Q1 2020 Earnings Call
And first to recover when demand picks up.
The reason I'm talking about all of this now is to illustrate the critic holiday of our main line and the market access pipes into those two critical regions.
So the next slide proves that out and shows wire main line has always been heavily utilized in virtually all market conditions.
Throughput increase from 1.5 to 2.85 million barrels over the last decade through low cost expansions and optimizations you've track those three years.
And for the last six years, we've increased capacity and maximize utilization.
Even in the 2009 financial crisis, and the 2015 commodity downturn in fact, we've had to turn away volumes, particularly heavy barrels with 40 to 50 per cent apportionment in the last three years again, that's because we delivered to the best markets and were directly tied to the strong.
This refineries.
[noise] and the case of our pad to in Ontario markets. They also lack sufficient storage directly in the region and depend on the main line to deliver feedstock and all markets cycles just in time.
But the uniqueness in depth of this downturn means everybody's affected so let's get to the main line outlook on slide 14.
[noise], obviously western containing producers have been hit hard.
Our estimate is that one to one and a half million barrels a production comes off into two 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 a higher cost.
Then local refinery demand has impacted and then X., 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 main line ran at about 2000 2.450 million barrels on average so we absorb about 400000 of the estimated 1.1 to shut in I talked about relative to our q. on average throughput.
Based on what we see today, we're expecting the average key to mainline impact to be in the range of four to 600000 barrels per day with a gap 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 Q. on on average for the next nine months.
High level 300000 barrels per day, a volume for the next nine months works out to about 2% of consolidated even done calling will go through more of this a few minutes.
Given the strength of the main line position in the refinery pull ones demand picks up we'd expect volumes to return to previous levels.
All that to illustrate the diversification in spring across the business, including other parts of liquids makes the impact to the main line manageable.
Let's now move to another subject of interest which is mainline contract offering on the next slide.
We found our contracting application late last year, including letters of strong support from shippers, who make up about 75 per cent throughput.
Based on a very recent customers soundings. These 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 that and they want to commit volumes in an open season.
It wasn't easy getting there at all but we landed on a good bounce and the deal benefits everybody producers integrated companies and refiners.
In the case refiners, an integrated producers contracting gives them access to reliable feeds dog at stable and competitive tolls.
Producers get guaranteed access to our system. So while many haven't historically been shippers the offering allows him to balance the playing field with refiners, which is usually the issue that we care about.
And by the way they'd be securing access to the most competitive Friday market in North America. So we believe we will receive significant insufficient commitments to contract the main line.
For three reasons.
The strength of pad tune pad, three refiners and our physical connection to those markets.
The competitiveness of our toll and the fact that shippers representing about 75 are 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 Mark.
Were directly connected to about 1.9 million of pad to in Ontario demand.
<unk>. All is is is heavy refining capability.
These refiners rely on our system and have limited alternatives, so they're keen to lock down access to Canadian Avee barrels.
We also have a million barrels per day of downstream take or pay contracts that draw barrels down the main line through to come back <unk> 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 C.R. 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 C.R. is addressing submissions.
We father response to those submissions on me one and we expect a decision sometime in May I 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 into the progress on the main Minnesota permitting at a regulatory process for line. Three this is on slide 18.
This is are 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 P.C. issued its official orders confirming the recertifications of the I.S. certificate of need and wrote permit.
I, just took a bit longer than expected, but it is a good outcome.
On permitting in late February the pollution control agency issue the draft for a one and closed their public comment period in April.
The draft permit was comprehensive it concluded that are construction plans meets its standards. So that's important too.
They're now considering the public comments before making a certification decision.
The D.N.R. and Army Corps are making progress in the core concluded there supplemental public comment period.
Once these agencies are done their process the P.C. will be in position to issue authorization to construct and we've said this before but once we have better clarity on the final timing apartments, we'll be able to provide an I.S.D. 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 is to summarize the priorities.
Now in slide thing.
Since the O. set of cold dead and related oil price shock a boat eight weeks ago.
We've scrub the entire business to make sure we stay strong unprepared for an extended shut down if that happens.
The priorities, we outlined that image. They are the same but we're also taking some near term actions. The first so I mentioned it to protect the health and safety of our people and the operational liability of our assets. So we keep running well and that's in very good shape.
Reducing costs by 300 million, we've increased excess liquidity 14 billion.
Because of some slowdowns related decoded about 1 billion of capital span will be deferred into the next year.
His actions along with our low risk approach to the business will make us even more resilient.
So now over to calling for the financial review.
Thanks, L. on good morning, everyone I'll start off with our financial results discuss our financial position, including bolstering actions men finished or like <unk>.
Speak up on slide 20, or financial results came in better than expected.
Results highlight the resiliency and diversity of our business.
Run through the results in an abbreviated manner.
Liquids pipelines had a very strong first quarter adjusted EBITDA increased $190 million.
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 a tariff surcharge from the line three Acadian segment, which entered service in December.
And as well the Gulf Coast Midcon systems in the Balkans system, all had another strong quarter as well continuing the trends over the sequential quarters.
And gas transmission <unk> I 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 120 million of annualized <unk> ER uptick to us.
Which is a little better than we previously got it.
Gas distribution of it I was down 84 million compared to last year. This as large 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.
Were cheating our target synergies from the amalgamation.
Or power business was down slightly for the quarter.
I was positively impacted by our German offshore wind farm being placed in the service late last year and it's adjacent expansion placed into service in January.
