kind of these headwinds ahead of us as that you've talked about in the call, but if I'm just kind of thinking through this on the other side when we get back to like kind of normalize world and potentially when line three eventually get them line in the back Dizzy to full year contribution and 21.
Maybe I'm getting ahead of myself too much here, but just wondering what do you think the business looks like in that environment and how that compares to I guess some of the prior guidance you had put out there given how well things went in the first quarter.
Yes, I think Jeremy I'll start than calling cannot I think I'll take it back to Enbridge day here, which wasn't that long ago really feels longer.
But we had a three year plan there that we unveiled and you're familiar with it I think we're pretty comfortable that.
Under that three year scenario, we can still deliver on on what we thought you know I I'm not sure the first quarter.
It's going to tilt the balance either way on that three year plan I think as you pointing outlined three as it is a big part of that because it generates a lot of EBITDA, but I think that's that's the way we're looking at this.
Good first quarter, we've got some bolstering actions that help us.
Stay in the range I think that's important and then from there I see more or less of a progression and execution of that three year plan that we laid out so I think we're pretty much on track with what we thought.
One thing I think I'll add Germany, or very close to this is enough sales business.
I think it's a subtle point, but he he and his team of being.
Advancing a number of.
You know rate cases on the various gas systems, which is quietly.
Oh.
Bolstering and stepping up our return on that business youre going to kind of a kind of a boring way but.
I think you're right it's.
It.
It should be should be.
Diversified solid contribution yet.
Pretty good Q1, getting all the trends that that you've seen so.
We'd like it to a return to that world as soon as we can actually that that's a very good point and.
Given it's boring and so forth as Colin just said I might just ask bill to comment a little bit on that because I think the rate cases are great point, but you know the gas guys are working on so many there are other opportunities right now so maybe bill can you maybe just expand on this I think it's that point.
Yes, I think that's thanks I appreciate the ball on top.
You know this that the business really has has started a term.
A little bit towards its roots, which has a regulated entity and we've got.
An awful lot of capital going into the business and so you see is from the Texas Eastern case that that's that provide some.
I wouldn't I guess you'd call out of growth opportunity.
And then you know the business even in this environment Jeremy were only down.
Maybe 5% of that demand basis, and as you know it doesn't doesn't affect us because we're all reservation base system and most of our areas be it.
Gulf export, whether its Mexico or LNG, even some of the northeast utilities will it's challenging to build anything new.
Small increments of growth crop up so I feel as though from protecting that base with re contracting which hasn't been that challenging to investing in the bones of the system.
And then.
These these expansion opportunities that we still see even in this environment I I do feel like at that time will be boring and under the radar, but the churn out some some nice gross.
Thanks, David.
That sounds right I mean, if Boston didn't prefer Russian LNG. It seems like you'd have some nice opportunities there, but just one follow my second question real quick with the with regards to DCP I'm kind of on the other side they have with them.
With that we're tracking a the guide here just wondering you know updated thoughts there as far as you know portfolio management Thats something that after you about right down here, it's something to kind of exit at this point or are they going to need any help or any I. Appreciate some extremely small part of your business, but just wanted to get any thoughts there.
Yes. It did you you've got it right there, it's not huge for us but on the other hand, we pay attention to all of our businesses and we're certainly not happy about taking distribution reduction there.
I'd say at this moment.
The exit part of your question I mean, it would be consistent with the fact that we sold the rest of our GNP businesses, but I think is euro call. We've got a bit of the tax basis issue. There that makes that more challenging I would say, though jeremy the like at this point.
We're very supportive of management actions I mean, there is.
Move for pretty quickly on reducing capital, they're making inroads on the operating costs and certainly on overhead. So I think that's the that's the plan right now and we're supportive of that.
Yes.
That's a that's helpful. That's it for me thanks.
Okay. Thanks, Jeremy.
Mmm from BMO.
With that question.
Thanks, Good morning on the renewable business.
I'm curious where.
Hitting your overall strategy now your long term it seems like that businesses.
