Q4 2021 Enbridge Inc Earnings Call
Okay.
Welcome to the Enbridge, Inc, fourth quarter 2021 financial results conference call.
My name is Amit you asked me 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 have a question. Please press star one on your Touchtone phone.
Please note that this conference is being recorded.
I will now turn the call over to Jonathan Morgan Vice President Investor Relations, Jonathan you may begin.
Thank you and me interest good morning, and welcome to the Enbridge, Inc. Fourth quarter 2021 earnings call. Joining me. This morning are al Monaco, President and Chief Executive Officer, Vern Yu Executive Vice President corporate development, and Chief Financial Officer, calling Grunting Executive Vice President liquids pipelines Bill Yardley.
Executive Vice President gas transmission and midstream.
Cynthia Hansen executive Vice President gas distribution, and storage and Matthew Ackman, Senior Vice President strategy power and new energy technologies.
As per usual this call will be webcast and I encourage those listening on the phone to follow along with the supporting slides.
We will try to keep the call to roughly one hour and in order to answer as many questions as possible, we will be limiting questions to one plus a follow up as necessary.
We'll be prioritizing questions from the investment community. So if you are a member of the media. Please direct your inquiries to our communications team, who will be happy to respond.
And as always our Investor relations team will be available following the call for any follow ups.
Yeah.
On slide two I'll remind you that we will be referring to forward looking information on today's call and by its nature. This information contains forecasts assumptions and expectations about 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 the non-GAAP measures summarized below.
With that I'll turn it over to Al Monaco.
Thanks, Jonathan Hi, everyone.
As we began here the graphic is really just a reminder of how we kicked off Enbridge day in December with the theme of how Enbridge is a bridge to a cleaner energy future. So more on that later.
So im going to begin with a 2021 recap our current perspective on the energy markets, followed by our business update and ESG performance and then Vern will take you through the financial results and outlook.
First though the closeout of 21 represents five years since the spectra acquisition.
That deal was obviously transformational for us it gave us a premier natural gas transmission business and a another large gas utility franchise, and we're driving a lot of growth and synergies in that business. We've expanded at the same time, the liquids business and acquired the number one crude oil export facility in <unk>.
In America.
We built our offshore wind business in Europe , and we have a fulsome low carbon business.
We honed our pipeline utility model by selling assets that didn't fit at great value by the way simplified our structure and our financial position has never been stronger. So the business is in an excellent position and we're excited about the future.
As you saw this morning, we had another solid quarter, which closes out what's been a catalyst year in that five year journey I was just talking about.
We delivered record safety and operating performance our systems ran full which drove DCF per share to the top end of the guidance of $4 96, and that included a further $100 million in cost savings.
We put 14 billion of capital into service that includes Moda secured another $2 billion of growth and sold another $1 2 billion in noncore assets at good value.
We made big headway on our crude oil and LNG export strategy and low carbon.
With line three in service will see record mainline throughput and strong 22 EBITDA growth.
Now this couldnt have come at a better time for producers as 400000 barrels of new egress and improve net backs is generating tremendous value, particularly at these prices and it goes to the value of the franchise.
Gas transmission utilization was strong as well, Texas Eastern saw 16, if its 20 top 25 peak days over the past decade.
We did have warmer weather at the utility, but we more than made up for that and renewables came in well resource and EBITDA wise.
This all translated into strong cash flow and dividend growth, which continued with the 27th consecutive increase this year.
And we are free cash flow positive this year with visible organic growth across the businesses.
Now onto energy markets.
Just cutting to the chase on this we're in the middle of an energy crisis.
The economic recovery is driving strong global energy demand and normally we see a supply response, but not at this time given significant underinvestment in both conventional and renewables.
Not surprisingly that brings energy shortages higher fuel costs and of course inflation is youre, seeing which challenges competitiveness and economic growth. One example alone.
U S northeast electricity prices last month reached over $300 a megawatt hour several times and Thats. The same case for heating bills in that area and that's all of course due to lack of gas infrastructure.
What we're witnessing today highlights the importance of reliable affordable energy in our lives.
The reality is that north American conventional supply will play a large role in years ahead with long lived reserves low break evens and leading ESG performance.
Those north American advantages in coastal infrastructure will result in higher exports, which is what's behind our crude and LNG export strategy.
So before the crisis, our view was that conventional energy will grow at least through 2035 and what's happening today, just reinforces that view.
But while energy fundamentals are constructive we'll be very disciplined in deploying free cash and we will gradually increase the proportion of low carbon investments.
We've got a solid inventory of both conventional and low carbon opportunities totaling about $6 billion per year.
That actually aligns with our free cash flow generating capability after dividends and maintenance capital including debt capacity.
Of the $6 billion investable capacity, we will prioritize the three to 4 billion annually.
Ratable utility like projects and low capital intensity growth.
And we will put excess capacity to the next best option more organic growth potentially motor like asset deals, although those are few and far between.
