Q4 2020 Enbridge Inc Earnings Call
Welcome to the Enbridge, Inc. Fourth quarter 2020 financial results Conference call. My name is Jonathan and I will be your operator for today's call. At this time all participants are in a listen only mode. Following the presentation. We will conduct a question and answer session for the investment community. During the question and answer session. If you'll have the quest.
<unk>. Please press Star then one on your Touchtone phone.
Please note that this conference is being recorded I would now like to turn the call over to Jonathan Morgan Vice President of Investor Relations, Jonathan you may begin.
Thank you good morning, and welcome to the Enbridge, Inc. Fourth quarter 2020 earnings call. Joining me. This morning are al Monaco, President and Chief Executive Officer, Colin <unk> Executive Vice President and Chief Financial Officer, Vern Yu Executive Vice President liquids pipelines, Bill Yardley Executive Vice President gas transmission and midstream.
Cynthia Hansen executive Vice President of gas distribution, and storage and Matthew Ackman, Senior Vice President strategy and power.
As per usual of this call's webcast and I encourage those listening on the phone to follow along with the supporting slides, we're going to try and keep the call for roughly one hour, but will allow for additional time if necessary.
In order to answer as many questions as possible during the Q&A portion of our call. We ask that you each keep to a single question and rejoin the queue. If you have any follow ups, we will do our best to get to each of you.
And as always our Investor Relations team is available after the call for any detailed follow up.
If you are a member of the media. Please direct your questions to our communications team, who will be happy to respond.
Onto slide two where I'll remind you that we're referring to forward looking information on today's call and by its nature. This information contains forecasts assumptions and expectations for future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filings, we'll also be referring to non-GAAP measures summarized below.
And with that I'll hand, it over to Omar.
Okay. Thanks, Jonathan good morning, everybody.
So Colin and I are going to cover the usual agenda, including the business update the financials and a recap of our capital allocation priorities.
Given the challenging dynamics of energy today, we're also continuing our discussion on how we see the energy space.
At the end I'll tie it together with what you see here on the slide which is how enbridge is the bridge to the energy future and the value proposition that we're offering.
Let me start with the energy landscape.
As we said at Enbridge day, we're cautious near term, but very optimistic about the long term fundamentals.
We're in the heart of the second wave here. So the timing of a full recovery is uncertain and it depends on the speed of the vaccine rollout.
But a strong recovery is bound to happen.
It's also clear that the industry is fully aligned on the need to reduce emissions, we ourselves have established and net zero target.
And we've built optionality by diversifying our business and investing ahead of the curve on renewables, RMG and hydrogen which will drive more infrastructure opportunities for us.
Well, we also know that our economies are dependent on low cost reliable energy, that's always been true and always will be.
The stimulus is driving the right conditions for the recovery and it's playing out if you look at the pickup in demand and stabilizing commodity prices. Good example is the growth we're seeing right now in Asian economies net.
Actually bolstering U S Gulf Coast energy exports.
The fact is that all sources of energy supply are going to be needed to meet growing energy demand and conventional energy and new investment and convert conventional energy is going to be part of that.
We think western Canada is really well positioned for.
Reduces have lowered breakeven cut.
Cut emissions and build the backlog of capital efficient long lives supply growth.
Developing greenfield egress projects is going to be challenging as it is today.
So as new capacity is needed the first call will be to optimize expand and modernize existing infrastructure that means the value of pipe in the ground is set to increase.
We ourselves have plenty of opportunities in the hopper to support new upstream investment and energy export growth.
Capitalizing on the value uplift throw will depend on how good you are at environmental protection and permitting and the emissions reduction of solutions that you bring to the table so companies with scale existing connections to prime markets, including exports.
And world class execution capability will thrive others won't survive.
The strategic location of our assets and the capabilities. We've developed to operate in this environment means we are best positioned to win.
So spending a minute on the energy outlook, we believe gas will be critical to any energy trends. The scenario you want to pack and future economic growth.
Its abundance means it will be economic for a long time, it's Scott excellent load following capability on generation.
Lower emissions and it will allow renewable generation to growth.
It's fuel and density advantages are critical to industrial and manufacturing competitive you've seen that play out globally as well demand was only down 4% versus 2019.
In U S. LNG exports of picked up nicely to 11 Bcf per day last month.
The next slide hits home. The fact that crude is also moving in the right direction.
If you look at refined products pet Chem demand didn't Miss a beat last year and gasoline diesel are climbing back.
Jet fuel will take longer for obvious reasons, but it's a smaller slice of demand.
See the mass of 20 million barrel per day Covid impact on crude in Q2. So it will take some time to get fully back to normal.
Oil exports held up well last year around 3 million of day, but we remain bullish on the longer term there in particular.
Part of that is economic growth in Asia, which continues to invest heavily to kick start their local economies.
And all of this lines up well with our U S. Gulf Coast strategy, we're starting to see customer interest to support export infrastructure pop back up.
Global inventories are trending down and with current disciplined coming out of OPEC and U S shale production, we're seeing price stability.
So what does all of that mean to us.
Our assets are positioned to benefit from growing energy demand and thats because of the strength of the markets, we delivered two including great connectivity to both gas and oil exports the.
The scale of the volumes, we move and the competitiveness of our tools.
As you saw this past year, the commercial underpinning and diversification of the assets generate strong and predictable cash flow.
When you look at these three franchise maps the utility like nature of what we do really comes through.
These businesses are absolutely critical to North American and global economies and there'll be generating cash flow for a very long time.
Our renewables business also fits the utility model very well.
So that's how we see the big picture now, let's have a look at last year and how it sets us up for this year.
In short we delivered very solid results and progressed our priorities DCF came in about the mid point of our pre Covid guidance range, good outcome and it proves out the resiliency of the portfolio you can see our track record here on the right and hitting the numbers over time and delivering constant dividend growth.
On liquids, we lost 400000 barrels per day of volume in Q2.
But we mitigated a good chunk of that with cost reductions in a number of productivity enhancements.
We drove about $300 million in savings in the plan is to sustain that and add another $100 million this year and by the way, we did not avail ourselves of government programs to get there.
We brought one six <unk> of projects into service and start of construction on line three in Minnesota.
We ramped up our ESG goals in both admissions and diversity and we extended our 5% to 7% DCF per share growth outlook. Another year through 2023, so bottom line and what has been the worst economic and energy downturn in decades, we grew cash flow increased the dividend when others went the other way.
And we ended the year with an even stronger balance sheet.
So let me move to the business update starting with liquids.
So fourth quarter mainline throughput averaged $2 65 million of day. So we're seeing the return of volumes that we had forecast.
That was driven by good <unk> response, and strong pull from our heavy refinery customers.
Pat two in U S Gulf Coast system utilization was up nicely.
And it really shows the competitiveness of our system to the key markets.
In fact, hitting mainline capacity has been full since July and we've been able to use up some available light capacity by optimizing the system to move mediums.
