Q2 2020 Enbridge Inc Earnings Call
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Picture you will conduct a question and answer session for the investment community. During the question and answer session. If you have a question. Please press Star then on your Touchtone telephone. Please note that this conference is being recorded I would now like to turn the call over to Jonathan Morgan Vice President Investor Relations, Jonathan you may begin.
Thank you good morning, and welcome to the Enbridge Inc. second quarter 2020 earnings call.
Joining me. This morning are how Monaco, President and Chief Executive Officer, calling grinding executive Vice President and Chief Financial Officer, Vern, You Executive Vice President liquids pipelines, and Bill Yardley Executive Vice President and gas transmission midstream.
As per usual this call is webcast and I encourage those listening on the phone to follow along with the supporting slides.
A replay of to call it would be available today.
The transcript will be posted on the website shortly thereafter.
Well try to keep the colder roughly one hour and in order to answer as many questions as possible will be limiting questions to one plus the single follow up as necessary.
We'll be prioritizing calls from the investment community. So if you're a member of the media. Please direct your questions to our communications team, who will be happy to respond.
As always our Investor relations team is available for any detail follow up questions. After the call.
Onto slide two where I'll remind you that we'll be referring to forward looking information on todays call.
By its nature. This information contains forecast assumptions and expectations about future outcomes, which are subject to risks and uncertainties outlined here and discuss more fully in our public disclosure filings will also be referring to non-GAAP measures summarize below and with that covered I'll turn it over to al Monaco.
Okay, Thanks, Jonathan and good morning, everybody.
Well, it's not much of a secret that the energy space is going through a challenging time, we've all seen that through the recent events. So I'm going to start today with how we're thinking about that and our long term perspectives on energy infrastructure.
Well, then review the usual business update, including perhaps a bit of a deeper dive on crude all fundamentals that we started last quarter.
I will take you through the results in full year outlook and I'll come back within meet your check point on the priorities.
So we're all acutely aware of how the energy landscape is changing the long term energy transition for one opposition to what we do and a challenging regulatory and permitting environment to see the least that's been compounded of course by eight covert induced economic contraction that sit.
Clearly disrupting energy markets, that's gonna take some time to work through.
But the bigger picture backdrop, we're not losing sight of is that the fundamentals are intact.
The fact is that a low cost reliable energy underpins the global economic engine and it's going to be critical to the recovery.
The factors leading to future energy demand increases haven't changed either population growth urbanization and in expanding middle class. There's no serious disagreement that many credible forecast on that.
North America's ability to provide low cost energy should drive an increase share of global energy markets and that means more infrastructure and modernizing energy systems here.
When you look at the challenges we're living through today through the lens of the undeniable need for more energy, we believe that the value of infrastructure and pipe in the ground will increase.
Of course, you're not seeing that reflected today, yet, but that's what the fundamentals are telling us.
So what does that mean for enbridge.
So we believe we're well positioned to be winner in this environment.
We've got a highly strategic and diversified asset base that most energy to the best markets and our scale provides a low cost advantage to those markets.
Our assets are underpinned by strong commercial construction, 95% of our customers are investment grade.
We've got a world class project execution capability, completing 30 billion of projects since 2016.
It hasn't been straight forward by any means but we are getting things done.
On the balance sheet were strong as our credit ratings, we sold 8 billion and assets reduce cost and simplified the corporate structure.
As you can see by the chart, our resilient pipeline utility model has delivered predictable cash flows.
Strong dividend growth through all cycles, and that's showing up again today.
So we believe will not only survive these industry challenges, but thrive and win.
Just to put that assertion to the test. The next slide is going to illustrate the transparency the near term girls.
[noise] through 2022, we expect average annual DCF per share of 5% to 7% growth.
About 1% to 2% comes from embedded revenue growth optimization and cost efficiencies.
Now this part of the equation is zero or what we call minimal capital intensity to Enbridge, which is what we'd like to see.
Another 4.5% to 5% is driven by the 11 billion a projects, we have an execution, including completion align three and the others that you see here on the list.
That program should give us two and a half billion or so in incremental EBITDA.
So the combination of these two gives us confidence through 2022, and remember we don't need any external equity to achieve that.
After 2022, the same two buckets will drive growth, but we'll of course harder on the embedded growth part of the equation here. So the goal is to try to elevate the 1% to 2% on that part of the equation.
On the capital bucket, we have organic opportunities in the hopper, which we've talked to you, but before and the teams are working on.
So in some here, we see long term growth continuing from these two sources.
So that's how we think about the big picture today and were Enbridges out now let me shift to the second quarter highlights.
We responded to the cold the challenges earlier.
Adding health and safety measures to make sure people were protected and continued to deliver energy without disruption in fact, we didnt really miss a beat on that front.
We've weathered the storm well, but we're monitoring the signposts very carefully to make sure we keep it that way.
Results Wise as you saw we had a strong quarter.
Despite the unprecedented downturn mainline volumes, our business has picked up the slack and credit to our people on the job they did through this quarter.
We had good will utilization and gas transmission and distribution at higher rates kicked in on the Texas Eastern system.
The rest of the liquids business performed well, which offset some of the mainline volume decline that we're talking about.
[noise] good energy services performance this quarter, even though we're living with compress differentials are prime storage assets captured good contango gains in Q2.
All of this translated to $1.21 and DCF per share, which caps off a pretty strong first half.
Well there are headwinds in the second half and calling will take you through that we expect to be within the guidance range in the cost savings we talked about last quarter. We're unable in late Q2, so that should help in the second half.
As well as through two to 2021.
Our balance sheet and liquidity are in good shape. The 2020 funding plan is done now and we've got ample liquidity through 2021.
And finally, good progress on priorities, we sanctioned another billion of new projects that was good to see.
Good outcomes on our rate cases and line three is moving forward as his mainline contracting review and I'll come back to those specifically in a few minutes.
So the takeaway here is that although 2020 has been tough year for our sector in the industry, we're managing it well here at Enbridge.
The next couple of slides update you on the crude oil outlook.
Starting with product demand the big driver courses gasoline consumption, which has come back as economies opened up but as you can see we're still below normal.
Diesel improved a bit and jet fuel, though is still way off his personal and business travel or low.
Overall, the pace of recovery was a little bit better than we thought in Q2, but with the rising infection rates that we're seeing today, we're cautious on the timing of a full return.
Our refreshed crude out like outlook is on the right hand side here since April North American demand came back by all 3 million today, but we see more gradual pace of recovery from here.
[noise] for us what's most important is the regional picture, though so here's what happened on that front.
[noise] as product demand came back overall refinery utilization picked up significantly and that's shown in the grey circles here throughout North America.
But of course these markets are not homogenous the purple boxes here show the uptick in our main line utilization into our core markets, which is now approaching pre cold that levels.
It's really shows well the resiliency of the refining centers, we deliver into and therefore the mainline.
So the Midwest and Gulf Coast refineries as everyone knows are the most complex terms or what the process. So as demand came back they ramped up quicker.
As you can see pad to heavy margins doubled from about six to $12. So those refineries and our system.
Our first to recover.