And share buybacks.
On the conventional side will expand and modernize gas systems, which will displace coal and support renewables growth will continue to build out our LNG and export positions and invest in the gas utility will also pursue capital efficient liquids pipelines optimizations the nice.
The thing is that these businesses also come with embedded low carbon opportunities, namely RMG hydrogen and <unk> infrastructure.
In our renewables backlog gives us high visibility to growth as well.
Moving to the conventional business update.
The utility continues to have 45000 customers annually of growth and we're connecting 27, new communities. So we expect to add roughly $1 billion of rate base. This year.
In gas transmission as you saw we sanctioned another two projects totaling $700 million.
Phase two of our modernization program, which improves the reliability and reduces emissions and the next phase of our Appalachian and market expansion, which will add much needed capacity in the northeast.
And in that business on rates, we're now in settlement discussions with Texas Eastern shippers.
In liquids with line three now fully in the ground or capacity is roughly $3 1 million barrels per day and were running pretty much full so we're looking good on liquids volumes.
The priority now is to add more downstream egress to the golf on Flanagan Seaway path.
These are highly capital efficient expansions and come with attractive returns.
And on that note, here's how we see the mainline tolling process unfolding.
As you know there is a couple of options either another cts like incentive tolling arrangement or cost of service.
In the consultation and information sharing phase here and the goal is to land on which option works best for our shippers and makes sense for us.
The incentive tolling model has worked very well in the past and aligns us with our shippers and Thats because it provides the toll certainty that they want and need to run their business. It keeps cost in check and Incent us to add capacity.
Yes in that framework, we take on operating capital and FX risk and of course volumes move up and down and if we manage all of that well we can earn a commensurate return above the cost of service return.
To illustrate the win win here, we added roughly 1 million barrels per day of new low cost capacity. During the last Cte is term and that's brought a lot of value to shippers when it's been challenging to add any new egress out of Western Canada.
While the value equation has worked well in the past for both parties, we're equally comfortable under a cost of service arrangement going forward because it minimises the risks I mentioned and leader in good risk adjusted return.
As we've seen shipper consensus is tough to achieve so we are preparing a cost of service applications right now.
And we don't want to presuppose the timing, but we're looking to land on a path by this summer hopefully and then file either a settlement agreement or a cost of service after that.
But either way, we don't anticipate a material change in the context of Enbridge is overall EBITDA.
Sticking with liquids, we've now targeted integrated sorry, our ingleside export terminal and going after expansions.
Storage capacity is fully contracted out for term, we're talking to customers right now about adding another 2 million barrels of capacity, which we're targeting to sanction later this year.
On the export side of the facility, where 60% contracted on the $1 6 million barrels per day of capacity. So the goal of course is to term that out.
We're also seeing early interest in developing LNG hydrogen and ammonia exports and thats driven by global petrochemical feedstock demand and under any scenario that we can see the Permian <unk> low cost abundant supply of natural gas and Ngls are going to be key to meeting that Ted.
<unk> demand.
We're also co locating up to 60 megawatts of solar power at Ingalls side and the graphic here you see shows this will more than achieved net zero with the access contributing the scope III reduction so essentially net negative at ingleside.
A great example, actually of how we look at all new investment opportunities.
Outside of Corpus, we're continuing to develop the Houston oil and spot terminals and thats the catalyst for expanding upstream heavy access to the Gulf and exports through our systems.
We also have great momentum on LNG exports.
With no end in sight to high LNG prices after a little bit of a pause there theres strong buyer interest and contracting up U S Gulf capacity.
We just brought on our camera and extension project connecting to the Calcasieu pass facility, our fourth transport deal.
We've got several projects in development as well and we just locked up the Ta with Texas LNG to expand valley crossing.
We're now seeing interest in Western Canada, LNG, plus local market demand is picking up so that should drive expansion on our west coast system. In fact, we're now working on a $2 5 billion expansion of T cells, and we're targeting an open season, hopefully by mid year.
Now the demand pull for that one is wood fiber LNG, which we understand is progressing well.
All in we've got $6 billion of LNG opportunity in the Hopper, which bodes well for post 2000 and for growth.
So you can see here that our conventional businesses have a long growth runway.
But we know that energy transition is gaining momentum and as you can see with the investment outlook sheer capital is flowing.
We see the transition is a great opportunity for us to extend our growth.
Because the fact is our transportation storage assets are essential to unlocking low carbon energy for the economy and our franchises feed the best North American markets.
The transition is going to take time as we all know so we're focused on investing capital, where there's a clear path now to execution and with attractive returns.
To assess the pace of transition we look at a number of signposts, we put some of them down here on the slide.
The conditions are actually already right for renewables and we've been building that business for decades.
We're starting to see the policy framework and investment flow for hydrogen and Ccs, but theyre, not where they need to be to accelerate and scale investment.
Global carbon markets are starting to form, but that will take time to mature as well.