What really shone through was the strength of the basin and our system that has a lot to do with how critical our heavy feedstock is to our U S customers.
And given we expect to see further decline in global heavy supply heavy is off of our full pass through to the U S. Gulf will be in big demand you can see the highlighted path here in yellow.
Next is our update on line three and the capital cost refresh that we promised.
The entire project underwent exhausted review and vetting over six years the record during that time. We established is very solid our team worked extremely hard with indigenous partners and we were responsive to community concerns and Thats why we have strong local and regional support.
On the ground.
We got the final permits in Minnesota in late November and started early work in the field.
Recent state Federal court decisions once again validated those permits you saw the stays where the science denied at both state and federal level.
I want to emphasize here that we are using the most fulsome environmental health and safety measures possible.
We made this a world class project and the permitting agencies were focused on the very same thing.
The right of way is mostly cleared station work is underway and trenching in welding and started.
We'll manage through the spring environmental Windows as usual, which had been accounted for in our Q4 in service date estimate.
So lots of work ahead on this one and we've reiterated two of our execution team that environmental protection and safety are the number one priority here and that includes stringent COVID-19 measures.
The next slide shows our cost estimate for the entire project and now reflects our final post permit construction plan in Minnesota.
From the last estimate in 2017 capital has increased from $8 2 billion to $9 3 billion of 13%.
We actually came in very close for our budget on the vast majority of the projects. So that's great.
This increase really stems mainly from our revised execution plan related to regulatory and permitting processes in Minnesota, So let me explain that.
As you know the plan changed to winter construction, which means more manpower and equipment. The days of shorter productivity is lower and they're seasonal transition from winter to spring and remind you as well though of that winter construction does come with some benefits on the environmental side.
We also implemented even greater protection for wetlands increased erosion controls and we're using the most conservative crossing techniques.
Obviously, the regulatory delays monthly running costs and carrying costs were higher.
Finally scope changes like rerouting onto the fond of lack of reservation and COVID-19 protocols where needed so.
Surprising costs have gone up but a couple of things we want to note here.
Despite this higher investment our updated full cycle return remains attractive and we are seeing stronger volume profile and lower interest rates versus the original economics has helped.
Once line three is in service is going to contribute a lot of free cash flow and this year, we anticipated it will be about $200 million in Q4 with volumes and EBITDA ramping up in 2022.
So on to slide 12, mainly.
Mainline contracting is progressing through the regulatory process. We're currently in what we call the evidentiary phase, which ends in April and from there we expect the hearing and decision this year.
There's been a lot of commentary recently recently on mainline contracting, but the bottom line is that we're moving forward with it because it's what our customers want and that is dedicated capacity and toll certainty and thats why we have strong support.
And the offering reflected numerous changes as you know so that all shippers will be better off.
So we're continuing to move our application of along and we're looking forward to the hearing is that will help us get the facts out onto the table for everyone.
On line five of couple of comments on the state's attempt to revoke the Straits easement that was granted decades ago.
First of all of the fact is that the straight segment is safe and Sims has confirmed that more than once.
Secondly, the line is absolutely critical to Michigan and the entire surrounding region and in our view attempting to cancel the easement contradicts the U S federal jurisdiction over safety of the line with.
Would severely hinder of Interstate Commerce, North American energy flows.
But most important it endangers the energy security of millions of people and industry in the entire region.
Resulting in higher consumer costs and lost jobs at the worst possible time.
And let's remember that line five moves existing volumes. So shutting down. This line is a very serious issue for everybody.
One thing Thats been lost in all of this is that we are just as or more committed to protecting the great lakes and anybody.
We've proven that by taking numerous additional actions and listening to the state's concerns very carefully to make a safe pipeline even safer for example, $24 seven monitoring of vessel traffic in the streets, replacing the St. Clair crossing shutting down the line during periods of high wave conditions and a bunch of of.
The measures to many to go through today.
We then committed to build the tunnel under the streets to house of brand New line that will reduce the risk to near zero in that tunnel was blessed by the state government.
On that front, we received the initial environmental permits and we're working on the remaining two approvals.
Finally, just a quick point here on a development area for us which is carbon capture.
And just for context here. This has a lot of power in terms of reducing emissions. So by 2035 has the potential to store, 22% of GH cheese and Thats. The case on both sides of the border.
Transportation is a key part of any carbon solution, which fits our skill sets very well and it's a big opportunity for us actually.
We're going to be focused initially on western Canada, where there is strong interest in an interest industry solution I'm talking pipe and facilities there.
So more to come on that one in the months ahead.
Now, let's move to our natural gas businesses, which are a key part of the diversification I talked about earlier.
In terms of gas transmission last year was strong and this year it looks better as a bunch of projects come into service in the second half.
Renewals renewals on Texas, Eastern and Algonquin came in at 19, 9%, which just shows how critical these systems are to U S northeast energy needs, especially of peak demand everybody has noticed how cold it is out there.
The team did a good job of selling new rates as well with our customers. So they're happy which added a good chunk of EBITDA for us in the process.
We completed last year's $700 million modernization program, which is part of a recurring investment opportunity going forward that bill talked about at Enbridge day.
We've got $5 billion and execution through 2023 of solid return projects that are moving along well 3 billion of that by the way is slated for in service. This year, so that will contribute to growing free cash flow.
On to slide 14, the gas utility put up good numbers again and keeps on giving on growth. We added 43000 customers last year and synergy capture and that business is on track. So we are generating a good premium return above the allowed regulated rate.
There's another $4 billion of utility rate base of capital through 2023.
Part of this is new community expansions those of the white dots you see in the map here and in franchise replacement projects.
Our low carbon options, we've got six RMG projects operating and in construction and more plant.
On hydrogen we're piloting a 2% hydrogen blend facility and most recently gas a fair thats our utility in Quebec is working on a similar pilot.
By the way the R&D and hydrogen projects are either included in rate base or have long term contracts. So they fit the business model.
Finally, let's talk renewables, specifically offshore wind.
Offshore France construction is well underway now on the 480 megawatt Saint Nazaire project, we've kicked off now the 500 megawatt <unk> wind farm.
We expect those to be cash flowing in 2022 and 2020 for <unk>.
Next step is the 450 megawatt <unk> project, which should reach FID.
In the first half of the year.
So nice development opportunities, we're working on as well, including an expansion of our operating of Rampion project in the UK now lets say one two gig project and another project in Dunkirk offshore France as well.
An exciting area of future growth for us is floating offshore wind Matthew covered that at Enbridge day, and we're actually working on a pilot pilot project on the South coast of France, and this could actually turn into a pretty big opportunity for us going forward.
As everybody knows renewable valuations of these days are frothy for say the lease. So that's good for the value of the business, but it also means that returns are being crunch down on new opportunities. So it's a nice to have the backlog like we do of construction and development projects and we're not going to stretch our investment criteria arent.
Risk or return.
The next slide shows how we're also ramping up our solar cell power program into high gear.