We saw good poll is well on Canadian heavy barrels into the Gulf, which helps our flanagan and see way types.
Like crude demand in eastern Canada still lags a bit so which is why we have some space left on our like lines, but we expect this to increase as Ontario, and Qubec continued to reopen.
The next prior to the story shows the upstream effects of all this into western Canada, and our outlook for second half.
In Q2, Western cane and supply was off about 1.1 million barrels per day.
The main line in Q2 actually averaged 2.44 million barrels per day, which was roughly 400000 barrels per day lower than our pre cobot forecast at the beginning of the year. That's the Blue line that you see on the right there showing the 2.85 original line.
So obviously, we came in at the favorable end of the four to 600, we talked about on the Q1 call for decline. This year. So that was a good outcome.
And we stabilize prices we've seen heavy volumes come back actually if you look at July heavy capacity is being fully utilized again.
Barring another shutdown of the economy, we expect mainline throughput closer to where we were in Q1 by year end.
The way we're looking at the remaining six months, we're estimating an average throughput of about 2.6 million barrels per day or roughly 250000 lower than that Blue line that we forecast originally in 2020.
We expect to exit this year with some excess like capacity, but that should fill up in the first part of 2021.
While all of this is going on we continue to think about what's next in optimize capacity on the system for volumes coming back. We're currently focused on low capital intensity revenue enhancements. So in Q2, we added another 50000 barrels per day on the mainline and the first phase of our express expansion at 25.
1000 barrels barrels per day, so good job by Vern and the team on that we've added so far that 175000 barrels of ers in the last year with minimal capital.
And that brings us to about 400000 barrels per day over our 10 years Cts agreement that we've added this is a very good outcome, obviously for us, but particularly for our customers who needed that capacity during this phase.
The full replacement of line three of course will restore more capacity so let's get to the line three update now in the next slide.
This is our usual milestones chart with the Pcs written order that you would have seen about 10 days ago now the regulatory track on this slide is done as the petitions for reconsideration on the yes.
The certificate of need and the route permit were rejected by the PC.
On permitting that.
The focus is on the for a one right now the pollution control agency. They run the permitting process here issued their draft in February.
And it basically said that our construction plans met what they needed.
However, after they reviewed it and receive public comments, they decided to whole what they call. It contested case to finalize the permit.
And as a reminder, before a one covers construction methods and scope of work rather than whether the project is needed or the route and the PC of course as I said has approved those items.
Importantly, the pollution control agency has set November 14 to finalize the issuance of the permit and they've also as you see on the slide put in a couple of interim data here around the hearing in the Lj.
So that that's good and that those milestones are set.
The DNR in the US core Army Corps are continuing to work there permits in parallel.
So again, we said this before I know, but we when we do have clarity on the final timing of those permits will provide our idea SD estimate for the US portion of line three and again a reminder, it should take six to nine months after we get the permits in our hands.
Finally.
Maybe just an overall comment on line three.
Of course, we're disappointed with the delay in the four one that came about last quarter, but.
But I think in this case, we think it improves further the permits and certainly solidifies it even more than already what it.
[noise] onto lying five now and the great Lakes hurdle.
There's a lot of information on this slide that we'd like you to take away, but maybe I'll make just two broad points about the project.
First of all.
Lying five is absolutely critical to the entire region.
It provides over 500000 barrels per day of feedstock that provides refined products, Michigan, Ohio, and part of Central Canada.
Without line five Michigan would be short three quarters of 1 million gallons, a day of propane and a lot of that is for winter heating and theyre in the upper peninsula.
Michigan would also be at least 45% short of gasoline diesel and jet and that's about half the regional supply at it uses everyday and of course, let's not forget Detroit Airport fuel supply would be at risk.
All of this impacts people thousands of refining and related skill trades fuel shortages across the state and of course higher consumer energy prices.
There is no viable alternative for line five that's already been determined by the state owned study.
And every refiner will tell you the same thing.
The bottom line is that Michigan in the region would be short the energy they need to keep this economy, moving especially bringing ourselves out of cold.
Second point on this even though the the current crossing is entirely safe again thats been confirmed.
By third parties in more than one on occasion, we're replacing it with the state of the our tunnel 100 feet below the like that.
We're doing that because we want to provide Michigan Anderson added measure comfort.
A couple of years ago now we reached an agreement with the state to construct the tunnel.
The courts have now twice confirmed the agreements and the state isn't appealing that decision further.
We've completed the Geotech work and design as well and filed our application.
Just one final comment on this I think one thing that's important and is often missed in this equation is that people support the tunnel.
75% of the legislature Democrats and Republicans like.
Voted for it last month.
23 counties, formerly endorsed it and a strong majority of Michigan Anders wanted to get going.
Slide 14, as a brief update of the mainline contracting.
So again this offering is the combination of a two year effort to negotiated deal what makes sense for our customers and as well the entire industry.
In may the CR landed on the process and timing to review or application.
It's good thing because it's a single step process and we're now fully into that responding to information requests back and forth.
The process runs through April next year, followed by an oral hearing and remember our shippers here support the offering greater than 70% of our throughput and the point of that is that there will be active in the regulatory process.
Just to reiterate the benefits contracting the mainline really revolve around what's good for customers and the entire industry.
First and foremost priority access at predictable stable and competitive tolls thats, what they told us they wanted to see.
[noise] contracting secures a very much needed source of long term demand pull for W. CSP supply from a highly competitive refinery complex that we just talked about.
And that will be good for the basin and it supports future upstream investment.
Perhaps the most important element of this and often forgotten is that contracting is going to support higher netbacks for producers and maximize prevention revenues.
That's because WCS be crude prices off the marginal transportation cost to move for the last barrel in the basin and contracting ensures that producers and the province benefit from the lowest marginal transportation costs in all scenarios.
We're expecting a CR decision in 2021, but we'll likely need now to extend interim rates for a period of time and the Cts.
Prescribes the tolls during that period.
So on to gas transmission now it's been a very busy year on the regulatory front and we're very pleased with the outcomes there as our customers.
For us what this does is assure we earn a reasonable return, particularly as we enhance and monetize the system.
By getting three proceedings done this year, we've covered off about $12 billion in rate base, we've locked down Texas Eastern in Q1, and we're now down Don on both Algonquin and the BC system.
The combined revenue impact of those three is an increase in the order of 150 million annually.
We also filed on Alliance East, Tennessee, and Maritimes and settlement discussions with customers will follow later this year.
[noise] onto slide 16.
Bill and his team has done a good job getting of projects in place and execution is ongoing here and these projects are going to contribute to the two and a half billion EBITDA that I mentioned earlier.
The 4 billion of system expansions and extensions, it's going to keep the team busy through 2023.
These projects by the way have good returns and are underpinned by solid commercial models and high quality Counterparties.
So Sable trail phase two went into service in May.
And on the 1 billion piece of project construction is progressing well.
And by the way as a side note on this indigenous affiliated companies have won $30 million and business. So far on this project and recall as well going back to line three there is a very big opportunity for tribes in Minnesota as well.