In our view the importance of regulatory and permitting clarity is underestimated.
Need more certainty and shorter timeline to permit projects.
Through 2025, we see about $4 billion of a potential investment, including offshore wind in construction and we expect that to ramp up in the second half of the decade, as R&D and <unk> and <unk> and hydrogen accelerates.
So let's run through the key low carbon areas.
We've got 14 renewables projects in construction right now, including solar cells power in North America, and offshore wind in France totaling one five gigawatts.
Our offshore over half of the 80 foundations are now in at Saint Nazaire and it's on schedule for late this year.
The comp in Colorado are tracking well to 2023 and 'twenty four isds.
We're well underway on our first floating offshore pilot at Provence growing large and we see upwards of 750 megawatts of floating potential in France with EDF.
As you can see we're busy with our current backlog. So we don't need to chase new projects. During this period of frothiness.
In North America, we're making great progress on solar soft power three projects in service tenant construction, that's about $300 million of capital.
And by leveraging our own land position and load we've identified another one five gigawatts for development.
On <unk>, we're working on several early stage developments across the franchise.
Now as context here the key drivers of success in <unk> in our view our storage proximity.
Scale and efficiency and full past integrated solutions, which fits with our capabilities.
Our Waldo mill carbon hub development is positioned to capture emissions from a variety of emission emissions emitter.
Emitters over 20 Mega tons per year of Sidoti capture potential in the circle that you see on the map.
In December we signed an Mou with capital power and last months, another one with Lehigh cement.
So combined that's close to four megatons to.
Which would anchor <unk>, which would make it one of the largest globally.
Timing wise, we could see a phased in service between 25 to 2027. So it's a project that could get the <unk> ball rolling in Alberta very quickly.
Important to that project last week, we landed on a great partnership with five indigenous groups that we hope will be full equity partners in the hub and we're excited about moving forward with them on this project.
With those pieces all in place, we just filed our application for poor space through the Alberta government's RFP process.
On R&D, the technology economics, and commercial support as you know are already established so we're in scale up mode on this.
At the gas utility three LNG facilities are operating at foreign construction and there is over 50% in early stage development.
The goal here by the way in the utility is 5% of our two tcf annual send out to be <unk> by 2030.
In gas transmission, there's eight projects in development and a significant opportunity across the entire map.
Hydrogen is at an early stage, but with probably much larger investment potential longer term.
At this point the key here is to prove out the technology and scalability and the market Prod Markham project pilots blending green hydrogen into our gas network, that's north America's first one of those facilities, which went operational in Q4.
We're developing a similar but larger one in Quebec with evolution.
Finally, let's cover our ESG scorecard, and how we're moving the ball forward further.
So we're doing well against our emissions targets. So far intensity is down 21% since 2018 towards our 2030 emissions GUL and absolute emissions are down as well.
For example, our three operating solar self power facilities will reduce about 20000 tons of Cotwo COVID-19 in the first full year of operation.
And in <unk> for example investments to modernize compressors lowers emissions by 25% at each facility.
In liquids, we're just signing a long term power contract with local a local utility that could see 45% emissions reductions by 2030 for seven of our pump stations.
And of course on diversity, we've seen great progress at all levels of our organization, including at the board.
The key to achieving these goals is three actions we've taken.
Establishing concrete plans within each of our businesses.
Linking targets to compensation and aligning those goals with capital providers, namely that's the $3 billion of sustainability linked financing that we've done over the past law.
So you can see on the right here that we're leading the pack already but here's how we get better.
And just to illustrate the mindset behind this we've previously set and met emissions targets in the past, 21% down on our Canadian operations and taking out 55 metric tons of Cotwo plant with our conservation programs.
We set four new goals with <unk>.
<unk> pathways and align them with Paris on net zero.
We've now added scope three metrics, including a contribution to scope III reductions by investing in renewables low carbon fuels and conservation.
So here's how we're building on this foundation.
We're going to work with our supply chain to get after scope three emissions.
We work with third parties to help develop science based guidelines for the midstream sector.
We're enhancing our Tcf teed disclosures to include a net zero scenario in our next sustainability report that's coming out in Q2 by the way.
And we are developing our new low carbon partnerships to drive innovation across the business.
We're also integrating ESG further into our capital allocation framework, so curious what that looks like.
First every new investment we consider includes an ESG lens and aligns with our interim and long term targets.
Our investment models factor in our emissions targets. So we plan for future investments, our hurdle rate accounts for regulatory and permitting risk and we test new investments against a range of transition scenarios.
Our recent Ingleside acquisition as you heard is a great example of how we apply this ESG lens in allocating capital.
So with that I'll pass it over to Vern for the financial review.
Thanks, Al and good morning, everyone. Our fourth quarter results were up strongly over 2020 based on solid operational performance across our businesses along with partial year cash flow contributions from the $14 billion of capital that we put to work last year.