However, these contributions were offset by lowering the dog at a Acadian wind farms due to less favorable when resources.
Energy services was down 189 million from the first quarter of last year.
As you mentioned before Q1 of last year was exceptionally strong, whereas the small us we're seeing in the first quarter of this year reflects narrower location differentials unlimited storage opportunities.
It didn't fully covered some of the facility demand charges. So that's why this quarter's contribution is slightly negative.
I finally eliminations another 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 college for coverage in the business.
Moving on to slide 21, D.C.F. for the first quarter was $1.34 per share compared with the dollar 37 last year.
Because we just discussed if it does fairly consistent quarter of a quarter as you look to the rest of these drivers. They can consist of a number of smaller puts and takes.
Ah 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 some right. We're ahead of where we expect it to be at this point in the air.
Move on a slide 22, and discuss our secured growth portfolio.
Executing on our secured growth program remains a priority.
No 10 billion dollar portfolio of high quality projects as well diversified commercially down the fairway and generates strong returns.
The 10 billion dollar capital program overall, I think some overlook this about four and a half billion is spent already or will be project financed leaving a very manageable five and a half billion to spend.
And we've got Apple capacity to find this within our equity sell funding model.
Turning to execution, we've put health protocols in place in the field an execution of the program overall is continuing to progress well. However, we expect <unk> and a regulatory slow down to delay plan.
Spending in a few select areas by about a billion dollars in 2020.
Importantly, there are no cancellations in this list it must it's really more so a shift by weeks or months of of spend.
For example, <unk> related matters deferral of our utility customer ads until next year due to a temporary housing construction.
A pause in the G.T.A.
In the permitting category, we were seeing delays on pennies.
And as we discussed we received our line three U.S., Minnesota, P.U.C. 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 it was a reminder, we conservatively planned in 2020, the substantially the entire rest of of the line three U.S. span of $2 billion. So consider this about about 300 million dollar.
Refinement down to 1.7 for line three U.S. for example.
[noise] importantly, we don't anticipate any material impact to in service states, given the flexibility and contingency built into our project plans and prior guidance.
Once in service the security growth will add an incremental two and a half billion of highly reliable cashflows advance our strategic priorities. So execution pays is obviously still our objective.
On the slide 23.
We came into 2020 with the balance sheet in great shape, an Apple Acquity to fund our growth program.
Q1, we've taken additional actions to further bolster excess liquidity.
We've proactively issued 4 billion of term debt that attractive rates through April of this year.
Looting and if she wants from our eight rated utility which was the second [noise].
Excuse me or third issuer postcode, which helped to father Kadien dead capital markets.
We also added 3 billion of committed credit facilities from our large banking group in early April.
Now after considering q. on maturity isn't capital spending.
Are available liquidity now stands at about $14 billion.
Liquidity gives us plenty of access to funds all the way through 2021 without tap tapping the debt capital markets.
I remember when equity self month funding mode too so our equity component is being funded internally.
In terms of balance sheet metrics for the full year, we continued to expect debt if it ought to be well within our four and a half the five times target range.
Turning to slide 24, we've sold another 400 million of assets. This year as we continue to recycle or Highgrade our capital.
This includes the sale of the Montana, Alberta tie line and the Ozark gas system, which combined total about a quarter of a billion dollars.
Neither of these assets recorder, our strategy, but we're attractive to others. So we fetched good value again.
We've also announced or further step.
In our partnership with a C.P.P.I.B.
Whereby they've purchased a 49% interest in our 50 per cent share of three offshore wind French projects, which are in development.
The proceeds represent.
Promote under their share of expenditures encouraged to date and then they will contribute proportion proportionate capital.
Going forward as we develop these projects with our other local partner media.
To be clear, we still like these assets and this business.
This transaction will boost our return syndicator development risk and expand our partnership with C.P.P.I.B., 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.
Our best credit assurance is that we deliver to end use markets as mentioned, where our last mile transport is typically scarce and valuable to whomever hold it.
Our customers are generally comprised of utilities refiners integrated companies and our own utilities and users.
One thematic credit credit area that we are monitoring closely some of the gas producing community who ship on our interstate into provincial systems as mentioned, we carry very good collateral.
However, if more drastic action was required we expect we could remark at our long haul capacity with others at or near existing rates.
As a reminder, these are not gathering lines those have been to vested.
On the whole we believe this customer credit strength differentiates us from the peer group and ensures were financially resilient.
Turning to slide 26, R. rating agencies value, our financial strength and resiliency too.
All of the agency's assess our business risk is either a are 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.
Or diversity scale competitive position commercial model and simplified structure all matter a lot in this environment and in his wrist determination.
They're all things that are deer to us and central how we run the business.
Some forget we have a big utility in the portfolio integrated utility, which can be forgettable. It is unique in our midstream space.
There are other operating companies are similarly, well 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, two and believe they finally support strong investment grade ratings that there will be plus level.
Intended 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 of changed either in fact, Fitch just reaffirmed images triple B. plus credit rating and mid April.
Kind of slide 27.
Vision 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.
With comb 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 the slide.
These include reductions to outside service isn't supply chain costs.
Any wide salary reductions and finally, a voluntary workforce reduction program.
Combined our approach.
Two operating costs to actions have been carefully targeted.
Intending on eliminating jobs are an involuntary basis in this environment and the salary reductions are shared communal lifts so to speak.