Lastly, we got FERC approval for the Cameron extension supplying venture Globals Calasu LNG facility and construction will start on that later this year.
As you know, we recently won projects to feed LNG facilities on the Gulf. These are progressing but not surprisingly given coded and the demand decline globally for gas.
In LNG in particular, those will likely move at a slower pace now.
We're managing the near term spend on those but we will be ready to go when those facilities are sanctioned coming up.
Moving now to our gas utility utility as you've heard me say before is a true Jim in our portfolio. It fits so well with our low risk value proposition, but it's also one of the fastest growing in North America.
Cynthia and team are making great progress on synergy capture from the combination of the two Ontario utilities. This is helping drive a very good.
Our away from this business, especially when you think about the low interest rate environment. We're in.
This quarter, we sanctioned another 300 million or inorganic projects for 21 22 in service that's on top of the community expansion and reinforcements we have in flight.
Aside from that we continue to add 40 to 50000, a year and new customers and there is opportunity bring gas to new communities and system modernization. So combined this translates into over 1 billion a year of rate base growth. So this is a a franchise that just keeps on giving on many fronts.
On the next slide will wrap up the business review with.
With renewables course renewables is not as large as the other businesses within the Enbridge context, but it's progressing really well.
Delta gradually with the same utility like commercial structure as the rest of our businesses.
We've grown our development operational and construction capability most recently in European offshore, where we've been focused mostly in the last while.
We have a good growth hopper here supported by good fundamentals in Europe, and well developed supply chains, and that's probably been the biggest factor in bringing down power costs in Europe.
In the last three years, we've put three large offshore wind farms in the service totaling about a gigawatt of capacity and over the last year, we that's I'd to new investments in France. Most recent fee comp is a 500 megawatt wind farm located about 30 miles off the north northwest France Charlotte.
Line, and we'll start seeing cash flow from these new projects between 22 and 23.
The three French projects by the way come with long term pp A's and some added protections which are unique here in these types of projects for wind variability.
So again very solid project slate here and we have a very good partner in F.
Finally on this one we've been focused on further enhancing our returns and we have another partnership here with the caning pension plan, which is helping us do that and it gives us scope to grow this business with less capital intensity again.
So without review I'll pass it to calling to go over the financial results.
Thanks, Alan Good morning, everyone I'll take you through our financial results financial position in our outlook for the full year slide 19 summarizes our results.
I want to start by saying that I'm very proud of our performance all things considered we've worked hard over the years at strengthening our business and in the past few months have taken further actions to bolster the business.
It's consistently being a conservative approach serving us well I think it's a point of differentiation.
As you can see on the slide second quarter, adjusted EBITDA and DCF were both up year over year on strong underlying performance.
Adjusted EBITDA up 3.3 billion in the quarter and DCF of 2.4 billion.
That's $1.21 per share DCF, seven cents better than last year.
What's that out to me during the quarter, where the following items, we had strong reliable performance.
From a number of our businesses gas transmission, our utility and the power business.
All performed well.
Surely unaffected by.
By the Coca disruption I think this is the diversity point.
We had growth from recently completed projects the German offshore wind projects and Grail. So we're still getting things done.
We had a stronger us dollar benefiting our significant U.S. dollar cash flows.
And we had also some opportunistic storage profits in our energy services segment.
Finally, we also little help from delayed maintenance capital related to cobot spend but I'll come back to that in a minute.
If we drill down to the segment EBITDA performance on slide 20.
We can see that liquids pipelines was down only 1% or 22 million, there's a decent outcome in the conditions.
On average our mainline was approximately 85% utilized during the quarter delivering 2.44 million barrels per day and as mentioned that's about 400000 barrels per day underutilized.
But 100000 barrels per day favorable relative to the midpoint of our guidance range in may.
However, more than offsetting this under utilization was a higher mainline tool, including a 20 cents surcharge on line three Canada.
And a stronger us dollar as mentioned.
Our Gulf Coast in mid Con systems were down period over period due to lower light spot volumes.
On the Bakken pipeline and the Seaway legacy system, largely as a result of reduced demand for lighter crudes in the Gulf in the quarter.
Recall that we are mostly take or pay down these contracted systems, but do you have a little bit of spot capacity to.
On the other hand heavy deliveries into the Gulf were very strong offsetting some of that weakness.
Flanagan South pipeline utilization is a good example of this.
Gas transmission EBITDA was up $39 million another good outcome, despite the Canadian gathering and processing asset sale last year, which contributed about $40 million per quarter historically.
Two main positive drivers here. The first is continuing strength from our U.S. gas systems headlined by Texas, Eastern and primarily ongoing contributions from its recent rate settlement.
We expect Texas eastern its new rates to contribute an incremental 125 million Canadian of full year EBITDA on a run rate basis.
The second driver is the contribution from assets placed into service last year, namely Stratton Ridge and phase two of Atlantic Bridge.
This business segment continues to drive stable and predictable results with virtually all of our cash flows coming from reservation based revenue contracts.
Looking forward I should mention another item, we're working through and integrity program in this business and we'll have some capacity restrictions in place while we do that.
That is going to limit through put a little during the summer shoulder months. So we can focus on getting back to full capacity by the winter heating season.
Financially that's going to mean about $12 million per month of lost EBITDA.
The second quarter reflects one month of this June.
We will likely have a few more months of this.
The third quarter really until full capacity restoration.
Turning to other business segments gas distribution EBITDA was up 16 million compared to last year. This reflects higher index distribution rates more synergies as al mentioned.
And stronger utilization from colder spring weather.
Similarly, the power business was up 50 million for the quarter. This was driven by stronger wind resources that are us when facilities and contributions from the German offshore wind farms put into service has mentioned.
Energy services was relatively flat over last year over both this year and last can be characterized as stronger than usual results for this segment.
This year, well publicized contango spreads in the crude market allowed us to capture profitable storage margins on a small portion of the company's storage fleet primarily in Cushing.
Looking ahead, we have seen differentials tightening and most of the contango opportunity is now behind us. So second half results are looking much less robust in the segments.
Finally, eliminations and other was 23 million favorable to the second quarter of last year.
This improvement is from lower cost as we began to realize and enterprise wide cost reductions.
About 60 million of targeted cost reductions were realized in the quarter and will realize the balance of the $300 million cited.
Program in the second half.
Moving to slide 21 for other components of cash flow performance.
A significant portion of our our DCF growth came from the strong EBITDA performance I just mentioned.
Financing cost maintenance costs and taxes collectively are trending as expected for the full year with some timing difference is showing up in the quarter.
As mentioned maintenance capital was light in the quarter as we experienced a slowdown in discretionary field work due to covert 19 restrictions.
In fact, we spent about 100 million less than expected. However, we do expect these capital expenditures to ramp up in the second half of the year inline with our full year guidance.
Finally on this slide our cash distributions from joint venture investments benefited from new projects coming into service in late 2019.
So in summary, we had another very good quarter. Despite the challenges and next a few words on our financial position on slide 22.
Overall, our financial position is relatively strong.
We've been conservatively reinforcing the balance sheet and our liquidity to help us whether this downturn.