This translates into adjusted EBITDA, and DCF being up 15% year over year, and EPS is 20% higher.
Full year DCF per share came in at the top end of our range and our DCF EBITDA was well within guidance.
This is our 16th year in a row, where we've hit guidance.
Mainline volumes were about 3 million barrels per day in Q4, reflecting the benefit of the additional capacity from line three.
Ingalls side is performing in line with expectations and cash flows are expected to ramp up in 2022 as more contracts kick in.
These operational results were partially offset by an interim toll provision recorded for the second half of 2021, following the expiry of our Cts agreement.
We have included this full year provision in our 2022 guidance and throughout our three year financial outlook.
Gas transmission utilization was very solid with additional contributions coming from the capital we placed into service in the fourth quarter, including the $1 $5 billion BC pipeline expansion.
And as Al mentioned, the utilities annual results were affected by $31 million.
Due to warmer than normal weather.
But we've had a cold start to 2022. So this is a little bit of a tailwind for us this year.
Wind and solar resources in our renewables business met our expectations.
In energy services challenging marketing conditions continue to persist through the quarter.
However, as a reminder, most of our committed contracts expire late this year or early next year, which improves our outlook for 2023 and beyond.
Operating results in our U S businesses were impacted by a weaker Canadian dollar, but our FX hedging program offsets much of this and.
And you can see our hedge gains in eliminations and other.
And finally earnings reflect increased depreciation associated with the $14 billion of capital that we spoke about.
So another solid year in the book.
And that sets us up nicely for 2022, let's move to that outlook now.
Our 2022 guidance that we issued in December remains unchanged and it represents a 9% increase in EBITDA over 2021.
This includes the interim toll provision that I spoke about.
Mainline volumes are off to a good start in the first quarter of this year supporting our forecast of just under 3 million barrels per day on average for the year. This factors in seasonally lower volumes in Q2, and Q3 due to upstream and downstream maintenance activities.
In our gas businesses systems are running near full capacity. So a good performance in the early part of this year.
There's been a lot of focus in the market on inflation and interest rates and foreign exchange. So let's recap how we're positioned on these items heading into this year.
On inflation about 80% of our EBITDA as inflation protection built in through contracts roll escalators and other regulatory mechanisms. So we're well protected on the top line.
We continued to be highly focused on managing costs and as al mentioned since 2017, we've delivered $1 2 billion in aggregate cost savings with another $100 million realized last year.
Our exposure to rising interest rates is limited as most of our debt is fixed rate.
And what's remaining we actively hedge.
On FX, we are about 95% hedged on DCF for 2022 at a rate of 1.2 way. So we've got good protection against exchange rate volatility.
And as you know, we intentionally limit our exposure to commodity prices, which amounts to less than 2% of our EBITDA, but on their margin, we could see a little bit of upside from our investments in <unk> stable and DCP.
Let's move to the funding plan.
In keeping with our self funded approach all equity funding needs will be met through internally generated cash flows.
Debt maturities in 2022 are about 7% of our total debt, which is very manageable and we will continue to tap capital from diverse credit markets.
In Q1, we've already swapped out some preference shares with hybrid notes. This allows us to capitalize on lower rates, which optimizes our funding costs.
No change to our expectations for leverage we expect to exit 2022 near the bottom of our four five to 5.0 debt to EBITDA range driven by annualized contributions from line three and the Ingleside terminal.
This provides us excellent financial flexibility and results in $5 billion to $6 billion per year of investment capacity.
A portion of that will fund our secured program so let's turn it over to that.
As of today, our secured backlog sits at $10 billion.
This reflects the $700 million of further investments in our U S gas transmission business that we announced today, we added the phase two of Texas Eastern modernization program and phase III of Appalachia to market expansion.
That is consistent with our thesis that natural gas is a part of the long term energy equation, providing reliable and affordable growth along with emissions reductions.
More broadly our secured program continues to be well diversified across our businesses with an emphasis on ratable and capital efficient growth.
Over our three year planning horizon. These projects will support a 5% to 7% DCF per share growth outlook.
And as Al noted, we have good visibility just $6 billion per year of organic growth coming from conventional and low carbon investment opportunities, which will support our longer term growth outlook. So, let's wrap up with our capital allocation priorities.
Our priority start with maximizing our financial strength and flexibility.
Our balance sheet is in great strength shape.
It will strengthen over the year and we have triple B plus ratings from all four credit rating agencies. This is exactly where we want to be well.
We will continue to grow our dividend Ratably, we increased it by 3% this year and Thats, our 27th consecutive annual increase.
Annual ratable dividend growth remains core to our value proposition.
Our cash flows and balance sheet leaves us with about 5% to $6 billion of annual investment capacity, we will deploy $3 billion to $4 billion to advance brownfield low multiple expansions and optimizations, along with ongoing modernization investments and the utilities annual cap.
<unk> program.