We really like these projects because of the strategy marries up renewables experience with our gas transmission and liquids franchises and it reduces our carbon footprint.
You can see we've got 15% to 20 projects here totaling seven of several hundred megawatts, so roughly half of $1 billion of investment through 2023 and more beyond that now.
These projects are not just on the drawing board in October we completed Lambertville on Texas Eastern and another one is on the go on Texas Eastern as well right now and we've just started our first project for the main line in Alberta.
We've got several in late stage development here, which could.
This year now just stepping back for a minute in terms of how we look at these from an investment perspective.
You have to remember the power costs are one of the largest operating expenses we have to.
To the extent, we can effectively deploy capital and earn a good return to reduce costs and emissions, we're going to do that.
And these projects by the way compete for capital just like the rest of the organic growth that we have and we will prioritize the best ones.
That's a good segue onto ESG as you know we set of emissions goals last year net zero by 2050, and the 2030 interim intensity goal of 35% reduction.
We spent over a year landing on these and the levers to make sure. We hit these targets so not pie in the sky at all and Theyre linked to executive compensation.
The three primary ways, we will get there is using less carbon intense sources to run pumps and compressors self.
Self hiring the solar like the projects I, just went through and modernizing our assets with the latest technology.
Maintaining our ESG leadership position is really important to us I think everybody understands that.
Not that we can put that on the slide, but because reducing emissions as part of our business and it supports the lowest cost of capital.
You'll see here, we've just added a couple of more sector, leading scores from S&P in wealth.
So let me conclude the business update by reiterating the three year growth outlook of 5% to 7% DCF per share CAGR through 2023.
First there is 1% to 2% of highly visible growth from the revenue and cost line very little capital required on that.
Embedded revenue escalators and liquids and gas are part of it watching our overhead which we've done a good job at and importantly, leveraging technology to improve productivity and optimize our operations has real bottom line impact and we went through those at Enbridge day.
Another 4% to 5% will come from completing the 16 b of secured capital that we expect will generate a couple of billion of EBITDA through 2023.
If we execute as planned we will have $5 billion to $6 billion of annual financial capacity starting after line three goes into service so call that 2022.
As we've been saying, we'll be very disciplined in the way we put the capacity to work, which Colin is going to cover and recap our approach to that so calling over to you.
Hey, Thanks, Al and good morning, everyone.
I'm going to provide some color on our financial results, our secured capital and funding plans.
Thirdly, our performance outlook for 2021.
And then finally, how we will allocate capital to maximize shareholder value.
But first I'd like to take a quick step back and assess our 2020 performance with the simple dashboard the.
<unk> line is where stronger resilient and growing.
Our balance sheet metrics are in good shape and give us flexibility.
The rate, where we want to be here.
Our counterparties and the contractual nature of our cash flows have always been good and they remain so if not even a little better yet here.
Our proactive actions to reduce cost will also give us a competitive edge.
And cash flows and our dividend are growing amidst challenging market conditions.
So while it's a tough year for energy <unk>.
Entering 2021 in a position of strength.
On to slide 20 for our results.
2020 was a strong year as al mentioned, both operationally and financially.
Gas transmission or distribution utility and our renewable power assets were all highly utilized even through the pandemic day.
We delivered right in line with or better than our 2020 guidance.
Liquids pipeline throughput was solid overall and recovered quickly demonstrating the strength of the markets we delivered too.
And of course early actions on costs helped to offset most of that impact.
Full year adjusted EBITDA landed at $13 3 billion.
Which is right, where we guided to and we updated you on December eight.
After factoring in unrecognized demand charges on Unutilized capacity, we would of being at about $13 5 billion and there is a similar impact on our earnings about <unk> <unk> per share.
We do not expect this last factor to be immaterial one in 2021 as volumes have mostly recovered.
The DCF per share of $4 67 is the.
Just above the midpoint of our guidance range, which we provided.
Well before the pandemic.
That's a solid outcome in any year.
Turning to slide 21, I'll walk through each of the segments.
Liquids pipelines full year EBITDA is up almost $140 million over last year, despite the pandemic related volume loss.
This increase is largely driven by our annual toll inflator on the mainline.
A <unk> surcharge for line three Canada, which has been in service for a while now.
Lower operating costs and stronger U S dollar exchange rate ratios on the on U S earned cash flows.
Regional oil sands volumes are recovering in line with mainline volume recoveries and as a reminder, our regional business has strong commercial take or pay underpinnings.
Further downstream.
The high demand for Canadian heavy barrels into the Gulf drove increased full path volumes on our Flanagan, South and Seaway pipelines.
But we did see lower light spot volumes on <unk>.
<unk> legacy.
System, which was a slight headwind in the quarter.
Finally in this segment.
Under the Gray Oak pipeline began full operations in the first quarter of the year, providing incremental take or pay EBITDA all year.
After factoring in the makeup rates.
Matter I mentioned on contracted assets. This segment's results were right in line with our pre Covid plan.
Similarly in gas transmission full year, EBITDA was up $27 million our assets in the U S and Canada benefited from the rate case settlements in 2020 on Texas, Eastern Algonquin and the BC pipeline system, which we discussed earlier in the year.
As a reminder of these three rate cases or settlements I should say combined.
An incremental $160 million of EBITDA on a full year run rate basis.
As another reminder, 2020 results.
For this business include about $100 million of prior period catch up revenues related to the settlement of these rate proceedings in midyear 2020.
The benefit of these rate settlements in the U S gas transmission was partially offset by higher integrity costs on lower revenues due to pressure restrictions in the third and fourth quarters.
Related to our system wide integrity program.
That program is substantially complete and the system is back to full operating capacity, but we do anticipate integrity costs will still run higher.
In 2021.
Our utility EBITDA was up a little despite of warmer year.
Actually the weather Delta year over year full year is significant its about $100 million.
When you compare of warm or 2020 with the colder 2019.
Weather normalized the business grew ratably, adding 43000, new customers, which is in line with historical trends.
$500 million of new capital placed into service higher.
Higher distribution rates, and we're making good progress on amalgamation synergies.
The predictable growth is again reflected in our 2021 guidance.
Our renewables business was up also $80 million of over last year and delivered results consistent with full year guidance. This.
This includes contributions from the two German offshore wind farm is placed into service in late 2019 and early 2020.
Good wind resources at both our Canadian and U S facilities, and finally about $40 million of insurance and related settlements.
Energy services, which is typically of small contributor to the whole company say, 1% of consolidated EBITDA.
Experienced the loss of just over $80 million in the quarter and full year results were below our 2020 expectations now.
That's consistent with what we said in December where basically we would continue to see compressed location and quality differentials into 2021.
Which create fewer opportunities to generate sufficient margin to cover fixed demand charges on our portfolio of commitments.
More recently at the margin, we're seeing some improvement in market conditions, but all in we continue to expect to be about neutral in 2021.
Roughly speaking.