Our 2020 needs have now been fully funded we've even prefunded some of our 2021 capital requirements.
As shown here in terms of 2020 sources, our net cash flows are tracking to plan.
We also banks some proceeds in the quarter from our continuing asset sales program, where again the objective is to enhance returns by recycling capital.
Five and a half billion dollars of term debt has been issued so far this year at attractive rates.
Both underlying rates and.
Reasonable credit spreads.
In addition, we issued a 1.4 billion dollar hybrid security in early July.
This is in keeping with our conservative approach and represents opportunistic prefunding of 2021 in the context of our line three U.S. construction timeline firming up.
And our forward looking capital markets uncertainty.
The hybrid market is seldomly fully constructive so we seize the opportunity at a good tax deductible coupon.
50% equity credit from the hybrid bolsters, our financial position, which we view as a non regret action in this environment.
In terms of capital uses our capital program for the year remains in the range of $5 billion to $5.5 billion inclusive of maintenance capital.
Course that reflect some line three spending shift into the first half of 2021.
Offset by a stronger us dollar and some announced project wins.
On the liquidity front, we exited.
The quarter with over 14 billion of available liquidity, that's a little higher in July after the hybrid issuance, it's sufficient by designed to get us through all of 2021 absent further capital market access.
Our leverage remains firmly in triple B, plus territory and continues to trend in 2020, well within our four and a half to five times target range.
So the balance sheet is in great shape, and that's contributed to several agencies reaffirming their ratings recently, which I think is noteworthy.
Let's move probably the slide 23, and our financial outlook for the rest of the year.
Well uncertainties remain our business is resilient and diverse.
These points and our first half results provide confidence in our full year outlook.
As always there is some tailwinds and headwinds to consider in the second half against our original guidance.
I think on both buckets, we've talked about all of them Tailwinds include lower interest rates stronger us dollar gas transmission rate settlements and further cost reductions which are now enabled.
With those should be likely more than offset by headwinds, namely mainline volume utilization catch up and maintenance capital in line with the full year guidance fewer opportunities in energy services Q3 capacity availability on Texas Eastern as mentioned and finally lower contributions from our small commodity sensitive businesses DCP.
Sable.
Looking at all these puts and takes for the remainder of the year along with positive first half results. We remain confident that will be within an original DCF per share guidance range of fourq of two to 480 per share.
So in some two messages for me number one we're managing the business excuse me conservatively from a financial perspective and to the diversity of the business is shining through.
And with that I'll hand, it back to you will.
Okay. Thanks Colin.
If we rewind back to Enbridge day, you'll recall, we set some priorities for ourselves in 2020. So this is a basically a wrap up with a midyear checkpoints. It's turned out obviously to be more difficult year for industry than anybody imagined, but if there was ever time to have a low risk business model. It's now.
We were spent responded well operationally keeping our people safe as well and our resiliency paid off so we had a good start to the year as Colin just went through.
To protect against the prolonged and deeper recession, we took some actions on liquidity and completed our funding early for the year and at the same time capitalized on the some good rates in those financings.
Well diversified stream of cash flow is helping us mitigate the impact of lower mainline volumes throughput is coming back, but we're watching the recovery carefully and we're certainly not going to get ahead of ourselves.
We took action to cut costs, and we reaffirm the guidance and assuming we can get there that will be a very good outcome in this kind of year.
On line three while the pollution control agencies contested case has delayed things a bit I think we're coming to the end of this process now so we're looking forward to that.
Finally, we continued to secure new growth for the future.
Lastly.
On the remarks today and before we get to the Q and aim many of you know John Wieland, our Chief development officer in previous to that CFO.
After 28 years with Enbridge, Shawn has decided to retire he's been a key leader at Enbridge over many years, bringing his financial expertise and judgment to our growth and our evolution someone who's really exemplified our values and approach to the business as a company.
John It's taken a lot of pride in developing people and as you know succession planning is a big focus at Enbridge.
Ackman, who looks after strategy and power will report to me as will Alan caps, leading corporate development and energy services.
John has been a friend over this period and not having around will be an adjustment for us, but on behalf of Enbridge and I know many of you on the phone as well, we wish John and his family the very best in the future.
And with that we'll turn it over back to the operator for the acuity.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on you touched on telephone if you wish to remove yourself from the Q. Please press the pound or Heskey, if you're using a speaker phone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press Star then one.
On your Touchstone telephone.
And our first question comes from the line of Robert.
Catellier from RBC your question please.
Hi, Good morning. Thank you for your comments this morning, I've a couple of questions about capital allocation.
Got you, partly you touched on in your prepared remarks, but.
Obviously, it's an increasingly difficult environment yet.
Pipeline projects developed so I'm wondering how that's impacting your.
Capital allocation strategy. So maybe you can.
Answer specifically address what to influence is having on hurdle rates and project selection.
But also the relative attractiveness of other.
Perhaps even new parts and the value chain, you might consider or other jurisdictions outside of North America.
Okay.
Okay, well I'll go first Robert Thanks for the question. It's a good one in this environment and then Colin can fill in.
I think you know us well in terms of the amount of effort, we put into the capital allocation process, we've got a pretty in depth framework here.
And we put up lot of work into it and more so even these days.
I think if you go to hurdle rates.
Specifically, we've always taken the approach of developing those from the bottom up and they're very much project specific.
So I guess, maybe if you look at the overall weighted average cost of capital just intuitively, it say well bond yields or lower.
Obviously betas have been higher that we've seen so those two factors are a play in either direction, but in terms of the what we're seeing out there today and the risks that you're pointing to what we try to do as reflect each one of the risks.
Around project challenges in the hurdle rate so the simple way to look at it from the way we approach. It is we we do the basic hurdle rate based on those things I mention but we essentially take adders, if you want to calling that based on how we see the variability depending on what risk you're talking about so.
So for example.
Today.
If you're entering a new newbuilds.
You'd have to say, whether or not you think shed drilling costs will come in as you predicted so we do our best to come up with those estimates and then we run a bunch of scenarios around that to see what happens to the equity return it shed, you'll say is delayed and that show.
Increases your cost inevitably so with when we do that we can kind of assess what sort of adder, we need to apply depending on what the.
What the type of sensitivity is that you're looking at and we do that.
Robert for essentially every element of.
The risk profile of a project. So it's a very in depth and pedantic review of of hurdle rate, but.
It really is to the essence I think of of what we're all about which is making sure that when we put capital to work and we put a lot of its work in this business.
You've got to have a pretty good feel four.
Ensuring you can generate value above that hurdle rate.
Otherwise.
Ralph if you're not really doing much to add any value at all so that's how we look at the process that we go through here, maybe more than what you want it but that's that's what we do.
As to the other part of your question around.
Other parts of the value chain.
I think our view is always extending the value chain whenever we can as something that we always strive to do a good example of that would be.
The liquids business, where you've seen us extend that value chain from.
Pipes and then.
All the way down to the terminal side of it in export in that and the realm of exports that you saw in the Gulf Coast. For example, I think as long as we can do that on the same type of commercial model.
That we have today I think were good on that front.