That leaves about $2 billion per year in excess investment capacity for more organic growth.
Potential asset acquisitions share buybacks or debt repayment succeed.
Successful opportunities will need to meet our low risk business model, our risk adjusted hurdle rates have a strong strategic fit and align with our emission reduction goals.
The Ingleside terminal acquisition was a good example of how we checked all of these boxes.
In addition, we have a proven track record of Opportunistically recycling capital, we did another $1 $2 billion last year and this could supplement our 5% to $6 billion.
Of annual investment capacity.
The bottom line is we will continue to be highly disciplined and be good stewards of our capital on behalf of our shareholders. So I'll wrap up and turn it back to al.
Okay. Thank you Vern.
Just a few takeaways here are diversified business as you just heard continues to generate predictable cash flow and consistently growing the dividend.
The solid base, along with our secured growth outlook drives 5% to 7% DCF per share CAGR through 'twenty four.
We have a two pronged strategy capitalize on conventional energy fundamentals, while increasing low carbon investments and we think that supports continued growth beyond 'twenty four.
As you just heard from Vern will remain very discipline prioritizing capital efficient and utilities like projects.
And ensure free cash is deployed to maximize value all that to say that we believe that our value proposition remains very solid and if you recall that five year look back and how 2021 capped it off we believe we're in excellent position to continue growth.
Before we get to the questions I wanted to acknowledge bill Yardley, our longtime leader of the gas transmission business. A couple of weeks ago, We announced Bill's retirement after 21 years at Enbridge and previous to that spectra and just a remarkable career.
Bill developed a top notch gas business and he has been a key member of our broader executive team.
Many of you have known bill for a long time, and it's been a real pleasure to work alongside of him.
He has put a lot of points on the board for us, but what really stands out for me is how he set up the transmission business for the future.
Particularly in expanding it and executing our LNG export strategy, but.
But he is also personally led emission to make us better on safety and reliability.
And it won't be too far into a discussion with bill before he gets to the importance of serving our customers.
Finally, as you heard him speak at Enbridge day, Bill is very passionate about the future of natural gas.
We spent a lot of time thinking and planning for succession, and developing people and enbridge to manage changes like this.
So taking over for Bill will be Cynthia Hansen.
<unk> had our own mark leading our gas utility over the years and it's been through several senior roles. So it's a natural fit and she is excited about taking on this new role in Houston.
Taking over for Cynthia in Toronto, as Michelle Heritage Michel currently runs gas transmission operations in Houston and has great experience in every part of the value chain.
And finally in addition to his CFO role Vern is taking on corporate development again, a long history of experience and leadership at Enbridge.
So we will let ended off there and turn it back to the operator for the Q&A.
Thank you we will now begin the question and answer session.
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We will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Robert <unk> with CIBC capital markets.
Thank you and good morning, everyone and thanks for the presentation I wanted to start with the offshore wind.
Where we've seen rising cost, causing some financial difficulties.
Offshore wind contractors. So can you describe your exposure to the to Saipem.
Offshore wind projects and just more generally how do you see inflation in cost escalation impacting your ability to other projects.
Development too.
Okay, Robert Im going to quarterback this Q&A by the way. So I think for this one we will we'll hand it to Matthew it's a good question on inflation and offshore wind.
Okay. Thanks al Thanks, Rob for your question.
Yes, you are right, we are seeing inflationary pressures in the industry.
Generally.
Hasnt all infrastructure, but.
On the offshore wind asset.
Construction projects, we have very good protection in terms of Rep EPC contracts for.
For construction so.
Right now Fortunately, we're not seeing inflationary pressure on our capital budgets over there.
As you know Saint Nazaire.
This schedule to come online later this year that's in good shape.
Regarding <unk>.
They are involved.
With us.
Especially of course all.
Calvados.
They are.
And the foundations.
Generally a couple of points there.
Calvados is a few years away.
From an service.
And.
The major construction work there would start next year.
As you can imagine we have the regular protections in terms of.
Bonds as well as.
Collateral.
So so.
It's also I think the main point.
A very good contract, we don't see any disruption at this point.
And so we're we're.
We're optimistic that there won't be any impact there.
As we go forward.
So.
Back to you.
Yes, I think.
The broader point around inflation, though in this in this opportunity set is real though Robert I think your point is good.
As I referred to in my remarks, I think we've got enough going on here.
Net.
We're going to.
Watch that carefully and we're not going to necessarily get into projects that get us exposed I mean, we know the returns are clamping down in this sector. So we're going to be very careful about future investments and there is no rush for us too.
Get into a whole bunch of projects that are going to crunch. Our returns. So that's the broader perspective on it.
Okay. That's very helpful and maybe one more just on slide 13, you had a comment on your <unk> update.
Update about utility like commercial model and returns.
I'm just wondering if in.
In your commercial.
Discussions are you taking a cost of service approach or a fee for service approach.
Or maybe some other.
I'm curious as to what level of scale, you think is necessary.