Minus minuses in the first half and positive EBITDA contributions in the second half from the small business.
Finally, eliminations and other was $40 million favorable to last year on better foreign exchange hedge settlements and the corporate portion of the $300 million of enterprise cost reductions for 2020.
Now onto slide 22 for our distributable cash flow reconciliation.
Cash distributions received from our joint venture investments maintenance capital financing costs and distributions to Noncontrolling interest were all roughly in line with expectations and our full year guidance for the year.
Income taxes, our cash taxes in this case on the year are comparable with 2019, but slightly lower than our initial guidance due to lower taxable earnings during the year.
And I think I have mentioned the.
The normal course add back of cash receipts related to makeup rights reported within the full year. This is more of a.
Q2, and Q3 event quite.
Quite negligible in Q4.
With that I'm going to shift focus forward here now beginning with our secured growth capital program.
As you can see from the table on slide 23, we've got a solid $16 billion of secured capital program that provides visibility.
Our 5% to 7% DCF per share growth outlook through 2023.
Our program is well diversified across each of our businesses and it comes with contractual frameworks that fit our low risk model.
We placed $1 6 billion of utility and utility like projects into service in 2020, and so far this year, including our 2020 gas modernization program, which will be ongoing.
2021 is shaping up to be a big year for execution.
About $10 billion of capital expected to be placed into service and some of that is already incurred. This includes the line three U S project and a number of smaller expansions within our gas businesses.
This economic activities of course, well time, they should help stimulate economies in the regions we operate.
Execution on our program will set us up nicely for significant cash flow growth in 'twenty, two and beyond further bolstering our strong financial position.
We exited 2020, well within our target range for debt to EBITDA at four six times and we've got ample excess liquidity does.
Gives us more than enough capacity to manage line III spend and still remain inside our target of four five to five times range and yes. We're doing this still on the itself equity funded basis.
Project execution is going to provide us with even further financial flexibility going forward as you can see in the Middle chart.
By the way we've been updating the rating agencies on our funding plans and we believe they are comfortable with our outlook metrics and current ratings.
In connection with our ESG strategy that Al mentioned earlier. This week, we entered into a three year $1 billion sustainability linked credit facility, which is the first amongst our peers. We're excited by this financing as it links our ESG performance with our borrowing costs.
And in our view solidifies the metrics all companies will need to pay attention to.
And these metrics of course are also tied to management compensation.
So we are aligned to our ESG leadership on multiple fronts.
And concurrently giving 2020.
<unk> 2021 pre funding actions conducted in 2021.
We have given notice of early cancellation of the $3 billion credit facility entered into last March that at the time provided extra liquidity cushion during the early days of Covid.
On to slide 25, and I'll quickly recap of our outlook for 2021.
While it is early we remain confident in our 2021 outlook we provided in December.
We're seeing the strong performance from Q4 continue into this year.
Namely mainline volumes are recovering in line with our expectations.
Line three construction in Minnesota is progressing well and as a reminder, we're anticipating of $200 million of EBITDA contribution in Q4 2021 once the U S portion is in service and Thats.
As a reminder, on top of the Canadian.
A portion of the surcharge, which is earning in Q1 to Q4 already.
In gas transmission, both the T cells and spruce ridge expansions on the BC pipeline system are on track for in service dates in the back half of the year and.
And our utility continues to realize synergies and add customers predictably year over year.
In terms of headwinds the old.
For energy services remains a little bit challenged.
Finally, I thought I'd provide you my perspective on a few of evolving issues that are attracting attention in the market macroeconomically.
Foreign exchange translation, we have seen in the U S dollar weakened relative to the Canadian dollar and we're now in the 127 exchange rate area.
While we do have some FX exposure to cash flows I would say around the edges, we are largely hedged.
In 2021, 90% on an earnings basis, and about two thirds on a cash flow basis.
At a hedge rate in the area of $1 28.
And so the impact of any further weakening of the U S. Dollar should not have a significant impact on our outlook for the year or early the next few years.
As we've got a lot of portfolio of hedges.
Our guidance for 'twenty, one and our plan assumes $1 30 on an on the unhedged exposure. So we are relatively insensitive to foreign exchange in terms of of sensitivity every one exchange rate variance equates to about a penny of DCF per share.
I should mention too that from a balance sheet perspective of weakening U S. Dollar will have the effect of reducing our translated U S debt balances.
Which in combination with our hedge the cash flows.
B of positive tailwind for our credit metrics in that scenario.
In the event the corporate tax rates in Canada, or the U S rise at some point, we do not expect the big impact on our cash taxes over the planning horizon and that's because we have significant existing tax pools.
And growing in Canada, and the U S and those will also get revalued upwards if tax rates increase.
Plus we have of course regular regulatory frameworks in many cases that allow recovery of higher tax rates just as these revenue allowances were adjusted downward of few years ago.
In terms of counterparty risk.
The strength of our Counterparties is league, leading which was demonstrated earlier this year of during the pandemic.
Many of our Counterparties have taken steps to improve their cost structures and have exited 2020 in a stronger position.
However, our ultimate credit protection is the strong demand pull nature and high utilization rates of our trunk line assets.
This is now reproof of note as well.
Finally, we are well protected against rising inflation in both Canada, and the U S if or when it may manifest.
As a reminder, about 65% of our revenues of some type of embedded rate escalator that is tied to different inflationary benchmarks.
Moving on to Slide 26, I'll briefly remind you of how we are allocating capital to drive efficient growth.
Protecting the balance sheet remains our top priority this is not going to change.
Similarly, ratable dividend growth is central to our value proposition and thats not going to change either.
Finally, as you went through in detail at Enbridge day, we have of healthy hopper of organic projects, consisting of low capital intensity expansions and executable optimizations and regular regulated utility and gas transmission modernization we.
We expect to deploy $3 billion to $4 billion annually on these high confidence opportunities the remaining $2 billion per year will be allocated dynamically to the next best value add opportunities at the time.
Traditional longer dated organic growth is one option for those projects will need to compete head on with share buybacks and as a reminder, at current valuations share buybacks remain attractive.
This dynamic approach ensures we're maximizing value for shareholders and supports our growth ambitions.
With that I'll turn things back to al to wrap up.
Okay Colin thanks.
I'll come back to how we began the call here. If you go back when we establish the Enbridge name years ago. It illustrated the fact that we were building energy bridges between the low cost supply and the most important demand pull consuming markets.
We built strong bridges, and we're proud of providing the energy that fuels everybody's quality of life and drives our economy and that'll be true for a long time.
But today our name also convey something else, which is how we are positioning enbridge as a bridge to the energy future is.
It's clear that energy systems are transitioning just like they have over time, which is why we started diversifying our mix over two decades ago, adding more natural gas and building our renewables business from scratch.
Today, we're investing in low cost options to develop hydrogen and renewable natural gas and as well looking at carbon capture.
And we're reducing our environmental footprint and targeting net zero emissions.