So those are the kind of things that we would look at as priorities with respect to I think you said something about.
I guess you implied international.
Certainly on the face of at what we do and the capabilities. We have could be exported if you want to look at it that way.
But again, we go through a pretty distinctive process, there, where we look at what the hurdle rates would need to be for international investments. We don't have anything other than the European business right now for wind.
That's really imminent, but certainly.
It I suppose it could be an opportunity in the future, but you'd have to really make sure that the country risk and the other factors within the risk profile fit with the rest of the business model. So anyway. That's the that's abroad answer to your question I don't know comments, you want to that as well okay. So.
Let's move on them.
Yes.
Very helpful and just be the last question related to cost of capital it doesn't seem to really.
I'll be limiting your access to capital at all here, but you've seen so you see trends impacting capital markets.
With some suppliers.
Regarding not one to the fossil fuel related industries, including oil sands, so well despite the fact that you're still some pretty good idea.
So as to capital how are you addressing the availability.
On capital firmly as Jay point of view.
Well, we've done some transactions recently so maybe.
Calling you can.
Touched base on how debt investors are looking that.
Yeah, Hey, Robert Good morning, So I think I've, obviously, we're very focused on MSG and.
I want to continued to be a leader in that space.
And I think thats, well recognized in our outings and the capital market and.
We continue to have access to.
Supply chain.
Fulsomely, including insurance markets and all that stuff so.
I feel good about that.
On that May so maybe on the equity side of things.
Robert which is I'm not sure if thats, where you were going specifically, but.
So we spent a lot of time on this and I think you might recall at Enbridge that we sort of went through how we stack up to the rest of the group and Theres a lot of.
Good work being done I think in our industry generally on this front.
We've at least according to the independent sources.
Been ahead of the game here, but loop back to your other question I mean, obviously SG and.
How investors are looking this comes into the hurdle rate as well. So we're trying to include that as well in our capital allocation and.
And investment review process. So overall.
We're seeing the trends.
If you look at the numbers were pretty good on all of those three marker so.
Well, we'll have to see where we go from here and continue to build on that I think this area is going to develop further over the next little while and we should be well positioned relative to the rest of the group.
Okay. Thank you were very fulsome responses.
Okay, Robert Thank you.
Thank you. Our next question comes on line of Jeremy Tonet from JP Morgan Your question. Please.
Hi, good morning.
Hi.
Just wanted to start off with quick question and with the caveat being not of legal expert and not in great position opine on this but if for some reason Dakota access pipeline.
Were to be shut down for some period of time.
Just wanted to see what the reaction could be from your network of pipelines given you have a lot of assets in that area.
In potentially things could average could do things to help basin egress, but just wondering if you could share any thoughts on that.
Maybe world.
For has been doing lot of thinking about that so.
Good morning, So obviously a shutdown.
DAPL would leave that for North Dakota, and all the users of that.
Crude oil coming from the Bakken.
But as you mentioned, we obviously have a very broad and diverse network of crude oil pipelines. We have a couple ways to get Bakken crude into our system. So we're doing a lot of work on contingency planning should the court's shutdown.
The dapple pipeline I think we're it's fair for us to say that we think we can we will be able to provide more you address than than we do today and we should be able to mitigate a good chunk of.
Any lost revenue or EBITDA coming from DAPL.
So I think Jeremy were.
I think can see saying, we can mitigate and we should be in generally good shape although.
On a broader sense, where we're obviously as vern alluded to.
Concerned about it and.
Again as I said on round line five for example.
It's easy to talk about shutting down systems, but it really does have a detrimental effect not just to north Dakota in this case, but consumers and the entire region and so.
It's a serious issue that we're watching closely but.
These were in pretty good position.
That's very helpful. Thank you and then maybe shifting gears a little bit just wanted to touch on Enbridges appetite for I guess, maybe more green investments over time.
It seems hydrogen has been getting more kind of attention.
Could be later data at the state, but given your Nat gas pipeline network imagine you'd be well position to capitalize on that and then as far as offshore wind is concerned you guys had been very involved in the European side and the supply chain isn't quite stood up as well on the U.S. side. So maybe your expertise could be an advantage. There just wondering overall apple.
Hey for Green investments and specifically those two avenues, if you see opportunities there over time.
Okay I'll start off and then maybe bill I'd like Bill to comment too on this because the reality is that.
The renewable side of things in terms of power generation.
Really does link up with natural gas so maybe he can address that part.
Overarching that though I think from a strategic point of view Jeremy the way, we're looking at the renewable space this year and as as I mentioned, we've been gradually building. This.
You know we know the supply profile is going to change globally for energy.
It's not going to be a quick transition by any stretch but slowly.
Renewables will be bigger portion at the same time, we're going to see conventional fuels growing as well, especially natural gas. So we think it makes sense strategically from.
The point of view diversifying our capability to have a portion of the assets in renewables and that said, we've we've built that slowly you mentioned hydrogen and it's a good question because.
Quite a it's quite prominent issue today, I will say that Cynthia and her team in the utility had been doing a very good job in getting ahead of the curve on this and I think we're well advanced on on a couple of ideas and so we're going to look forward to two.
Looking at that especially as it relates to to natural gas all of this of course.
Again going back to.
Robert's question.
Comes back to the commercial fit and whether or not we can make a good risk adjusted return before I hand, it to Bill you mentioned the supply chain I think you're right about that in the us context and.
You got to remember here I think.
US offshore wind is certainly an attractive.
Opportunity, but as you point out the supply chains or are not as developed yet.
And frankly, nor the regulatory environments as developed as Europe. So.
It's probably the biggest reason why we're not involve us offshore yet, but maybe bill you can comment on the interaction with natural gas.
Yes.
Yes, so and Jeremy you probably heard me talk about just once or twice in the past, but if you look at our regions, especially our pipeline serves.
We have a.
Great partnership with renewables, So today's a great example.
Took the opportunity look on that I answer web site, while while our stocking and windows when his 30 megawatts natural gases 10200.
You could quadruple the amount of wind as they are projecting and it's just on the peak hours. It's just not there nothing else as either so we've got a really good opportunity just with our gas side to be.
Especially where we operate in the northeast to be a.
Very good partner for a long time, and then you mentioned hydrogen I think hydrogen is very interesting. So both our utilities DS business and ourselves in the natural gas side, we have been studying this it's extremely expensive.
Is it green hydrogen is a blue hydrogen how does it interacts with the pipelines and the actual steel in the pipeline and that takes a lot of engineering.
To look at but.
You're right the network and this is decades from now is would be well positioned if hydrogen.
Transition from that.
Kind of shiny object that is.
Potentially a solution to two or reality.
I don't know if that's what you're looking for Alan Jeremy, but that's that's a couple of comments there.
Thanks Bill.
That's helpful. Thank you.
Thank you. Our next question comes from the line of Rob Hope from Scotiabank. Your question. Please.
Good morning, everyone and John all the best in retirement.
First question on the mainline outlook. So it looks like Q2 played out a little bit better than we expected yet you did keep your age to look.