To be able to make that work on a commercial basis.
Alright, okay.
I'll start it off and then.
We're working on a project here in Alberta, but generally speaking.
This is this whole sector is going to develop with scale and cost in mind. So our thought is.
With.
Appropriate sort of what would you call it throughput with Sidoti.
On the infrastructure, we can make a utility like.
Structure work and what I mean by that is good protection in terms of long term cash flow and in that way, we should be able to provide the lowest cost of capital to actually make things work. So these are very.
Cost and capital intensive projects, so we need to be very thoughtful about how we bring our cost of capital to bear on that so it really does fit the utility like model and that should line up with the competitiveness that customers will want on this so.
That's the bigger picture in terms of scale.
What we're thinking about it on this project.
As you know we have a rough estimate of.
The investment required for each megaton of of <unk>.
The reduction which is about $1 billion for each so these are fairly scale large scale projects. So.
That's probably the order of magnitude you're talking about for each megaton I don't know Colin do you want to add anything on that.
I think you covered most of it the only thing I'll add Robert is.
The point on proximity.
And two to help this cost down equation.
Moving.
The waste product the shortest distance possible contributes meaningfully to the outcome. So.
Our project is designed to.
To transport and store.
The carbon relatively close to the emitting sources, so that helps too.
Okay. That's helpful color. Thanks, guys.
Thank you.
Your next question comes from the line of Robert Kwan with RBC capital markets.
Great. Good morning, Thank you Sarah.
Although a little bit here on emerging energy transition initiatives.
Whether it's <unk> that you talked about hydrogen and just you have been a returns focused organization historically and I guess, what's the appetite to deploy capital at sub optimal returns just to establish the footprint.
With the hope of developing a franchise that that can drive additional projects at better returns overtime.
Yes.
Well in.
In short, we don't have a lot of appetite to deploy capital.
In a low return.
<unk> I think this is going to be.
An interesting number of years here as we go forward I think so far Robert we've been able to deploy capital.
In line with our.
Traditional investment Criterias of point as you pointed out.
Whether you look at the R&D.
Opportunities that we're investing in.
Good returns there certainly the renewables projects.
In broad terms have have generated.
Enbridge like returns, let's call it the.
The hydrogen pilot plant is generating a good return under.
Regulatory protection, let's just call. It so that we will continue to be the process there.
There may be something at the margin, let's say, where we're trying to prove a technology owed or prove it out to scale that we could see a little bit of that.
Capital deployed to see that happen, but generally speaking during this period, while we're in scale up we want to be very careful not to get too far ahead of the curve.
On putting capital to work that isn't going to generate the right return for us. So that's our overall approach.
That's great al and maybe if I can finish here on the mainline.
It's been I guess now a little over 10 years under Cts you got a shipper group, that's arguably maybe more desperate in terms of their interest and we've seen in the past.
So what are you seeing just as <unk> had these initial discussions as the top two or three points.
Contention in terms of what they are they're coming to you and just even what members within the representative shipper group.
Maybe one in here.
Go ahead call Robert Good morning.
Okay.
It's an interesting question and while some time has passed.
<unk>.
Some things stay the same.
And.
Don't want to be presumptive here, because as al mentioned, we're still in.
In relatively early innings consulting and listening carefully too.
Customer interest.
<unk>.
What's is staying the same is.
The early feedback which is fairly homogenous.
Is too.
Ensure enbridge stays.
Aligned and behaves in a manner that.
Creates value.
The shipping community.
And I think al went through the ingredients to that and it's moving.
Much oil as we can safely everyday at $90 a barrel that's that's the primary value lead.
Lever here.
So we're hearing about.
It consistently.
<unk> for continued.
Uh huh.
Fixed totaling certainty on the tool and that alignment.
So.
Well I know that the mainline contracting application was.
Contentious at the end.
I think if we remove.
The.
The contracting element of it are substantially do that I think there'll be.
Potential for consistent alignment here.
Group.
Alex you want to add anything I think Robert everybody's been.
Through the Ringer on this over the last I don't know three four years so.
Carl mentioned toll certainty, but just generally certainty commercially for.
Our customers is important as it as it is for us so.
He wants to move forward I think and try to move along.
Carl mentioned tolls, but it's also egress. The key here is that given that it's it's very difficult to build any pipeline capacity and we know that the upstream customers do have a lot of opportunity to grow incrementally they want.
To make sure that we bring what we brought before which is ideas and options to move barrels at very low incremental cost for them.
And then probably the other thing that staying the same which I think we've done very well is just managing costs and Thats why I mentioned in my remarks that.
Having us aligned to ensure that.
We're managing the cost part of it ultimately flows through the toll in what we land on here. So I think theres a lot of things that.
That argue for.
A lot of certainty as we've had as they've had in the past. So that's the that's the main priority from what we see.
That's great I appreciate the comments and bill all the best in retirement.