Name is up for anywhere aligned with customers and investors and Moreover 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 or 2020 outlook.
Let's begin on the left where you'll see we've provided approximately but ah impacts for various mainline volume scenarios.
Provided you a few here don't translate barrels to dollars.
I was discussed earlier, we currently expect as much as roughly 300000 barrels per day on average lower throughput on the main line over the last three quarters of this year. It's reflects a trough in the second quarter and a recovery over the balance of the year.
This translates into production to our 2020, even to have about $300 million are about 2% of our consolidated even though.
Well that is our expectation we've further stress tested the business given uncertainties and there's a cushion to handle a further 200000 barrels per day, a volume lost 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 either.
In terms of tail Insensitivities, we're benefitting from a stronger U.S. dollar foreign exchange rate in our considerable U.S. salary, but which even after our 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 three per cent even.
A territory.
Also are strong first quarter exceeded our plan, providing an additional five cent running start and cost management actions provide approximately 15 cents per share of of of bolstering support.
So to slide 29 with us all to the solo means for our 2020 D.C.F. for sure guidance.
Combined or tailwinds, and bolstering actions or expect to largely if not fully offset or headwinds.
To recap there are some strong tailwinds for the main or the or our first quarter, Texas Eastern.
Announce cost reductions stronger U.S. dollar and lower interest rates on the headwind side, a small impact from our commodity sensitive businesses like Sable energy services in D.C.P., a distribution reduction, but these businesses.
At fully budgeted levels combined or less than 2% of you but for.
For the main line, we're allowing conservative for that bigger up to 500000 barrels per day.
Sensitivity.
So if 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 know it all up remained very confident that will generate D.C.F. within our original guidance range of 450 to 40 for sure.
<unk>, Okay. Thank you column.
So what is in in the face of probably the worst economic an energy downturn in history. Our resilience has once again protected us the diversification of assets cash flows and a commercial underpinnings allow us to whether this storm well.
But we haven't just been standing around watching this we've been taking action to preserve our flexibility no matter how long the downturn Laos.
Given the strength instability of our business and the factors that colleges could you we are maintaining that D.C.F. guidance range of 450 to 480.
Finally, we are not losing sight of the future either we remain very focused on executing are secure copper program that will drive near term and medium team term growth in ebbed and eight growing evident.
So we're now into the <unk> 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.
Oh.
[noise] question. Please <unk> cell phone, if you wish to be removed from the key please.
<unk>.
If you're using the speaker phone you may need to take up the hill before pressing the number is once again if you have a question. Please press star why not <unk>.
Rob Hope <unk>, it's online what's the question.
Wanting everyone. First question is just on the move of capital from 2020 to 2021 for like three or just want to get a sense is this being driven by you that permitting it's gonna take longer and a covert 19 world or is it that you're baking in some additional contingency.
The on the construction side there.
Good morning, Rob It's it's call yeah, it's it's fairly mechanical so we favorably received the the Minnesota P.C. written already here.
[noise] last week, although it took a little bit longer. So as you recall, we had budgeted in guided for the full spend during this year on what I'll call. The the best plausible timeline and recognizing that [noise].
Yeah. It was six week delay if you like in the in the order.
We're just basically moving that.
That that's six week spanned from 20 into 20 to 21 mechanically.
[noise] or that's all about 300 300 million yeah.
Alright, and then when we take a look at a three and a million dollars a cost savings were any of those realized in Q1 and give a sense of how much could be also.
Being able to be sustained into 2021.
Yeah, and the first part of the question zero basically in Q. on these these programs are all coming into effect here.
Immediately.
<unk> on the sustaining question.
I think a good part of it could sustain.
You know have to see.
Some of it but I would ballpark it out about you know two thirds at this time.
[noise], that's a whole thank you.
I grew up.
Okay, Kenny from Mount Snow, They tell us on line with a question.
[noise] Yeah. Good morning, everybody just with respect to the the Army Corps permits still required for like three and I guess the line five tunnel as well.
Any concerns on being able to obtain these permits just given the recent decision about 10 on.
I'm just wondering.
If you see any negative read through there for your poodles.
I'll have that one's ever.
Okay, <unk>, we don't see any material impact on the nationwide based on this decision on the nationwide 12 permit each <unk> each project has different.
Writing requirements by the chorus at the core can either choose use a local permit.
<unk> for the vast majority of everything that we're doing we're we're all under local permits or this hot decision from the Montana Court doesn't impacts casual.
Okay great.
And then just looking at the main line Williams, who appreciate the the detail.
Outlook here.
Just wondering if you 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.
I think we are.
As as we always are on a proportionate paces moving more heavy than light shall we expect that to continue over time.
And as as refinery demand picks shop, and a U.S. 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, great crudes by blending lights and and heavies.
As the economy recovers, if we see a slower pickup in light so that is a slight benefits for us as removed for it.
I think that if you just look at the <unk> cracks spreads over the last a month or two here to go to Burns point, you know the heavies have held up pretty good and so that's why we were saying earlier on that when things return those should even being better position. So that's how we look at him.
And on this recent initiative to store barrels down the main line any other near term opportunities for downstream storage.
Perhaps if it's storage congestion does lost into 2021.
For the old my three is decommissioned.
How how are you thinking about optimizing storage later into 2021.
So maybe I'll go first on that [noise].
Ross or sorry pot you know, we've we've got basically two segments of storage in the business. It's a fairly large storage position over all but the majority of it relates to operational storage that we need to manage the main line and I think we're in very good shape, there and it's critical that we Maine.