Can you just kinda give some puts and takes there, especially given the fact that heavies fully utilized right. Now are you assuming that you do see some heavy degradation in the back half the year is all light or is it looking towards the upper end of your volume, but look there.
Hi, Rob its vern hair.
I think we're purposely being a little bit conservative.
Obviously, the wildcard is whether theres a second wave coven, we should continue to see.
See some more demand destruction on the refined product side of things I think we believe the worst is behind us, but we remain cautiously optimistic on mainline throughput over the rest of the year.
Our expectation is if things remain that way or they are that will be fully utilized on the heavy side for the balance of there.
You know, Rob we talked about this quite a bit actually.
Yes, I think this is the appropriate approach because even if you just look at the last couple of weeks.
Some of the driving numbers and you've seen these have sort of stabilized a bit, whereas we run a on a big roll before before that and then of course, if you look at the diesel numbers, which we talked about and certainly a jet fuel they're just they're just not moving so I think the appropriate approach here as far as how we look at the rest of the.
Here is to be.
I guess suspect until we see some sign posts.
Sterne and his team look at pretty carefully so I think thats.
The right way to go here.
Okay. Appreciate the color and then secondly, just a follow up on capital allocation question, just given your allocation of capital as well as how and producers have performed versus the us peers or have you reevaluated your view on M&A, whether that's on the corporate side or using this as an opportunity to.
Acquire single assets that could be contiguous with their system.
Yeah, I think on the latter one.
I think thats right, we would certainly not hesitate if we saw something.
In the single asset category that.
That made sense in either of those three businesses and then I'll add the power business and there. So I think it to the extent that we can see value and how it enhances the existing franchise on single assets I think thats, probably the prime area in terms of larger scale M&A.
It's not on the priority list right now I think we've done repositioning we need to do we've got very good embedded growth and some hoppers that are showing up in each of the businesses.
The balance sheets and very good shape. So we want to make sure we're not messing with us.
It's true that maybe this is where you're going it's true that the midstream valuations are.
I guess attractive relative to where they were a bit.
Every time, we look through those we run up against our.
Value proposition issue all call at where.
There is theres not a pure match with the stability and predictability of our cash flows with some of the some others out there I'm not saying.
They are bad it's just that they are different than than what we shoot for so I would say low price priority.
Alright, thank you.
Okay. Thank you.
Thank you. Our next question comes from the line of putting that these from Wells Fargo. Your question. Please.
Good morning can you give us an update with your negotiations with the bad Riverbend reservation with respect to line five.
Just asked because there was that theres a pipeline in the Bakken that was order to shutdown earlier this month.
Well it seems to be similar circumstances. So just curious on your thoughts there.
Okay, well I'll take that question.
I think.
Job one for US is to continue to operate the line safely and do the work necessary on the reservation to have that happen job to for US is to progress to reroute I think the tribe is really asked us to moving the pipeline off of their their lands and we're on the process.
Doing that.
Weve filed for all of the environmental permits and the.
Easement permits necessary to do that and we believe that regulatory process will take about 12 to 18 months to complete and once we've done that we'll be able to meet the wishes the tribe and remove.
The pipeline from the reservation.
We're we've been following that Bakken pipeline situation quite closely.
No at first glance, it looks like and analogous fact pattern, but when are you really deep dig deeper into at the fact patterns are in fact quite different where we've been doing constant negotiation with the losses on our easement and we have not seen.
In the Bureau of Indiana fares get involved in our pipeline.
Situation with that rubber band so while at first they may look similar I think when you really.
Do deep dive.
Back patterns are quite different.
Great. Thanks.
And then in your prepared remarks, you mentioned that you'd push harder on the 1% to 2% embedded growth in kind of the 2022 plus timeframe can you just elaborate what you mean by that and some of the levers that you essentially have to pull there.
Hey, Praneeth its call on yes, great question and it's something we're.
Actively on you can see it.
For the simplest examples of star.
Cost.
Pursuit.
I'm sure everyone industry is doing this as well, but we're all over that I think thats a positive vector relative to history in this in this bucket.
I think.
Secondly.
You've seen us in corporate and push on.
Indexed rates are inflators in our tariffs that is continuing and we'll be more of that.
Thirdly, and I'd put in this category.
Some of the kind of embedded rate base growth that you see in our utility ask investments, where I think al talked about this where were going to be asked and.
We will proactively look to ourselves renew and modernize systems and that is effectively utility esque.
Boring growth, but I think those are all all factors that play into that kind of plus emphasis on the 1% to 2%, yes, maybe the only other examples anyway just to give you feel for we talked about this in terms of let's use the liquid system.
The size and scale of that at whatever it's going to be I guess over 3 million barrels per day since line three gets done.
That's sure gives you a lot to work with and if you can add.
50000 here 25000, there of capacity by doing things like adding DRA for example, Ben.
That's a very low capital intense type of revenue line improvements. So those are the kinds of things I mean, the team already does this but for example can we use technology in a different way to further optimize the system or how we move volumes through terminals for exam.
Well, we have a massive.
Liquids terminal system and is there more efficient way to move volumes around those terminals to get.
Revenue quicker so it's those kinds of things generally aside from the things that cones mentioned.
All right.
Thanks printing.
Thank you. Our next question comes in the line of Robert Kwan from RBC capital markets. Your question. Please.
Good morning.
Server site.
Capital can you talk about what's embedded in guidance.
In terms of downtown or potential downtime.
Are you able to provide EBITDAR cashless sensitivity.
For potential.
Monthly basis.
Any offsets.
In volumes coming off the doubtful that slowing on your whole summer and are there Brian.
Hi, Robert it's over.
Maybe I'll start with line five.
Obviously, the Westlake is running right now.
The straight crossing is a dual pipeline network, where for a period of time, one leg can service or requirements downstream of the Straits, We expect to have the east leg up and running hopefully within the next few weeks, we've obviously been working with our federal.
So regulator to demonstrate that pipeline is fit for service.
And the regulators working through that right now so once that's complete will.
Make an application to the quarter to have the temporary restraining order amend that will allow for the start up.
The east leg, which will then provide.
Redundancy online five.
So I don't think Theres any real magic there from an EBITDA perspective.
On dapple.
Prior.
With the downturn and Bakken volumes, we do have some space on our legacy North Dakota line that runway to Clearbrook and we are and we also have some space on our Bakken expansion project that runs up up from the Bakken back into Canada.
At Cromer.
I think ballpark wise, we can handle.
Couple of hundred thousand barrels a day of incremental flows very easily and then more working on incremental optimizations to allow you to move more crude should that be required. So I think.
We're in pretty good shape.
To be able to takes.
To offset a lot of the production coming out at the Bakken and then obviously if that those barrels hit our system. We will then benefit from.
The downstream pipeline takeaway.
To put that takes those volumes to other markets.
Hey, Paul.
Well, so we just get there just to confirm that so at a high level it because burner, saying.
We don't see any material impact.
From these in the back half of the year, so that that's what's embedded in our guidance.
I think on Dakota access pipeline.
Just high level sensitivity there.
On a full year basis doubtful represents.
About $250 million to $300 million year of EBITDA, which is about 2% of consolidated EBITDA and I think as Brian mentioned.