As we do that though we will continue to generate predictable and reliable growth in hyper focused on returns and protecting the low risk business model.
The 16 billion of secured growth gives us that transparency that Colin mentioned of 5% to 7%.
<unk> per share through 2023, so when you combine the growth outlook.
Of the attractive dividend yield today, the potential for capital appreciation with how we bridge to the energy future. We think Enbridge provides a very compelling value proposition for investors and all stakeholders in any energy market.
So with that we'll turn it to Q&A and.
John mentioned, we would extend beyond the hour of people wish the state.
And all of the sort of quarterbacks of questions given that we're in different locations. So operator. Please proceed with the Q&A.
We will now begin the question and answer session. If you have the question. Please press star one on your Touchtone phone, if you wish to be removed from the queue. Please press the pound or hash key if youre using a speakerphone 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 our first question comes.
From the line of Rob Hope from Scotia Bank. Your question. Please.
Yes, good morning, everyone.
The question is of online III. So can you just give us an update on how you think progressed construction is progressing so far just given the what looks to be favorable weather aside from the last couple of days here.
And then as we look forward what are the key gating factors in terms of construction that we should be looking for is it going to be the waterbury crossing or is it just getting the miles of pipe in the ground.
<unk> do you want to take that sure.
Rob.
I think construction for <unk>.
Dressing really well obviously the warm weather has helped us so far.
But thats changing now so what the <unk>.
The we're welding pipe on seven spreads right now we've got.
Tensor acted at each station so we're able to progress work through the winter I think the.
The things you highlighted or all of the things that we'll be looking out for as we finish construction over the balance of the year don't forget we do have a short.
Tools down period for environmental Windows, So still early days, but I think so far things are going better than we had hoped for.
Thank you.
Okay.
Thank you. Our next question comes from the line Jeremy Tonet from Jpmorgan. Your question. Please.
Hi, good morning.
Meaning.
I just wanted to kind of pick up maybe in part of the conversation column had there with regards to capital allocation.
It just strikes us after line three completion that that provides a lot more flexibility of post that and just wondering how your thought process might evolve at that point because this seems to be a lot of nice the nice bite sized M&A opportunities out there like you've done recently.
It's also very sizeable offshore and solar opportunity as you discussed there yet kind of of the ENB valuation, but also argue for more share buybacks. So once all of this extra cash flow starts hitting how do you guys think about these different opportunities at that point.
Okay, Jeremie well, let me start out.
And Colin can add.
If I Miss something here so the way we're thinking about this first of all you've got it right post line three and as I said in my remarks call. It 2022, we're going to of a lot of cash coming at us in very good financial capacity in total. If you include where we are on the balance sheet. So we're in good shape. There. So the way we're thinking about it is really.
This way we have probably.
I would say $3 billion to $4 billion of year of what we call.
Real sort of primary utility like investments. So if you look at Bill's business in transmission.
Cynthia's business and in the utility and <unk> business and of course, even power now they all fit the utility mantra. If you will so we know how will recover capital on those and over what period of time. So you can look at that and say that's pretty solid and that's going to drive some very.
Ratable growth now beyond that and this is I think what Colin was getting too around being dynamic.
Because youre right at this valuation buybacks certainly come.
To the front of the decision making process. So we're going to depending on where we are in terms of several factors. When we look at buybacks versus organic growth will pick and choose.
And so youll have probably a couple of billion dollars of capacity to determine what the best angle is for that deployment and the ZIP, saying I think buybacks of certainly moved up.
Higher in the rating quarter.
So that helped.
That's very helpful. Thanks, and just the M&A opportunities do you see more of those of those very kind of select small things.
Yes, I think we've been saying.
The smaller of sort of tuck in things around asset deals is probably most likely for us if we see an opportunity there that we can bolt on or extend the franchise and give us better growth in the base business. We'll look at those in terms of large scale M&A I think we've been pretty clear.
<unk> Thats, a low priority for us we've done the repositioning we wanted to with the spectra acquisition a few years back.
It kind of comes back to what Colin said around the low capital intensity organic growth, we've got plenty of that the.
The balance sheet is in very good shape now we want to protect that and the reality is Jeremy that there's there's not that many targets that really fit our business model. So the last thing we wanted to do is dilute.
That utility low risk business model. So that's that's our perspective on M&A generally.
Understood. Thanks, so much okay.
Thank you. Our next question comes from the line of Robert <unk> from CIBC capital markets. Your question. Please.
Hey, good morning, everybody and thanks for the presentation.
I'm going to ask the question that related to the main line.
I just wanted to know if you could comment on the additional storage assets acquired Cushing and how those might enhance the value of the mainline proposed contracting for shippers and whether there's any other opportunities that slipped.
The storage further upstream.
And then related to that I'm curious as to how AUM growth something you're thinking it could be in the us Gulf Coast strategy before you have mainline contracting certainty. Thank you.
Hi, Rob it's Vern.
I think the recently acquired storage assets for.
Quite helpful to the system as a whole because it just gives us more optionality for our system overall and the real nice benefit is that the goal.
Those tanks are already plumbed into our existing network.
And we can capture cost and commercial synergies right away.
I think more broadly there is lots of opportunities for more tanks upstream I think we've been working with industry on trying to establish a bigger hub Flanagan and other points on our mainline system I think as we've seen with demand demand and supply disruption over the last year.
So having more physical assets is beneficial to our customers, we're seeing strong interest and thats, particularly true on the U S Gulf coast, where because of the decline in foreign heavy crude production coming into the golf Theres more demand obviously for Canadian heavies.
And as you bring more heavies in.
You want to have the ability to blend of crudes.
Create the specific crude slates that the refineries want on the Gulf Coast.
And you also want to have the option of Optionality of moving that crude offshore that gives producers more <unk>.
Strength, when theyre negotiating with refiners of boat.
On the two month crude sales. So we are seeing some very good interest in our Houston.
Enbridge Houston oil terminal, we're seeing renewed interest in our joint venture with enterprise on the spot.
Export terminal.
We expect to see some really good interest on more pie.
Pipeline demand coming down from the U S Midwest into the Gulf Coast here in the next few months. So I think the fundamentals are really lining up nicely for us to be able to grow our assets on a relatively low capital basis.
And we provide a lot more optionality for our customers.
And there's nothing about the mainline contracting process that would make it hesitate to make further investments in the U S Gulf Coast strategy, Yes.
Yeah, our mainline contracting.
Proposal, one in front of the CER really dovetails nicely into being able to provide international joint tariffs all the way from Canada to the Gulf Coast for.
Potentially incremental volumes on our system.
Growth on the Flanagan, South and spirit of Seaway and spearhead pipelines.
So that is going to be critical for all of our customers to see that.
You can see of joint tariff all the way down the line.
Okay. Thanks very much.
Hey, Rob.
Next question comes from line of Robert Kwan from RBC capital markets. Your question. Please.
Morning.