Chain that flexibility and that operational storage on the 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 at fix fees.
But there are parts of it though that we do have some opportunity to gain from the you know from the contango that you're seeing right now and and we'll see what happens this quarter on that we should we should do okay. I think but you know in the bigger picture Banbridge of course, it's it's you know not a huge business, but yes there are.
Some opportunities that we're trying to capture in energy services.
Yeah, that's great I'll jump back in the queue. Thanks.
<unk>.
Product Quan with RBC capital markets.
Poor question.
Morning.
Maybe just to start on the main line just wondering if you could talk about what the current slogans and what the main nominations are but just keep it higher level as you think about contracting you Reconfirms <unk>. The 13 shippers submitted the letter support that they are still absolutely.
Board and specifically.
As well that that there is potential as they initially stated to take even more volume and then they're currently shit.
Go ahead burn you want to take the first shot with that.
Okay sure Yeah, Hi, Robert.
With respect to May volumes Ah I think we.
Jones generally talk about what we're seeing <unk> just because of commercial.
Markets sensitivities.
I I think it's fair to say that where.
You're seeing refinery utilization tracking upwards as we've progressed through this through April and then to me.
With respect to mainline contracting on our 13 shippers, we have absolutely reconfirmed with them that they are still highly interested in mainline contracting.
Fact, all of them have reconfirmed and most of them did provide.
Commentary at the C.E. on April 24th to that effect.
Saying that they would like the mainline contracting hearing process to continue and pickup chase.
I think your <unk>. Your second part to that question was there are a number of those shippers who are interested in even more space than they are currently shipping just because of volume wrap ups or changing refinery configurations.
Oh.
And certain degree confirmed that that there's still interest on.
Letters of support in terms of more than than what their ships.
I, yes, it'll very customer to buy customer, but the support and the levels are very strong.
Great. If I can just finished with a question on the.
Yeah.
I guess <unk>, you've got the arrows.
Twins are about the same so overall kind of stuff.
Roughly to the midpoint of guidance and and at a higher level, what's the beach risk.
<unk> your views you really need my volume source or something else.
They were already yeah, it's called so.
Yeah. There is some artistic depiction there, but it's intentional we've <unk>, it's a fairly narrow range honestly to begin with right. It's it's it's it's basically you know a 13 and a half billion dollar <unk> business with a guidance range of plus or minus 3%. So we feel that's fairly.
Tight already not going to make specific commentary on wearing the range. We we have a range and I think you put your finger on it I think the main line volume sensitivity is.
<unk> is is probably obviously the the biggest the biggest moving part there. So we've we've stressed tested it as as noted.
If it's great thanks very much.
<unk>.
[noise] cristiani's, some you'd be online with a question.
Hi morning, everyone. Good to hear every one is saving well really appreciated the detailed outlook on on the main line that that you try to to present today and you know the explanation about will be impacted first and coming back last definitely makes sense like you know trying to navigate.
Unprecedented environment or North American crude markets. You know typically you know investors have looked at transportation differentials to figure out you know when the call on crude actually will occur and so forth, but I I'm wondering if you can sort of talk about how this could be different or how you're thinking about it through a modeling.
Back there, but when the refiner start off and they get closer to what we utilization is there a scenario where they have your crude so we're actually favored by the refiners there can actually be a bigger pool <unk> Western Canadian production. Then you would typically expect in the in normal circumstances and trying to understand how that.
Packs are colors your outlook or from me and like volume sort of this year.
Hmm.
<unk>. It's out here then handed off to Vern I'll go first I think the answer is yes, you know where where they've got to some capacity to move a heavy processing up they will do that because we referred to that's where the margins our greatest and that's where I'm just giving.
Where we are on throughput today, there's probably a you know good opportunity for them to ramp up.
And and fully utilize that access to heavy barrels. So I think that's one angle. The other one is of course as I said production is likely to lag here the demand part of the curve and so given that we've got you know a lot of storage pent up in in Western Canada, I think we'll be able to you.
Utilize as much of that increase demand that refiners want through this period here. So yeah. That's how we see it at at a high level, but during you can add if.
Like.
Sure I think the big issue is with cold bid, it's really been at a a refinery and transportation fuel demand.
Issue for what crude is required where so as the economy picks up and as 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 of crude provides the best refinery margins are cracks spreads for each of our refineries. So we'll see the pad to impact three heavy refiners.
Move up a in utilization a lot quicker than you'll see like crew refineries move up and utilization.
That that makes perfect sense and then maybe it's a a follow up question you know with the the Keystone Excel approval and so forth trying to understand yeah. It's in how you could potentially impact your main line, we contracting process.
You know it at a high level are you able to share with US whether you believe your proposed rates are competitive with with with the Keystone accelerates moving forward and so you know shippers would continue to support your your process. It's got a fair way to think about it.
Color on that you helpful.
Maybe I'll go first and then on the rate comparison bring you can address that I think firstly I would say schnur that we've I think you you're aware, we've always assumed that excel.
Would go forward in our projections and that was the prudent thing to do in 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 combination of that with our lower tools and a and us accessing the most competitive markets I think that puts us in very good position. The other part of this of course is.
You know after what it was at three or four or five years of lack of the grass.
I think one thing that.