While we don't want to see it out of service there are a avenues to substantially mitigate that on our system.
Thank you and just as soon as Sue.
And the energy transitioned earlier, there's been a lot of questions in the cost of around.
Your strategy around asset mix and capital allocation.
And.
With the asset mix and sustainable infrastructure, whether it's right or wrong, you've got negative bars can you your pipeline business, including since you've circles gas infrastructure.
With that what are your thoughts on harvesting free cash flow from pipeline business can accepting less attractive returns and renewable energy or do you just take the view that your assets or when they are you divest you can.
Genability.
Mark can you didn't ship tiers, and just continue your discipline of Investor capital.
Risk adjusted returns, regardless of where those opportunities.
Yes, I think it's the latter.
I mean, just given the comments before on capital allocation and how we look at future investment into in terms of the asset mix today.
I think when we repositioned the asset mix too.
Almost 50, 50, I'm going to call it between natural gas and liquids businesses with a little bit in there for.
Notables I think we were kind of happy with the mix there you've got a.
There's certainly energy transition in play here, but in the end, it's going to come down to the competitiveness of assets.
To each of the key markets and Thats, where I think we're going to be really strong whether its liquids, whether its natural gas utility or transmission and.
The reason I'm, saying that is because in the end, it's going to come down to the fundamentals and if you can be the most competitive system into each one of these markets.
The transitions happening, but certainly not going to happen.
Over a short period of time, so we think we're pretty solid on each of the businesses for decades to come.
If we do see something where we can.
I think you call that harvest.
Or sell then we would look at that but at this point, we're pretty happy with the asset base. We've we've kind of done the monetizations and sales that we thought were most important so that's how we're looking at this at a high level that if I haven't gotten to the crux of what you're getting at let me know.
That said Thats great. Thank you very much okay. Thank you.
Thank you. Our next question comes from the line notion or if there's any from you'll be ask your question. Please.
Hi, Good morning, everyone happy to hear that everyone is safe and well.
Maybe to start off a broad capex type of question why three is kind of delayed at this point right now at the same time, you've announced a couple new projects that Youve secured how does capex shipped around.
In terms of the delay in terms and as well as the announcements does capex potentially come down a little bit. This year does it go up next year.
How should we think about the total capex number as we think about 2020 and 21 and with respect to the new project that that were added to the backlog.
Can you confirm that the utility type projects that are tantamount to rate base type of expansion opportunity in is that the priority going forward.
Yes, hey share its call on good question. So I think on on online through alluded to this in my remarks so.
We've got approximately Canadian 2 billion left to spend on line three U.S. here and we've we've earmarked.
Approximately one and a half billion of that to next year. We've just just moved it.
So as I noted this year's Capex is lower than than guided in December of 2019.
So.
Well have a little more next year, but overall the capex budget is is declining as we go forward here, which should help us generate free cash flow and and you're right I think Mary marrying your question maybe with.
Robert's at the beginning.
Our our capital allocation framework in adders risk Premia are are indeed, channeling us towards lower beta projects if you like.
In core door expansions extensions modernizations.
Executable projects.
So indeed are and if you need to listed them, they're basically outlined in that 11 billion dollar.
Secured project.
The thing that we've been carrying.
On that 1 billion.
Sure.
300 million of that let's call it.
Conventional utility capital, it's basically reinforcements and and so that is.
Very much right down the middle of the fairway. The other part is the renewable.
Project that we sanctioned offshore France.
I'd have to say that one is at least is good in terms of the risk profile as I mentioned in my remarks.
That one is we've got this other feature where.
Yes.
The wind variability that you'd typically see in these projects is actually quite limited because there is there's a color on it.
And then in terms of the size of it.
Remember that project will be.
Project financed in terms of.
Horwitz.
How its funded so we will actually put quite a bit less equity into that relative to the.
The overall debt equity split within within the company. So thats, how hopefully that answers what you're getting it.
No it does.
Really appreciate the color that detail on that.
Maybe as a follow up question I know, there's been a lot of questions to tape out capital allocation and in terms of projects and our free cash flow harvesting and so forth I was wondering if maybe we can pivot a little bit and talk about the balance sheet.
Rates out there right now are extremely low one of the U.S. peers issued debt. This this week.
At fairly low levels in terms of rates.
You've prefunded you funded 20, you've started Prefunding 21, what are the thoughts around extending the maturity profile. If you as you are in the market right now.
Just sort of take take advantage of and capitalize on the current rate environment.
Yes, sure. It's called Thanks for that question. So in indeed, great rates are our our low and attractive and indeed, we have been.
Capitalizing on that trend ourselves.
Anytime you can issue.
10 year tenure dead in the mid two range is probably a non regret move on tax deductible basis.
So we've observed this we're participating in it.
We have been extending our our maturity through this process as well so.
I think our average maturity is about.
17 years now so we're happy with that it matches, our long lived asset base. So it's a good point I agree with it.
Alright perfect. Both thank you very much guys really appreciate all the color today and how the same thing.
Okay. Thank you.
Thank you. Our next question comes from Law, Linda Israelis from TD Securities. Your question. Please.
Good morning.
Looking at.
Your long term growth beyond 2022.
It's great to see you reaffirming the 5% to 7% DCF per share growth and providing some visibility on enhancing the 1% to 2%.
Based optimization beyond 2022 can you help me understand what the possibilities are in terms of magnitude could you add double that two 3% to 4% and implicitly.
Should we assume that maybe you that's being done to maintain that 5% to 7% growth rate prospectively.
Suggesting that the secured growth contribution to growth might decelerate a little bit.
Okay Thats out here.
First of all I think you'd expect growth overall to be slowing down in the industry. I mean, that's just a reality I think in this environment, you've got a major disruption this.
And then specifically you have.
And you see the numbers.
Probably better than we do the economic contraction overall.
Going on is undeniable I think we're going to probably be really well positioned though in this downturn.
With respect to continuing growth.
Well, we'll look at other things to do with capital as well in case, we can't find the opportunities that we've been focused on in pretty good at so I think to get tier the routing your question, though I wouldn't want to.
Specify that.
Distinctly what the the first bucket would be if we can add another percentage to it I think we'd be pretty happy.
And the way I look at it is if we can add more there.
It certainly would offset some of the things that we might not see coming and secured growth beyond 2022.
So thats sort of how we're looking at it when we see the you'll recall back at Enbridge day, we said.
To generate that additional 4% to 5%, we probably need spend roughly $5 billion a year in new project execution.
Sounds like a big number and it is.
But when you break it down by business.
Bills got lots going on I mentioned over $1 billion, just energy and GTSP utility power Scott some projects liquids can optimize and frankly, if if we can get more of the growth rate with these low capital intensive optimizations expansions.
Or modernizations of assistance and bills as good example of that builds area. Then I think we can we can see ourselves getting pretty darn close to that so although generally the markets.
Less growth the going forward I think thats a reality I think we should be in good shape to to get pretty darn close.
That's helpful context, Thank you and just as a follow up I guess one of the other Librizzi you have is that the growth aspirations are on a per share basis.