The main line here I'm, just wondering if I can get some additional thoughts.
On top of what you said earlier on the call and specifically.
If you see the fetus.
Net sales factoring into the.
<unk>.
Each of making process.
For the second being if you had any discussions with shippers.
On the contingency basis on some of the fall back either negotiate of tools or even the cost of service.
Volume framework in light of the new LCR costs, which presumably would drives rate base and towards higher and then the third being.
And if you are in that.
The negotiated our cost of service framework, what the cost of capital you might be seeking given theres been some.
For your market signals of that.
The cost of capital for oil pipelines has moved materially higher.
Robert.
See if I can answer all of those so our.
Path forward is really we're going to continue with our mainline contracting regulatory process with the CR.
We've seen intervenors file evidence and we've now.
I've been able to ask questions about that.
Evidence that they filed.
And we will have an opportunity here to respond so if we back up and just remember that's over 75% of the volumes that move on the main line today are supportive of mainline contracting it provides certainty of capacity.
Reduces the amount of apportionment on the system, we get certainty of tolls.
<unk>.
It allows us probably most importantly to grow the system over time, because there is a mechanism available for us as I mentioned earlier to provide joint tools, all the way to the different markets.
That's job one is to continue on that process and we think we filed a very strong regulatory case for that.
I think you are right on that there has been some good precedents, particularly in the U S for allowed rates of return on oil pipelines to be higher than what people think they.
<unk> been in the past.
We will be filing U S tolling on our Lakehead system.
Over this year, which will demonstrate that.
We are currently significantly under earning on that portion of the pipeline system. So the higher <unk> costs would go into that those filings.
But I should remind everyone that for line three it is an attractive tool surcharge on every every barrel of that flows on the system. So I think we have some really strong.
Regulatory precedent, particularly in the U S that supports the.
The tool that we're looking for in mainline contracting is just and reasonable.
So hopefully that answers the question.
Great. Thank you.
Thank you. Our next question comes from the line of Shneur <unk> from UBS. Your question. Please.
Hi, good morning, everyone.
I Wonder if we can focus on slide 26 the.
The capital allocation slide.
Just sort of thinking about capital allocation beyond 'twenty, one it sounds like in the answer to one of the form of questions and as outlined on the slide that youre sort of expecting $2 billion of the $6 billion to be towards buybacks balance sheet strategic investments.
Wanted to focus on the $3 to $4 billion of long term growth the sort of against your target of.
2025th the.
And the whole energy transition trend.
At the same time I understand you want to be reliable transporter of traditional energy and that does require continued investment should we expect the $3 billion to $4 billion to be primarily focused towards renewable and energy bridge transition oriented investments do you have different return profiles, given the longer terminal value versus traditional legacy.
The investments.
Can you sort of walk us through the lens that you're looking at that and are you finding opportunities that will allow you to hit your target of the 5% to 7% return profile.
Okay.
So shneur it's al here.
Yes, I think the way the lens comes out on this is in that $3 billion to $4 billion, let's call. It utility like category, we believe that in any scenario that we see from the fundamental perspective on supply and demand and the need for energy.
Just given the length of the transition that's required for moving energy systems along Utah.
Utility investments, whether it's our gas utility in Ontario, or bills transmission business is going to come with very strong commercial underpinning, whether it's strictly regulatory or contractual that gives us a high degree of confidence.
Round return on and of capital.
I would put you to of renewables in the same category, though as I mentioned in my remarks, because they really come with the same kind of contractual underpinning.
No.
I would say out of the utility category, whether it's gas utility of gas transmission and the renewables category. It will be a question of whats the best opportunity to ensure that we're going to generate the best risk adjusted return.
Might favor renewables depending on.
The situation, particularly if it's offshore Europe, where we have good opportunities to grow there, but generally speaking we think we can accommodate.
What we need to from an infrastructure point of view for our customers with that $3 billion to $4 billion in both the utility and renewable category.
I'll try to one point in there. Yes go ahead share so it wasn't that $3 billion to $4 billion.
For example in Bill's business has got maybe 700 million of year of modernization capital.
That is that is consistent with.
The transition those expenditures are basically reducing emissions, which I think is consistent with some of our other goals.
And we're going to have it in rate base. So I think it's an example of.
All of these objectives are consistent.
That makes perfect sense and I appreciate the expanded color on that maybe for a follow up question just wanted to focus on line three per second here.
When you established your balance sheet and Capex targets for 'twenty, one at Investor Day did you already have a sense of the material step up of line three capex.
The only open question is really related to the fact that it was going to be winter construction and COVID-19 related costs totaling about $5 billion just trying to understand what was known at the time and sort of like what's changed and did I understand your answer to the prior question I think it was two of Robert.
Could actually be recoverable in rates over time.
Hey, Sherri <unk> call so.
At Enbridge day, we.
We had a good sense the the cost estimate was moving up and I think we signaled that in.
And we've.
For the last couple of months refined and finalize those plans.
Working through a few moving parts yet as we received the final permit conditions just days before our analyst day right. So.
We had a bit of a placeholder I think in our in our thinking we've refined it since we've been sharing those funding plans with the rating agencies, along the way and they've been kept up up to speed.
I can answer the second sure. So line three is the toll surcharge for 10 years after that all of the capital will go back into rate base.
Okay. So to clarify the rating agencies knew exactly kind of where we're at so there shouldn't be any surprises there and then in 10 years, you should be able to start recovery.
Yeah on the rate base for sure, but I would point out we're making a very attractive return on the project even with this capital cost overrun on the first 10 years.
Yes.
Back to the first part just to confirm.
<unk> and his team and obviously are very intertwined with the rating agencies and we keep them up to date.
I'm going to say almost monthly on whatever's going on of the business. So good connection there.
No.
That makes perfect sense.
Wanted to make sure that that everything is buttoned up and it sounds like it is perfect. Thank you very much guys.
And have a great long weekend, okay. Thanks Shneur.
Thank you. Our next question comes from the line of Patrick Kenny from National Bank Financial Your question. Please.
Good morning, guys.
On the carbon pipeline and storage opportunities.
It looks like it has good potential on both sides of the border over the long term.
But are you expecting any funding support from the various governments anytime soon on these initiatives either.
At the provincial state or federal of levels.
And I know, it's early days, but.
Perhaps you can comment on how meaningful this opportunity could be in terms of.
Accelerating some of your emission reduction targets either.
Reaching the 35% reduction goal well before 2030.
Apps, you keep the 2030 target, but you were able to exceed that 35% by a certain amount.
Yeah, let me start.
Patrick So I think the way we characterize it you're right. It's early but let me characterize it though as there is some pretty good inertia around cash.
Carbon capture from the government.
Side of things whether it's.
The provincial federal or at the state level, one of the things we have been encouraging.
From a policy perspective.
Just given the cost of carbon capture.
And the fact that.
As you know it's out of the money currently.
I think we've encouraged people to think about the U S system with the 45 Q <unk>.