Excel coming on a on it shed Joel N.T.M.X. does is it does allow for additional production volumes to come on obviously investment has been curtailed, particularly at the last two three months in the oil sands, just like the Permian another spots, but I think that could unleash.
Some new volumes coming out of the base and that would certainly you know further bolster what we're doing on contracting.
So that's the big picture and then on <unk>.
Yeah, I would say that we are very competitive to all markets are we feel like real definitely have the lowest tall.
The U.S. mid west and Eastern Canada, and and back from both of those markets are almost no alternatives, but damn bridge system.
And then to the downstream markets and choke a crushing in the U.S. Gulf Coast. We are very very competitive in fact or U.S. Gulf coast tools should be the lowest tools available.
Okay. So it it it which would effectively saying is that it it it wouldn't be an impediment and and you have a very good offering for your for your shippers.
Absolutely.
[noise] perfect. Thank you very much guys really appreciate the calling today and they say.
Great. Thank you.
[noise] [noise] my debt.
Liz from T.D. security is only four question.
Thank you appreciate all the [noise].
Update today on on the mainland, especially I realize there's still a lot of uncertainty in a lot of moving factors, but I'm just wondering how the minute management board is revisiting how you're going to execute on your strategic priorities over the next couple of years and specifically I'm wondering if there might be some sort of this.
Shift and how your approach your U.S. Gulf Coast and export strategy I knew that was I focus in an interesting possibility still that that is unfolding for you and also I'm. Just wondering with you know your your <unk> your five to 6 billion of capital capacity for investment and your.
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 that environment.
Whether or not like what what factors would need to change and what would need to be in place for umbrage to consider acquisitions.
Hmm Okay.
Out here Linda [noise]. So first of all you know Greg question on the overall strategic.
I already said management of the boards 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 you know the safety of the people unreliability. The system. That's critical you know, making sure that they're 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.
I think at the same time, we also have an eye on making sure. They we containing it sustains sustained growth in the business and you mentioned the export strategy. You know at this point you know unless you believe that we're not going to return to the basic fundamentals that were driving.
Exports in the first place witches global demand for energy and that stemming from as you know very well you know population growth urbanization standards of living I think you know we could see a bit of a slow down let's just say in in 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 refer to the five to 6 billion again, I think obviously with potentially a slow down the economy you could see overall growth slowed down in energy I think from our point of view.
In that environment, if that happens 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 position for a downturn here. If you look at the asset base and the opportunity set that comes out of that.
And you circle back to the five to 6 billion per year. You know, it's it's one to 2 billion for each for I mean businesses, which I think is very cheap bubble on the gas side.
Again, very you know focused on L. and G. were well position there expansions of our existing systems Valley crossing Sable Trail bills got a you know a bunch of modernization capital on the shelf there that needs to move forward.
The utility through additions and expansion.
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.
[noise], obviously were scouring things all the time, that's what our corporate development people get charged with but I would say that is pretty low in the list for US is you know very well, we we essentially re position and did what we needed to do about three years ago now with the spectral transaction. So I'd say in terms of capital deployed.
And it's not very high on the list, we're going to be very disciplined in the next three five years as we have been in the past.
Thank you <unk> and just as a follow up with your sale here interest in your off shore French when two C.P.P. shows that a discipline and capital allocation and Highgrading I'm. Just wondering you know if if there are opportunities to continue to do that you know what what might be possible on that front.
With potential financial partners Ah, maintaining partnership with you or or or or other ways that you could to continue to highgrading take advantage of a strong demand for it the types of assets that you hold.
Yeah. That's a good point again, it's another thing, we're scouring and making sure we're always investigating.
You know, we certainly look at you know the three year plan and and we 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 it or maybe less applicable for private equity. These days, but will continue to do that this is your pointing out as it was a very good example, there may be a few more opportunities to do that throughout the entire business, we'll we'll keep tracking and see what's out there for us to.
<unk>.
Great. Thank you.
Okay. Thanks Linda.
Jeremy on it from T.T. Martin is on line with a question.
Hi, good morning.
Right.
Just wanted to take a step back here and looking at the first quarter <unk> like you know operations came in you know pretty good better than than we were expecting and appreciate that there's kind of you know. These had went ahead of us 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 a normalize world and you know potentially one line three eventually get them line in.
That gives you two full year you know contribution in 21.
Maybe I'm getting ahead of myself too much here, but just wonder what do you think the business looks like in that environment and how that compares to I guess some of the prior guidance would put out there you know given how well things one in the first court.
Yeah, I think Jeremy I'll start then <unk> I think I'll take it back to you know and bridge day here, which wasn't that long ago really feels longer.
But you know we had a a three year plan there that we unveiled and you're familiar with it I think we're we're pretty comfortable that you know under that three years scenario, we can still deliver on on what we thought you know I I'm not sure of the first quarter is going to tilt the balance.
Either way on that three year plan I think as you're pointing outlined three is is a big part of that cause it generates a lot of v., but but I think that's that's the way. We're looking at this good first quarter. We've got a simple string actions that help US you know stay in the range I think that's important and then from there.
I see more or less a progression and execution of the three year plan that we laid out. So I think we're we're pretty much on track with what we thought.
Well the thing I think I'll add Germany are very close to this is in the hills business.
I think it's a subtle point, but he he was being.
Advancing a number of.
You know rape cases on on the various gas systems, which is quietly.
String and stepping up our our return on on that business, you know going to kind of kind of a boring way, but I.
I think you're right it.
It.
It <unk> it should be should be diversified <unk> contribution yet.