Getting smaller overtime and water segment for are getting bigger here as laws. There, there's still bullish on renewable isn't and I'll put it in your portfolio.
The short answer is yes span.
And the reason for that being I think we've been talking about.
Our view about.
Energy transition, which is obviously going to take.
A number of decades here moving forward, but we think this is a very good way to.
Focus on some part of our business on on lower carbon.
It's been a very good business for us we've built up a very good capability and I will say, we have a pretty good inventory of projects in development in Europe, and that's our focus right now the fundamentals there are very strong and what I mean by that is.
You know, obviously people have a big demand for renewable power in Europe.
But bigger thing. These days I found is that the supply chain is really well developed.
With that we join this partnership with Ctb IB.
And I do feel that.
The fact that we've built up our capability here with them and make us a real player in developer in this space. So I.
I think if you're referring to the transaction we were talking about that was purely.
About boosting the return on assets and frankly, I like the idea of us developing projects.
Bringing people in and then and then having some promote value in that I think thats, a good spot to be and you've seen other large players and renewable use similar models and.
I think that's a good capital allocation move and but that does not.
Indicate whatsoever that we.
We want it to be a smaller part of the business I think we're very keen on developing and growing it.
Okay, that's great to hear.
And then my second question, maybe a cleanup on mainline sensitivity than on peeling Q2, a bit on on that variance you put up there at that range four to 600000.
Can you confirm looking at 6000 is that.
It looks like your feeding in 1.5 million barrels a day I wanted to check that and that I guess that suggests that a junior probably looking at.
Million down on mainline volumes.
Uh Huh go ahead Vern Yep.
And can you explain your question again I'm sure I'm, having trouble following up.
Yes sure absolutely.
I'm trying to clarify or or confirm with what do you guys that you guys are also feeding in that 1.5 million.
Production side and in Canada, as you triangulate bounty or bear variants for Q2, and then when thinking about it specifically as you got April on the back 400000, 1 million and you probably get sensitive.
Of May and then.
To put up 600000, some to solving for for June.
Okay I share your points as.
I think the four to 600000.
Is in a range.
For the average on the quarter and.
There's no real midpoint for that range, it's designed to be.
Something that's possible and again thats dependent on whether it's a million to 1 million a house and overall western Canadian.
US basin production declines so at this point.
In April and May when we're not close to that 1.5 at this point.
Okay, and I guess you you have in that range that you have.
The dies down to one point side.
It's designed to be a range and our outlook.
Would be with in that range.
Okay.
Alright, Okay. Thanks, guys.
Okay. Thank you.
Robert Kepplinger Ramzi RBC capital markets is online with a question.
Hi, Good morning. Thank you for the very detailed comments this morning, especially on the baseline most my questions have been answered.
Point, but maybe just a.
A couple of quick clarification.
Oh, we have will very similar path when the mainline volumes that you've described.
Maybe a deeper decline I'm more curious, though about what you're assuming in the throughput recovery.
That you've outlined on slide 14.
Thank you mentioned reopening the border and lifting travel restrictions are there any other.
Economic or policy guide post you're looking to there I'm thinking maybe is there a refinery utilization recovery or rate, you're expecting or GDP recovery, that's baked into your assumptions.
Thank you want to address the sure I think Robert to the Big thing you should be looking at is gasoline demand.
And I think gasoline demand right now is down 3 million barrels a day in North America.
That will be the factor, which will drive of the rate of refinery utilization, which cold Turkey derived the rate of.
Group put pickup for us so we're already up a million barrels a day in gasoline demand since the lows in early April and it's trending the right direction. So our expectation is as a transportation fuel demand goes up refinery demand will go up and then.
Mainline.
Throughputs will go up I don't think we're looking at anything about opening up borders or anything like that but it's really driving patterns I think will be the biggest into watch.
Right and in that.
The sort of a group of things are looking at or are you expecting a full recovery.
And then those metrics to get to your job your year end.
Hello.
No we're not we're not forecasting full recovery.