Thanks very much Robert.
Thank you Robert.
Your next question comes from the line of Jeremy Tonet with JP Morgan.
Hi, good morning.
Hi.
And Bill you will be missed.
Best of luck going forward.
Thanks, very much Jeremy I appreciate it.
Just wanted to touch on the mainline a little bit here and I don't know if you guys.
Exactly disclosed it but as we think about the reserves booked in the fourth quarter.
Just want to confirm that that's for two quarters third quarter and fourth quarter.
Hey, guys quantify.
What that level was.
So with this we're going to hand to Vernon.
Hi, Jeremy.
The reserve that we booked was for Q3 and Q4 and as we've talked about at our Investor Day in December we're not disclosing the magnitude of that or the provision that we have in 'twenty two and beyond so I think youll understand that these are commercially sensitive numbers and we don't want our broadly disk.
Closes.
Got it.
Fair enough there and then.
Just wanted to come back to buybacks I guess, a little bit and I was wondering if you could provide just maybe a little bit more color on the capital allocation calculus in part as far as what could lead to different levels of buybacks if it's.
If that falls in the rank of where capital allocation points to just trying to get a sense is a big program out there, but what might actually transpire.
Okay, well I'll start it off Vern can add.
I think we we've got some broad criteria of how we're going to deploy this share buyback program I think just going back a little bit Jeremy.
It's certainly moved up in the order for US. After line three went into service I think we've communicated that and it's certainly.
Right in the mix right now so the way to think about it generally as we want to make sure. The balance sheet is in very strong position at all costs and.
The reason for that is we need that flexibility too.
Take on opportunities that we see and capitalize them. So leverages number one now beyond that.
You have got this buying for capital between additional organic growth.
Potentially some asset M&A the motor like opportunities and then of course, we will look at.
Where the shares are in the market and determined so it's all about how we maximize.
The value here.
Amongst those three options after we make sure the balance sheet.
As in check so.
That's the that's the.
Policy or approach generally to using the buyback program.
Brian do you want to add anything.
I'll just add.
We continue to think that the shares are undervalued. So we're buying more of our assets is always a good thing and it's really nice to have another avenue to give capital back to our shareholders on top of our dividend. So really can think about it is that as a supplement to our to our annual dividend.
Sure.
Got it that's very helpful. I'll leave it there. Thank you.
Thanks, Jeremy.
Your next question comes from the line of Rob Hope with Scotiabank.
Good morning, everyone.
Congrats on the upcoming retirement Bill all the best in the future.
The question actually can be for you or looking at a $2 5 billion T cell expansion is this entirely dependent on wood fibre proceeding and if so.
Is this kind of a 2000 22027 and service.
Date for this pipeline expansion just given when fiber is expected to come in.
Alright.
Yes, pretty much pretty much Rob.
We've been expanding quite.
Quite a bit just finished one last year that was about a $1 billion for customers.
In southern BC in the Pacific Northwest. So the next big one is probably going to be related to a major offtake in wood fiber certainly would fit that bill.
And and yes anything we start now would be at <unk>.
$25 26 in service so a lot of optimism there I think.
There are bite sized project.
<unk> been following them for sure but.
Yeah, No I think I think they've got a good shot.
Alright, great. Thank you and then just moving over to the crude oil business the downstream expansion opportunities on Flanagan and Seaway what are the gating factors to get these things more further along just given that line three is now in service.
Has the cap line reversal changed any of the dynamics there just given alternative ultimate avenues.
Avenues of flow.
Okay over to Colin.
Hey, Rob so on the first part.
Our downstream pipes.
We've mobilized early work on that to maintain.
Rick.
Isd.
We've been talking to customers on both of those.
You should probably think about those in concert with the <unk> as well they kind of all go together and it would be good to have.
Some terminalling at the end of all that down in Houston.
Timing wise.
We're having parallel discussions with industry as we advance.
The mainline tolling framework, you can see how they would interrelate.
To ensure you could get egress to use that downstream space. There is interest in it for sure.
Thats the kind of the timing we're thinking on those.
On the other.
Business development ideas, those or Ingleside and express et cetera. Those spot those are all happening on a quicker basis I would say independent of the mainline.
Gantt chart on your on your question on cap line.
I think we're.
Viewing that as more opportunity than threat at this point as you know.
We feed it from three of our pipelines and in upstream about the mainline and regional so.
We don't we're not seeing cap line.
Cannibalize Flanagan South volumes for example.
I think theyre moving about 100 a day.
I think that came off of.
Rail and barge service previously so it didn't it didn't steal it from our system.
Alright, I appreciate the color. Thank you.
Thanks, Rob.
Your next question comes from the line of Ben Pham with BMO.
Yes.
Okay. Thanks, good morning.
I was wondering what are your updated thoughts.
What's on noncore asset sales at.
At this point in them.
I'm curious about the the more commodity base.