Support that is provided there.
We did something similar in Canada, I think it would really be.
Helpful, but overall I think the.
Support that we're hearing from governments is quite positive on this front.
We have a decent shot of exceeding the 35% I would say so far I mean, it's.
Little early to tell on that front, but when we came up with the targets.
We had a dynamic process, where we could optimize the the pathways that I mentioned in my remarks and.
We will be pushing them pushing them of long hard.
So hopefully we'll be able to exceed but I think it's a good starting point and we've got as I said, a number of levers to get there.
Do you want to add anything Vern on carbon capture I think carbon captures.
Not going to be material for us to meet our.
Emissions targets, it's really about helping our customers reduce their carbon footprint. So I think theres, a big opportunity to provide a network of carbon pipelines.
Highly industrialized areas such as the oil sands, where we can then capture a significant amount of carbon then move it by pipeline too.
The series of storage areas and I think as al mentioned.
Carbon incentives such as Q 45 would be very instrumental in making that happen and we do have a little bit of funding right now from some of the provincial and federal governments to just kickoff work on how we could create a model that work would work for both our customers are.
Shelves and potential downstream users of carbon as we move forward.
That's great. Thank you very much.
Okay.
Thank you. Our next question comes from the line of Andrew Kuske.
From credit Suisse. Your question please.
Thank you good morning, obviously, you've got a lot going on in the liquids business with a clear focus on LCR constructive for the main line of online flies.
But when you get through all of that how do you think about southern lights on.
Just a longer term basis as the contracts start to roll off on that one.
Well I think what we talked about Andrew at Enbridge day was.
Once we're through our near term initiatives. There is a possibility of growing our network fairly substantially over through a series of things and southern lights as one of those things for.
From my perspective, the biggest factor for southern lights is what is happening with condensate in the Alberta will there be enough condensate coming from some of the non conventional oil play oil and gas plays in Alberta to replace the condensate coming up from southern lights, So that will.
I'll be a key focus for our customers probably over the next year or two on determining what is the best way to the supply the oil sands with condensate and if they feel comfortable.
With that indigenous condensate for.
For the option I'm pretty sure they will put their minds to the reversal of southern line.
And if I may just the follow up how do you think about the connectivity things like cap line.
I think we there's lots of options at Flanagan.
To move crude to various markets.
The cap line is.
For the option, we do have a quite of bit of expand ability thats available on Flanagan, south as well and the southern access extension, obviously it can be.
Expanders as well so I think we have some good optionality.
And.
We will probably be focused on our own projects first.
Okay. Thank you.
Okay.
Thank you. Our next question comes from the line of <unk> <unk> from Wells Fargo. Your question. Please.
Just on line three IC, the surcharges 89 point <unk>.
<unk> per barrel, just we'll just surcharge be flat no change over the 10 year period. For example are there any inflation escalators on it and then when line three does go back into rate base. After 10 years would you expect that rate to the whole flatter or move higher or lower.
But right now that the toll surcharge is flat for the the 10 year period.
And Thats, something we agreed to several years ago.
When it when it all goes back into rate base. The Canadian segment, obviously go into the Canadian mainline the U S.
Segment I'll go into the Lakehead.
Cost of rate base.
And but there will if we do go forward on our contracted offering for mainline contracting the whole of line three would be captured as part of that.
And with our current filing we do have an inflator built in so I think it depends on our success at the CER on how that capital will be inflated over the next 10 years. After the next 10 years, then we would be looking at.
Whatever regulatory mechanism, we have in place to get appropriate return on capital at that time.
Thank you.
Thanks for you.
The queue. Our next question comes from the line.
Harry Mateer from Barclays. Your question. Please.
Hi, good morning.
First one just on the on the 2021 financing plan do you guys anticipate issuing any hybrids or given your plan to be for in your target leverage and you don't really need the equity credit would those just be viewed as high cost debt and you're more likely to go straight senior bonds.
Yeah, Hey, it's Colin.
The latter.
Just straight up vanilla.
The financings, we don't we've used hybrids in the past we don't.
Have that in our base plan, it's always an option of course.
If you if we do need some more.
Equity credit, but at this point, we don't see the need for it so.
I think a pretty straight up.
Conventional program there.
Issue through various members of our family in Canada, The U S and.
Across across the maturity term.
Okay. Thanks, and then.
More broadly I guess as of circling back to cash.
Capital allocation of where I know there are a number of questions. This morning, but.
What I want to focus in on is just on the leverage target and you guys have been very consistent now for a couple of years about for five to five times, you still expect to be within that.
Yes. The question is.
What what gives you comfort that continues to be the right number.
And Washington, the perhaps be lower because the rating agencies can and do change the thresholds sometimes quickly. So I'm more wondering just why it might not be proved the pull that leverage number down and just accommodate.
A lesser of an energy outlook.
Differently, why not shrink both the equity and debt sides of the capital structure.
Yes, again, it's Colin.
Great question, and it's something we're mindful of is as Al mentioned we're.
Fluently.
And frequently in front of the all of the agencies and keep our ear to the ground on this.
Yeah.
Our sense is that the goalposts arent arent moving.
In the midstream space in the near term.
I think certainly there would be more differentiation within.
The space.
But.
We're constantly at the higher quality end of that spectrum, we map.
Very strongly to triple B plus credit metrics.
And we're trending right now in the bottom end of our range, which I think is consistent with with your general.
The spirit of of your question.
So.
We're going to allocate capital.
Dynamically in a very disciplined way I think with an eye on all of all of these dashboard metrics.
And preserving strength as I said is our first priority so.
I think in spirit.
We are directionally aligned here, but at the same time pretty confident where we're at.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Alex Kania from Wolfe Research. Your question. Please.
Hi, there.
Question I guess, just maybe it's more of the hydrogen side of things, but it feels like Europe is.
Really involved with things and thinking about offshore wind integration is that is that at all on your radar.
Or is that something that might be too early to.
If you look at right now.
I don't know, if Cynthia or bill can comment too, but why don't you start off.
Sure.
Yeah, Alex I think.
We are looking at all opportunities and hydrogen as you said it's early days.
Currently we're looking at those low cost options, and where we can gain our expertise and knowledge but.
Matthew you can also touch on this from the ops for perspective, there may be opportunities as that continues to build out we have of course, our existing infrastructure now and mark kind of them, we're starting to plan around that.
So we do have some expertise that will be able to tell Brian.
Okay.
Yes.
It's probably too early to be specific on offshore wind, but generally speaking, we like where we're at here Alex because.
I don't know if anybody else can say this with bill.
Buildup of pretty big renewables business and I would say we're at the front end of the curve on hydrogen.
So we like it because it's a natural for us so thats ultimately where you get the biggest bang for your Buck is in the green hydrogen side. So the fact that we can play in both of those arenas gives us a lot of confidence, but obviously it takes a bit of time to get there and we'll be prudent about how we get there over time.