Good Q1, he and all the trends that that you've seen so.
We'd like to returned about world as soon as we can actually that that's a very good point and you know given it's boring and so forth as calling just said I I might just ask bill to comment a little bit on that because I think the raid cases are great point, but you know the gas guys are working on so many there are other opportunities.
Right now so maybe they'll can you may have just expand on this I think it's a good point.
Yeah, I think I think I appreciate the born costs that you.
You know this that the business really has has started a term a little bit towards its its roots, which is a you know regulated empty and we've got a an awful lot of capital going into the business and so you see is from the Texas Easter or a case that that's yeah that provide some I wouldn't.
So you'd call it a gross opportunity.
And then you know the the business even in this environment and Jeremy we're only down.
Maybe 5% on demand basis, and as you know it doesn't doesn't affect us because we're we're all reservation base system and most of our areas kit.
Don't export, whether it's Mexico, or L. and G., even some of the the northeast utilities, where it's challenging to build anything new smaller increments of gross.
You know crop up so I I feel as though from protecting that base with recontracting, which hasn't been that challenging to investing in the bones of the system to then.
You know these these expansion opportunities that we still see even in this environment I I do feel I guess, that's fine we'll be boring under the radar, but it turned out some some nice cross.
Next door that.
That sounds right I mean, if Boston didn't prefer a rush analogy it seems like you'd have some nice opportunities there, but just one off of my second question real quick with with regards to D.C.T. I I kind of on the other side they have with them.
With them or tracking the guy here just wondering you know updated part there as far as you know portfolio management. You know is that something that after you know right down here or something to kind of x. It at this point or are they going to need any help or or any I I appreciate them extremely small part of your business, but just wanted to get any thought there.
Yeah. It it you'd use got it right there, it's not huge for us but on the other hand, we we pay attention to all of our businesses and.
Certainly not happy about taking distribution a reduction bear you know I'd say at this moment you know the the exit part of your question I mean, we'd be consistent with the fact that we sold the rest of our G.N.P. businesses, but I think is your will call. We've got a a bit of the tax basis issue there that makes that more.
Challenging I would say, though Jeremy that like at this point, we're we're very supportive of management's actions I mean, they've they've move for pretty quickly on reducing capitol, 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.
Yeah.
That's a that's helpful. That's a crummy thanks.
<unk> next year.
Mmm.
<unk>.
What's the question.
Okay. Thank stuck in the morning on the renewables business I'm I'm curious, whereas.
Maybe your overall strategy now or long term it seems like that businesses.
I think smaller overtime and the other segments are are getting bigger here as long as they're just a bullet fun renewables and and I will put sound portfolio.
The short answers, yes, then and 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, a here moving forward, but we think this is a very good way to you know focus on some part of our business on on lower carbon it's been a a very good business for us we've built up a very good capability and also.
We have a 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've found is that the.
Supply chain is really well developed we've we've join this partnership with C.P.B.I.B.
And I do feel that you know the fact that we've built up our capability here with them and make us a real player and develop are in this space. So 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.
Ringing people in and then and then having some promote value in that I think that's a good spot to be in you've seen other large players and renewable use similar models and you know I think that's a good capital a allocation move and but it does not indicate whatsoever that you know we want it to be as.
Smaller part of the business I think we're very keen on developing and growing it.
Okay. That's right here and then M- My second question, maybe I clean up on the main line sensitivity and appealing to to a bit on on that variants you put up there or not that range. Four to 600000 can you confirm looking at 6000 is that.
It looks like you're feeding and 1.5, knowing barrels a day I wanted to check that not I guess that suggests that a junior probably looking at.
A million down on on mainland volumes.
<unk> <unk> <unk>.
<unk> Yep.
She then can you explain your question again I'm sure I'm, having trouble following it.
Yeah.
I'm trying to clarify or or confirm with what do you guys that you guys are also eating in that 1.5 million production sat in in Canada, you triangulate down to your bear variance for two two and the way I'm thinking about it specifically as you you got April in a bag.
100000, 1 million and you probably get sense of of May and then you put up 600000 thumb to solving for for June.
Okay I see your point is I think the four to 600000 is in a range.
Or the average on a quarter and there's no real mid point for that range. It's designed to be something that's possible and again, that's dependent on whether it's a million to a million and 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.
I guess you you have in that range you have.
Sensitized down to 1.5.
Ah, it's designed to be a range and our outlook, yeah would be with in that range.
Okay.
Alright, Okay. Thanks, guys.
Okay. Thank you.
Probably cavalier from C.I.D.C. capital markets.
The question.
Hi, good morning in.
Detail call. This this morning, especially on the baseline most of my questions with answers at this point, but maybe this a couple of quick classifications.
Oh, we have a very similar from the mainland volumes that you've described but maybe deeper decline.
More curious, though about what you're assuming and the throughput recovery.
That you buy Windows employed 14, I think you've mentioned reopening the border and lifting travel restrictions are there any other economic or policy Guy poster looking to their I'm thinking maybe is there a refinery utilization recovery or rate, you're expecting or G.D.P.
Recovery <unk> or something.
Parents, you want to address the sure I I think rubber it to the Big thing you should be looking at his 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.
The rate of refinery utilization, and then which called dripped derived to rate.
Of.
But.
For us so we're already up a million barrels a day and gasoline demand since to 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 a driving patterns I think all be the biggest.
Watch.
Right and in that.