Slide three.
What I heard from the comments is the there's a little bit of all mechanical shift in the.
The Capex for 2020 seems seemingly based on the permitting timeline, but I'm wondering.
If that also includes the impact of all Colin and what that might have on your practical realities that has on.
Construction the or.
Something included in your Ah.
Your comments in your shifting capital timing.
I think Rob you know from a construction point of view.
That's obviously, that's not happening today and will happen later on depending on when we get the permits.
Not sure we see much of the construction impact in fact, you know in most of the projects that were running right now in the field. Those are generally working to shed Joel obviously a few.
More complications and how you work, but I think so it's not so much the construction I think really it has more to do with a this eight week or so delay in getting dose PC orders I suppose there could be some further covert related issues through permitting but we haven't really seen much of that.
Yes, so I mean, I hopefully I'm answering your question, but that's the big picture.
Yes.
With that I just wondered about.
Got it construction no changes to kill the construction activity that might result, but you answered the question.
Yes, okay.
Thank you Taylor from Tudor Pickering, Holt helped me, it's only with your question.
Hey, Thanks for taking my question here I'm on Slide 14, you highlighted the recovery in volume tight the Mt outlook and I think you've done a good job address now I'm just wondering on the supply side.
That's you're anticipating barrels that were previously on the system to be.
Structurally shut in or or it would just be helpful to hear comment on how you're thinking about supply ramping backup.
Correct.
Okay, Matthew I think.
Really our system and that demand in the near term is trying to be refinery.
Demand pull driven.
Because prior to.
The covert situation, we were 40 or 50% apportioned.
Upstream so.
We don't expect.
The supply situation to impact our volumes once demand picks up again, I think it'd be fair to say, we which likely see.
[noise] storage in Western Canada.
To be drawn upon and then after that is drawn down a bit I knew we would likely see as supply sorry, a price increase in western Canada that within a result in more supply being brought back.
That's great. Thanks, Burns and then maybe just one last one here for bill on natural gas so.
You know prices improve or potentially move to three bucks at Henry hub and 2021 I'm. Just curious your expectation for customers you think higher pricing will be for them to grow or for the de lever either way I mean constructive for your business either more gas flows are healthy customers, just wondering what type opportunities or you're going to proceed.
In the future in a better pricing environment.
Yes, I think Matthew it'll be interesting to see.
The LNG dynamics for one.
Yes, we think we're already seeing.
The fundamentals for the projects that we're looking out for 2024 and beyond the pretty darn good and.
It's it doesn't feel likely to me that that.
That type of out.
The price change would really impact that you know in an odd way sort of shifting gears a bit the.
Yeah that a slightly higher gas price strengthens a number of the producers that are that our contract holders on our system, especially in Appalachian So which is we have out.
Fair presence in Appalachian So, yes in an odd way, it's it's kind of goods from a from a contracting perspective and yet.
We're not seeing that 789 10 dollar prices that might.
Mike scare away demand. So I think the outlook is pretty good when you are between.
You know.
Hi ones and $3.
Great. Thanks for the color there bill.
Andrew testing from credit Suisse is online with [laughter].
Thanks, Good morning, I think the question probably for colon and historically, you've always maintained ample liquidity and it's no different this time around your bolster liquidity during the quarter.
So I guess just the confirmation on where your liquidity is right now and then would you be able to if the markets completely froze.
So that's the bank of Canada's commercial paper purchase program plan.
Yes, Thanks, Andrew So we're at Rod 14 billion that that's the.
End of April number effectively or last week number but.
Current basically as of today.
That's a big number and it translates calendar wise into.
A funding access sufficiency through the end of 21, which is basically by design, it's a conservative.
Outlook that.
Potentially debt capital markets could be could be frozen until then they're not they're they're basically back open which is good we'll see how that progresses.
And I can confirm that that enbridge as a strong.
Rated commercial paper issue, where could that could access the Canadian program.
I don't think we have really to date, we are issuing commercial paper.