Great. Thank you.
Okay.
Thank you. Our next question comes from the line of our citizens from Bank of America. Your question. Please thanks.
Thanks, Good morning.
This week, we saw the privatization transaction.
The Canadian midstream space I'll, just wanted to get your perspective on two whether we see such more deals in North America.
And probably some of the topics if you could hit on access to capital cost of capital.
And pressure on public companies in this new energy transition.
The regime.
Okay well.
The one.
What we're seeing so far whether you look at the midstream or the.
Upstream part of things.
One thing's for share downturns always spa consolidation, so I think.
What youre seeing here is exactly the right response from industry that you would expect here. So people are shifting to focus on returns scaling up the business capital preservation.
The cost efficiency so.
From our from our own perspective, when we watch that upstream.
We think it's really positive for the business and makes the industry stronger in terms of its ability to.
Sustain itself, but also grow the business for us, we probably get some credit benefits at the margin.
So I think this is all very good I mean, you mentioned the privatization transaction that's.
Thats in the market here recently.
The good news about that is we're starting to see how this is surfacing value, which we've been talking about I mentioned in my remarks.
Net.
The value of existing pipe in the ground is going to go up so I think this this for Ray if you want to call it that.
Although we're not involved with it.
Is certainly good for illustrating the value that's going to be surfaced in this business. So.
Hopefully that will come about in of.
A broader sense, I guess and it gets the ball rolling.
<unk>.
As to the the challenges.
Two our business generally from.
If you're a public company I would agree with you. It's it's certainly more difficult as a public company, but on the other hand I.
I think as what we've shown in the last <unk>.
Several years as well.
Certainly adapt to the way you have to operate and the way you have to permit projects.
This is clearly all about how strongly we engage with communities.
The expertise of our people on the ground and through the regulatory application process. So it's kind of what I was referring to earlier.
It's our job to manage this in public companies, but.
But I think the skill set we are developing here is going to set us apart. So it's a broad response to your question, but that's actually how we look at it.
Appreciate it thank you.
Okay. Thanks asset.
Thank you.
Our next question comes from the line of Matthew Taylor from Tudor Pickering.
The question please.
Thanks for taking my question here on renewables.
You mentioned, the frothy valuations that arent reflected in the stock price.
One of the hidden on offshore wind down we're seeing massive growth potential and you saw that recent UK auction and tracking the oil majors and then sort of.
The Korea.
Poised to build of pretty massive wind farm, but can you talk about the competitive landscape, there and offshore land because of.
As we all know you haven't come of position you have of partner.
Projects in Q, you've got more in the backlog.
You see participating in more growth just in Europe or across the globe just any thoughts there would be helpful.
Yes, I'll start off Matthew can add I have to say that the target right now for US is Europe, mostly because I mean, what youre pointing to is right.
In that new opportunities seem to be going for extreme valuations, if I can put it that way.
But we're in a good spot here, because we've got our development pipeline and our construction projects I think that's going to keep us for for.
For quite a while so the target is Europe for now we can never count out going elsewhere, but we're going to be pretty cautious.
Around that I mean, you've seen the U S northeast frothiness as well.
I suppose.
Being in the international offshore business helps us think about other areas, we might go to but it's not really on the radar screen for US right now we've kind of got a lot going on our plate already in Europe. So I think that's the high level picture and I don't know Matthew if you want to add anything to that.
Thanks, Paul not much I think that's exactly right.
And Matt we are seeing.
The new entrants trying to kind of elbow of their way into the business here, it's something we're watching very closely.
Like all of sudden a great position.
In France, we've got three we'll probably have three projects in construction this year.
Couple of more contracted development projects in France, and a couple of them are behind that and as al mentioned in the U K are big project there.
<unk> was around three so we don't have those big lease payments. So I think we're in really really good shape with our pipeline right now and that's what we're focused on delivering.
Yes.
Great. Thanks for taking my question guys.
Okay. Thanks, Matt.
Thank you. Our final question comes from the line of Michael The Peters from Goldman Sachs. Your question. Please.
Hey, guys. Thank you for taking my question Al.
This is more for one for you and the board.
You've mentioned that renewable valuations not just the removal bids, but actual valuations of renewable companies have expanded dramatically in terms of the multiples.
If you also look at a multiple of earnings maybe non a multiple of the EBIT guide how some of the Canadian utilities trait. They are obviously at significantly higher levels than where you all trade on a multiple of earnings.
You look at Enbridge, Inc. Sees some of the parts opportunity.
And is there an opportunity and you guys have never been of freight.
Transactional.
Is there a scenario where of separation of maybe the utilities in the renewable business from the traditional kind of oil and gas pipeline businesses might be value enhancing over the longer term.
Yes, I think it's a good question Mike.
By the way the.
Matthew and strategy and the rest of the team Colin and I and others do a lot of pondering about ways that we can release value. So we certainly look at all of the opportunities.
Maybe for this question of I'll focus just on the renewables just given the.
The extreme valuations, we're seeing in the market. So we're definitely it's definitely on the radar.
I think though if you go back we've actually been pretty disciplined at this already we we did a sale of partial sale of our onshore.
Wind business to recycle some capital and we did that of pretty good value.
Bringing in Canadian pension plan into our offshore projects.
<unk> a form of capitalizing I think on on the valuations that we're seeing.
I think youre right in that it's.
Not getting the value for the renewables business.
Yet in the valuations we are seeing at Enbridge, but.
The key here is.
That we considered an option, but the timing.
And your ability to capture full value.
Is a question Mark in these kinds of things because as Matthew just said.
<unk> got three big projects in construction this year those will be cash flowing over the next two to three years. So I think mostly it's a question of you pointed out we're not afraid to be transactional, but it's a question of what's the right timing to.
To capitalize on it in the best way and right now we feel comfortable that the renewables business house within Enbridge is is a good way to go. So that's how we're looking at it from a high level perspective on capital allocation Mike.
Got it.
What about the utilities.
The smaller piece of the total pie, but there is a little bit of of multiple spread or comparison. When you look at valuations on those assets relative to pure play.
Yes.
The rate again, it's obviously not the same situation just given where the the valuation differences are.
I would say its theres, probably some juice there.
So far not really large enough to make a real impact at least in our view.
Not that we wouldn't consider it.
You also got to look at other things of the utility is obviously very credit enhancing to the overall corporation and I have to tell you, we're very happy with the growth that we're getting.
In that business as we alluded to it just keeps on giving with good ratable growth. So so right now I think we're okay. There is no plans of immediately but I think.
It's certainly on our minds and we look at all of those opportunities.
Got it thank you al much appreciate it.
Okay. Thanks, Mike.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Jonathan Morgan for any further remarks.
Great. Thank you. Thank you for taking the time to join US. This morning as always we appreciate your interest in Enbridge.
Our Investor Relations team is available after the call to address any additional questions. You may have and once again, thanks and have a great day.
Yes.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Yes.
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