I'm wondering.
What might trigger consideration to the share buyback and also to the extent that you don't.
Need to partner or sell assets to pension funds and other financial investors I'm, just wondering if you're approached with a very compelling offer.
To further jvs like you have recently with your offshore wind is that another lever that you would seriously consider balancing off I guess that the complexity associated with that potentially.
Yes, it's a good observation and and the short answer is yes, because I think if I mean, we've got some great franchises and Theres certainly core to us so we wouldn't want to see them necessarily.
Just be sold off but if if somebody's presenting compelling value and you've got some good reinvestment opportunities.
Then we'd have to look at that I mean, we have big businesses. So it it would obviously be constrained to pieces energy in JV, So thats, probably what you're getting at.
I guess linked to that which was the other part of your question had to do with buybacks.
We're going to look at that pretty carefully I think we said before.
We will make sure that thats part of our capital allocation review.
And I would say Linda at this price, it's a pretty obvious source of growth. If you want to look at that on a per share basis like you were mentioning.
Other considerations, though.
Aside from the fact that the assets that we have our core to our growth and they've got a lot of embedded growth in them.
We already return.
A boatload of capital through the dividend I think calling and will correct me, it's probably in the six and a half billion range annually.
The other thing to Linda as we tend to look at these.
On a full cycle basis, so, whereas yes, we can make something accretive by buying back shares we tend to compare that to not just short term accretion, but what are we going to get out of the buyback in the longer term and so we look at.
What else, we could do with that if we had growth opportunities. So.
I think really this comes down for us to more of a timing thing.
We'll certainly look at buybacks, especially at this price.
Once we get line three and I think until that we are still in pretty heavy capital investment mode. Here. So I think thats how to to look at it in general terms.
That's helpful. Thank you.
Thank you. Our next question comes from the line of Patrick from National Bank Financial Your question. Please.
Hi, Good morning, guys, just all the mainline contracting I.
I know, it's still early days, but.
Given the value of pipe in the ground as you mentioned Dell and the mounting challenges and getting new pipe capacity Bill.
Are you starting to see additional commercial support come in from shippers.
It looks like that 70% support number hasn't changed yet.
But.
Competing projects continue to be challenged to say the least.
But that not alone bring in further support for your mainline offering over the coming quarters or do you think you're at the point, where you would need to.
Refine the terms in order to achieve a level of support well above 70%.
I'll make a quick comment then alternative grant.
On your point about.
Additional support I think at this phase of where we're at.
Having filed the application I wouldn't see necessarily somebody coming out and say, how well we changed our mind I think while we're in this application process.
We're probably not going to see much change in that and the focus would be on making sure that everybody is still with us. So.
I wouldn't to have expected anybody to be added to the list at this point, but I don't offer and if you want to expand a bit on his question.
I think you've hit most of it all I think the only.
Nuance I would make is that we continue to talk to the producing community here in Calgary, who were the primary opponents to mainline contracting those people are have differing views on why this may not be the best thing for them. Some just don't like the toll they've just play.
Thats too high others are waiting to see how is the competing pipelines play out and then finally in the smaller producers who are quite frankly are just coming up the learning curve on how all this all works and we focus most of our attention to see if we can get a few more of those people into our camp.
I will continue to do that as we go through this year process I think the one thing that the application has helped though is the question and answer part of that I think it's starting to maybe gel a little bit and this is not an easy thing to really.
Absorb.
At 100000 feet, you got to kind of get into what the value drivers are and I think as I mentioned in here it really comes down to.
The predictability of those tools and that's really what I think will be the key value driver, but I wouldn't sell short the fact that having locked in demand from the best market in North America is another key factor or along with this concept of the margin.
Total economics that again, I think starting to to get some headway with.
People, who are really actually now starting to look at how is this going to affect them I think it's easy to say, while we don't want to do this or that but I think.
People are starting to get a bit of that story I think.
Okay I appreciate that color and then just a quick follow up on the dapple situation if I could.
I know you're not in the driver's seat there, but can you clarify wins you expect the court decision on.
Hi, being shut down or not is.
Clarity by next week before that initial.
Against this deadline reasonable or could this drag on for another few weeks here.
I think it does for energy transfer to comment on how the court proceedings, you're going to play out I think its and all I can say will provide us court of appeals right now.
Got it okay. Thanks, guys.
Okay. Thanks.
Thank you. Our next question comes on line up and down from BMO. Your question. Please.
Okay. Thanks, good morning.
Election, as opposed to correct and Biden when when you think impacted on the business if any.
Assets project on their construction 0.3, and anything else tax rate.
And that's worth commenting on.
Well.
I guess then it's a good question I mean, that's certainly something on everybody's mind I think.
Specifically the last part.
There is nothing different that we expect on line three.
I think the fundamental there is it's a state process.
And we're right into.
Working with Sodus, you know for for quite Awhile, So im not sure that one really.
Plays into the change in administration, if in fact that happens it's always something we contemplate and look at when whenever you have a potential administration change I think the point as.
Frankly, we worked pretty well with all administrations, even even the previous one.
On on many fronts I think it's probably a little too early to tell honestly been what the policy implications will be and what it means to.
Infrastructure.
But certainly we don't see any major change.
And really that's because in the end as I said earlier, it's pretty clear that our assets are going to be critical too.
The economic growth in North America, a lot of as I said, what we do falls into that state regulatory and permitting camp and I guess by the waiver and we don't have any.
I guess, we're not seeking any federal cross border permits at this point so all in I don't see that's a big factor we're watching it obviously, Ben but generally we think we'll be in good shape.
Okay. Thanks for that and maybe a follow up on earlier questionable hydrogen in response here. The study next step still early days that's quite expensive.
The point.
12 months.
To put some dollars into some pilot.
Estimates on and then also curious is is the studying as it is it more to gas utilities blending or you also talk and will continue into the answer is more product explained hydrogen on on pipes and more of a broader discussion and studying the hydrogen opportunity.
It's probably two fronts I would say the more imminent certainly in the utility.
Centene or team are working diligently on this you heard bill's comment.
About how that might work through the.
The gas transmission side. This is all I think in the realm of.
Pellet blue hydrogen.
Intensity question I think yes, we're at the point, where we can certainly see putting in small amounts of capital.
To prove prove out our our understanding of this and I think.
We've got a pretty good headstart on this people have been working on it in the company for quite Awhile and I think we'll be in good shape, so that when we put in.
Some amounts to us things out, which I think is appropriate for us.
Then we will have pretty good confidence around that not huge amounts mind, you Ben but.
Yeah, I think we can start to do some pilot investing for sure.
Alright, thats great. Thank tall.
Okay, Yes.
Thank you we have reached over time limit and are not able to take any further questions. At this time I will now turn the call over to Jonathan Morgan for final remarks.
Thank you and thanks, everyone for taking the time to join US. This morning as always we appreciate your continued interest in Enbridge and and following the call Investor Relations is available to address any follow up questions. You may have so once again, thank you and have a great day.
Thank you ladies and gentlemen, we appreciate your participation. This concludes today's conference you may now disconnect.
To clear.
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