The market is thawing, so I've been I guess pleasantly surprised by the collective actions of.
Of central banks, right and so.
So far it looks like.
You know debt capital markets are our thawing and reopening in a in a constructive manner. So.
I feel pretty good about a funding our plan through through next year.
Andrew.
That's great appreciate the color and then maybe one more narrow question just what's the right down the noncash write down on the DCP position.
How do you think about the tax attributes and the benefits you have in the future other against income or capital gains how do you think about using up.
Uh huh.
Do you clarify that a little bit a specific line DCP aren't where more broadly just on that the DCP position itself is there any tax benefit that you anticipate rolling off that at this point coupon.
Yeah, no the answer to that is not really a andrew.
I think I think at least we still have a generally a pretty low basis in our inner DCP tax.
Position, so that that's unchanged by the.
By the impairment down to market value.
Okay. That's great. Thank you Thanks Center.
[laughter] <unk> from Bank of America is online with the question.
Good morning, Thanks for the interesting details on slide 12 detailing that too and that three dynamic over the near term back that three lacking storage went bad three has storage and export capacity. My question is on storage thoughts on what you're seeing on into storage market boosted the push Cushing.
For our pad three or WCS be how close are we to the tank top.
That's number.
I'll go first.
No I think probably couple of weeks ago, maybe three we would have been thinking that you know may looked like we could see getting pretty close.
The tank tops I think you saw the the inventories come out yesterday.
There was a couple good numbers in there so I.
I think our view right now as we probably don't see us getting close to that in May probably think of it as a shift out into June and a few reasons for that one I mentioned, but you know we are starting to see you more barrels headed out at Cushing.
Down into the Gulf.
And part of that as strategic Petroleum reserve is help that out. So generally I think that we think of it as a shift but a month. So in terms of criticality, let's put it that way.
To to tank tops.
Burned a I don't know if you want to comment on Western Canada, or our own operational tankage at all.
Sure I think western Canada is not expected to fill in may as well.
Western Canada, I think if you read to publish starts will be in that.
75% full level by the end of May.
For us I think like many of storage operators, we have as al mentioned previously operational storage and merchant storage, we've been actively looking to add storage to our system over the last month or so in factories sugared out ways to add 3 million barrels of incremental stay.
George to our customers.
Really that comes from.
Deferring, some epi tank and expand inspections and working with the regulator to do that.
Thanking our operating parameters for how we still specific storage sites. So that gives us more flexibility for customers and then finally, we're in the process of getting up.
A piece of deactivated pipe associated with legacy line three approved by the CR or we could put that into surface as temporary storage for customers as well. So we like other companies are actively looking at our assets to see where we can do to help customers.
So with more storage.
Thanks for the color and from a broader industry perspective, SB emerged from the spend dynamic situation and assuming a lower demand curve. How do you see North America pipeline utilization evolving al and.
Does it essentially price out crude by rail for the medium term and is it really call on the export market at some point.
You want to take that burner sure Yeah, I think for out of Western Canada for sure crude by rail will be the first to be head and given that crude by rail is moving at about 400000 barrels a day prior to that demand destruction of Cove head.
We expect that pipeline utilization will come back first out of Western Canada for sure and then we expect our heavy system to be.
Very full but when.
Economic activity.
Recovers just because as we mentioned before heavy crude oil provide the best margins for refiners across North America I think you are right.
The the lighter crudes will Oh, we'll have a longer ramp up to come back and there are more risk of not being entirely fall and that has knock on effects to export market just because the excess like crude out of North America has been.
Export it and then to some degree is continuing to be exports as well.
Thank you.
Michael Applebee's from Goldman Sachs is online with a question.
Thank you for doing this extended calling in obviously for taking my question maybe hearing.
No.
Slide 10, and looking at kind of getting quite that had a domain like you just curious refer to them and I'm thinking pipeline Gopal or gray okay.
You know express Platte.
When you say their take or pay are you, saying there are 80% to 90% take or pay in just a 10% Walcott theirs is open or are they possibly take or pay signet glassman, 90% and the rest is more volume metric.