Group of things are looking at are expecting a full recovery.
In in those metrics to get to your your your end.
<unk>.
No way or not because we're not for Castro for recovery.
Okay. Thanks for that I noticed a lively on on what the free.
What I heard from the comments is the there's a little bit of a mechanical shift in the the Catholics. There 2020 seems seemingly based on the permitting timeline.
A warning.
If that also includes in.
<unk>, what that might have on your practical realities, but I was on all construction or.
Something included in your.
It's under shifting capital timing.
I think.
You know from a construction point of view.
That you know obviously, that's not happening today and will happen later on depending on when we get the permits I'm not sure we see much of a construction impact in fact, you know in most of the projects. We're running right now in the field goals are generally working to share 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 this eight week or so delay in getting those a P.C. orders I suppose there could be some further covert related issues through permitting but.
We haven't really seen much of that yet so I mean, hopefully I'm answering your question, but that's the big picture.
Yeah.
It was that I, just wondered about the construction of changes as a two.
Construction activities I'm I was all but you answer the question.
Yeah.
Monkey Taylor from Eudora, <unk> company, it's only with a question.
Hey thinks would take my question here on Slide 14, you highlighted by recovering Boeing type them out outlook and I think you done a good job address me I'm just wondering on the supply side.
Anticipate any barrels that were previously on the system to be you know structurally shut in or or it would just be helpful to hear comments on how you're thinking about supply Ramsey backup.
Right.
Okay, I'm Matthew I think.
Really our system and the demand in the near term is trying to be refinery.
Demand poll driven.
Because prior to.
The Covitz situation, we were 40 or 50 per cent proportioned upstream. So we don't expect the supply situation to impact of volumes wants demand picks up again, I think it'd be fair to say, we which likely she.
Storage in Western Canada to be drawn upon and then after that is drawn down a bed annual you'd likely see a supply of sorry, a price increase in western Canada that within a result, and more supply being brought back.
That's great. Thanks, Burns and then maybe just one lots in here for Bill natural gas so.
You know prices improve or.
The three Bucks and Henry <unk> in a in 2021 I'm just curious your expectation for customers you think higher price thing.
Be for them to grow or for the deliveries away I mean seems constructive you're business either more gas loads are helping customers just wondering what type properties or you're kind of her seen in the future in in a better pricing environment.
Yeah, I I think Matthew it'll be interesting to see the L. and G. dynamics for one for sure.
We I think we we're already seeing.
The fundamentals for you know the projects that are we're looking for 2024 and beyond their pretty darn good and.
It's it doesn't feel likely to me that that.
That type of.
Well the price change would really unpack that you know in in an odd way sort of shifting gears a bit the.
Yeah that a a slightly higher gas price strengthens a number of the producers that are yeah that our contract holders our system, especially in Appalachian So that which is yeah. We had about a fair presence in Appalachian So <unk> in an odd way. It's it's it's kind of good from from a contracting perspective and yet.
No we're not seeing the 789 10 dollar prices that might.
Like scare away demand, so I I I think the outlook is pretty good when you're between.
You know you know the high ones and at $3.
I think so the color of their bill.
Okay, passing from credit Suisse's online.
I think the morning I think the question is probably for colon and historically, you've always maintained example, acquitted him snow different this time around your bolstered liquidity during the quarter.
So I guess.
The confirmation on where you're liquidity is right now and then would you be able to if the markets completely froze access the bank of Canada's commercial paper purchase program plan.
Yeah, Yeah. Thanks, Andrew So we're at Rod 14 billion that that's.
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.
Funding access efficiency through the end of 21, which is basically by design, it's a conservative.
Outlook that you know potentially dead capital markets could be could be frozen until then they're not they're they're they're basically back open which is good we'll see how how that progress is.
And I can confirm that that and bridge as as a strong.
Rated commercial paper should work could that could access the Canadian program.
I don't think we have really today, 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 far it looks like you know.
Debt capital markets are are thawing and reopening in a in a constructive man or so.
I feel pretty good about funding our our plan through through next year.
<unk>.
That that's great appreciate the color and then maybe one more narrow question just with the right down the Noncomp right down on the D.C.P. position.
How do you think about the tax attributes and the benefits you have in the future either against income or capital gains how do you think about using that.
You clarify that a little bit I, specifically in D.C.P. aren't where more broadly just on the D.C. position itself is there any tax benefit that you anticipate rolling off that at this point in time.
Yeah, I know the answer to that is is not really Andrew.
I think I think at least we still have a generally a a pretty low basis in our in our D.C.P. tax position so that that's unchanged by the.
The impairment down to market value.
Okay. That's great. Thank you.
Thanks Center.
Hmm.
New York has on line with a question.
Good morning, Thanks for the interesting details on slide 12 detailing pad two and three.
Three dynamic over the near term back for about three lacking storage what about three has storage unexplored capacity. My question is on on storage thoughts on what you've seen on into storage market loaded the push crocheting or or pad three or W.C.S.B.. How close are we to the tank top.
That's number.
Yeah I'll go first.
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.
Tank tops I think you saw the the inventories come out yesterday.
You know there was a couple good numbers in there. So you know I think our view right. Now is 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 him while they're all headed out a crushing down into the golf.
And part of that as strategic Petroleum reserve is help that out. So generally think that we think of it as as as a shift a about a month. So in terms of critic <unk>. Good it that way two two tank tops.
Burn 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 stats will be in that.