Oh turnover and you want to take that.
Yeah, I think it's the latter where it's Oh, sorry, it's 80, or 90% take or pay and or about 10% to 20% to spot or walk up.
So those pipelines.
We'll see a minor impact on their revenues, but nothing significant.
And that it Michael just a just as a reminder that spot capacity. The 10%. For example, that's that's usually by regulatory requirements. So we don't have a lot of choice in that one.
No wonder understood. That's a walk up in burn can you talk a little bit about what you're seeing volume wise, meaning have you seen dramatic volume changes on capital on green yellow grease, it's not an operational that loan, but just in the last month or so kind of what you guys have seen in the near term.
Well I think ER.
Sure Gray Oak, obviously, that's a new pipeline and again its [noise].
Product predominantly take or pay there is obviously, probably a small decline in the spot volume versus our expectations. Similarly on doubtful, where the walk up volumes will be lower.
Got it and then last than this maybe a collyns question.
Let me just clarify what do you disclose capex for 2020.
[noise] [noise], yeah, Michael Thanks, So at Enbridge day, we.
Slide <unk> had a total capex of six and a half billion of which 1 billion was.
Maintenance. So 5.5 was our growth capex spend projection for this year. So that's now down to 4.5, So 4.5 plus one.
Got it in the billion that you're deferring can you put that <unk> and you may have done that's already in apologies if I misunderstood. It can you put that billion into buckets, meaning what percent is for business Rx type of asset what percent is for why.
Now I'd give you little bit more there. So I think we talked about probably the biggest pace, which is about 300 million over 1 billion, which was the mechanical just.
Best case time shift for line three U.S.
The rest of it is you know a 50 million here 100 million there.
The next biggest is a also probably in the permitting bucket.
It would be a around Penn east and some permit delays we've seen there that's probably 200 million.
That's about half a billion together their line three and pennies.
And then the rest are smaller like I mentioned, a little bit at the utility coal at 100 or a little bit more.
I'm a little bit of a you know compressor modernization and bills business, maybe another 100 150 there.
And then the rest is pretty small so its.
Probably about half in the permitting bucket and maybe half in the call. It Cove it construction delay bucket.
[noise] set out it is about that no. That's super helpful. Calling in Oh, I Hope you don't mind else heat I'd like to ask one more in it to build question, which is bill you know after getting the successful petco rate case.
You have other pipelines, you're looking at where you see a significant filing ahead, because those kind of under earning your expectations that that pipe in the U.S.
Well I wouldn't want to front run any of them.
Michael but I would say, we're very close to a two a settlement on Algonquin.
And we would expect that to be a positive impact. It's just too you know too early to say, what what that could possibly be we also have filings or settlements that would like to.
Pursue over the over the next three months on East, Tennessee Alliance Maritimes <unk> northeast.
We got to keep in mind. These all pale in size and scope by comparison to Texas Eastern So while while we may see positives, yeah, the Texas Eastern rate case, and getting that behind US was yes. It was by far the largest I hope that's a little enough color I'd I'd, maybe ill add one more thing in that.
All of these pipeline systems acceptance of the very newest ones you know the the integrity work in the modernization.
Emissions work that we're doing is.
It's it's it's significant so I said boring earlier, but it's a it's a very important part of our Revpar growth story.
Got it. Thank you bill. Thank you all for taking my questions.
It's Michael.
Yeah freestyle, Tom limit and I'm not able to take any further questions that I will now turn the call. Okay. Johnson Morgan what's on the Walmart.
Thank you Patrice and thank you to everyone for your time and joining US. This morning. We appreciate your ongoing interest and Enbridge as always our Investor Relations team is available to address any additional questions. You may have and so once again. Thank you another great rest of your day.
Thank you ladies and gentlemen, we appreciate your participation. This concludes today's conference you may now disconnect.
You guys still there.
Yep.
Chris in terms, how one moment.
[noise].