75% full level by the end of me.
For us I think like many Ah storage operators, we we have as L. mentioned previously operational storage and merchant storage, where you've been actively looking to add storage to our system over the last month or so in fact, we figured out ways to add 3 million barrels of incremental store.
Orange to our customers really that comes from differing some <unk> inspections and working with the regulator to do that changing our operating parameters or how we feel.
Specific storage sites, so that gives us a more flexibility for our customers and then finally were in the process of getting.
A piece of deactivated pipe associated with legacy line three approved by the she are where we could put that into surfaced.
As a temporary storage for customers as well so we like other companies or actively looking at our assets to see what we can do to help customers out with more storage.
Thanks for the color and from a broader industry perspective as be emerged from the spend demicks situation and assuming a lower demand curve. How do you see North America pipeline utilization evolving l. and does it essentially price out crewed by rail for the medium term and is it really cold and export market at some point.
You want to take that burner sure Yeah, I think for out of Western Canada for sure crewed by rail will be the first to be hit and given that crewed by rail is moving at about 400000 barrels a day prior to that demand destruction of Cove head.
We expect that pipeline utilization, we'll come back first start a 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 will provide the best margins for Rick.
<unk> across North America, I think you are right. The the lighter crudes will be we'll have a longer ramp up to come back and they're out more risk of not being entirely fall and that has knock on effects Judy export Mark.
Just because the access like crude out in North America has been export it and then to some degree is continuing to be export it as well.
Thank you.
Michael Lebanese some common sense is online with a question.
Thank you for doing this extended calling in obviously per taking my class.
Mmm.
I'm looking at the slide 10, and I'm looking at the kind of.
Right.
Why.
<unk>.
Heard of them and I'm thinking pipes light dapple or gray. Okay. You know you know.
<unk> Platte.
When you say there take her pay are you, saying there 80 to 90 per cent take her paying just 10% walk up is is open.
Or are they properly take her pay yep glassman, 90% and the rest is more fog the metric.
I don't over and you want to take that yeah, I think it's collider, where it's <unk> sorry, it's 80 or 90 per cent take her pay.
And about 10% to 20% to spot or walk up so those pipelines, we'll see a a minor impact on their revenues, but nothing significant.
And and not Michael just 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 under understood that to walk up and burn can you talk a little bit about what you're seeing volume wise, meaning.
Have you seen dramatic volume changes on <unk>, you know gray that's not in operational that long, but just in the last month or so kind of what you guys have seen in the New York Huh.
Well I think.
Sure Gray Elk, obviously, that's a new pipeline n. it again it's.
<unk> predominantly take her pay there is obviously, probably a small decline in the spot volume versus our expectations. Similarly on doubtful, where the walk a ball games will be lower.
Got it and then last and this may be a column questions.
Just clarify what do you grows cap acts for 2020.
Yeah, Michael Thanks, So I'd Embers day, we.
The slide had a total cutbacks of six and a half billion of which 1 billion was.
Maintenance. So 5.5 was our growth callback 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 <unk> put that you may have done this already in apologies. Upon this understood. It you put that billion into pockets, meaning what percent is for business or x. type of outside what percent as per why.
Don't give me a little bit more there. So I think we talked about probably the biggest pace, which is about 300 million of the billion, which was the mechanical just.
Best case time shift for line three U.S.
The rest of it is is you know 50 million here 100 million there.
The next biggest is also probably in the permitting bucket.
<unk> would be around pennies and some permit delays we've seen there that's probably 200 million.
That's about half a billion together they're mine three in pennies.
Then the rest are smaller like I mentioned, a little bit at the utility call. It 100, or a little bit more a little bit of Ah you know compressor <unk> modernization and bills business, maybe another hundred hundred 50 there.
And then the rest is pretty small so it's.
Probably about half into permitting bucket and maybe half in the call. It <unk> construction delay bucket.
[noise] set on it and then.
No that's super helpful, calling it in and I Hope you don't mind else heat I'd like to ask one more and it's a bill question, which is bill you know after getting the successful petco rate tape.
We have other pipelines you're looking at <unk>.
Yes significant firing that had because of the earning your expectations at that height than the U.S.
Well I wouldn't want a front run any of them, Michael but I would say, we're we're very close to a to a settlement Algonquin.
And we we would expect that to be a a positive impact. It's just too you know too early to say what you know what that could possibly be we also have filings or settlements that would like to pursue over the over the next three months East, Tennessee Alliance Maritimes North.
<unk>.
You got to keep in mind, these all pale and size and scope by comparison to Texas Eastern So.
While we may see positives.
Yeah, the the Texas Eastern Ratecase and getting that behind US was yeah. It was by far the largest I I hope, that's a little and an off color I like maybe I'll add one more thing and that all of these pipeline systems, except for the very newest ones.
You know the the integrity work in the modernization you know 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 of Hargrove story.
Thank you Bell. Thank you all for taking my questions.
This is Michael.
We have reached our time limit and I'm not able to see any further questions that I wouldn't call. Okay. Johnson Morgan what's on Omar.
Thank you Patrice Thank you to everyone for your time and joining US. This morning. We appreciate your ongoing interest in emerge as always or Investor relations team is available to address any additional questions. You may have so once again. Thank you have a great rest of your day.
Thank you might use intense then we appreciate your participation.
It needs a conference you may now discount.
Yeah.
You guys still there.
Yep.
Presenters, how one moment.
[noise].