Is are you comfort just holding on to capitalize on an increasing margins or is this a good window to look.
On monetization.
Yeah, Hey, Ben.
Generally speaking our noncore asset sales there is not a lot that fits that category I mean, certainly we could look at portions of.
Our other assets, if we could see great value, we would always look at that and the team is always monitoring.
As far as the commodity sensitive ones that theres really not a lot in that category.
Certainly the main ones would be ox sable.
And and DCP in the case of Ark Sable.
Really tied to the alliance pipeline as you know from an operational point of view and the commodity exposure. There is relatively low for us in the bigger picture context of Enbridge.
In the case of DCP, I think youre familiar with that one.
It's a relatively small piece of our EBITDA as well.
And it comes with a very large negative basis tax basis in that asset so right.
Right now I think we're pretty comfortable and just holding those relatively small pieces of commodity exposure.
Okay.
Thanks Ryan.
And also the.
Your comment around renewable returns coming down and being careful about future investments.
Like to hear that but what about that also being opportunistic on.
Maybe buying some of these junior.
Renewable development that could be challenged in terms of returns and inflation is there is there a window here to take advantage and go into new geographies for example.
Yes, you.
You're right to point out that valuations have certainly compressed over there over the last little while and some of them are encountering difficulties is probably not a primary objective of ours right now Ben.
Reason for that is I think we've got.
As I alluded to earlier quite a bit going on in the business and when you talk about the solar cells power opportunities Theres, a number of what we call front of the meter.
Renewables opportunities were.
We can bring our expertise to bear we've got the projects that Matthew has been working on and developing.
For the last two to three years. So I think we've just got enough on the go right now.
To not necessarily require going out and doing some kind of M&A deal.
We always watch it of course, but low likelihood at this point.
Okay, Great and then maybe just a quick one for for Colin perhaps on the Walkman project or maybe anything in Alberta.
Do you.
Do you need to get the CER.
Involved it at some point or Bill C 69, like how does that does that fit in at all.
We will need regulatory.
Permits.
<unk>.
Physically as they develop.
It's Ed.
Intra Alberta.
Situation doesn't cross border so.
As al said it well.
The whole industry will need clarity quickly on on permitting.
On this this whole.
Hi.
New slate of.
Of projects, so we will be advancing that in.
<unk> the.
<unk> for the emitters were working with your relatively early in the relative scale of things.
And $25 26 so.
We've got some time to work on that but what.
Yes. Thank.
You mentioned <unk> I don't think that applies here.
Pretty sure about that Collin, but.
There's something different we'll get back, but I don't think C 69 applies.
Okay. It makes a lot of sense okay. Thank you.
Okay.
Yeah.
Your next question comes from the line of Brian <unk> with UBS.
Brian Hi, good.
Good morning, everyone.
As a follow up on the share buyback authorization and non mine was curious if you could provide a little bit more color on.
Mine contract and uncertainty in reserving ultimately impact the size and pace of those buybacks over the balance of 2020 degree. Thanks.
Yes, Brian .
We don't see that actually.
I think as Vern alluded to we've made our provisions it's within.
The guidance that we're talking about for 'twenty, two as well as our.
<unk> 22 to 24 outlook.
So I think.
If you look at the <unk>.
The variability in those outcomes, it's actually relatively small and.
On the bigger picture of the share buyback program.
Really shouldnt be impacted by the outcome. There. So that's how we're looking at it just from.
The numbers that.
We see and the variability, it's not going to be impacted by.
On the share buybacks won't be impacted by the mainline outcome.
Great I appreciate all that color and then as a follow up just curious if you could provide an update on the mark on hydrogen blending post in service how is the project performing and do you see this project is scalable and replicable replicable across the rest of your footprint at this time.
Yes, that's a great question, Brian So since he is on the line so Cynthia.
Yes, Thanks, Brian and thanks Al.
We've just started with the project. It went live in as Al said in Q4, it's been performing well.
Yes.
We will continue to learn from it.
It is something that we're looking to scale and we're very hopeful so things are progressing as we had expected and we will continue to provide updates to you.
As that opportunity unfold, so it's a good start.
Great I appreciate the color and have a great day everyone.
Thanks, Brian .
Your next question comes from the line of Linda <unk> with TD Securities.
Thank you.
I just would like to also wish Bill all the best in his retirement and a big congratulations to Cynthia Michel for their new roles.
Maybe.
You could help us maybe paint a little picture of about.
How this alberta carbon capture initiative.
Might evolve from a operational and governance and ownership.
Framework.
Recognizing that a lot of different partners bring unique attributes and skills to the table I'm just wondering.
What are the guardrails of what is possible for what.
The range of ownership that Enbridge would consider how important is operator ship and.
How those interfaces might work if there's elements that others operate and then also layering on the governance, ladies a lot of complexity and I realize that it's all being navigated and there might be some sensitivities, but but anything you could help us understand as to how to mitigate some of the the execution risk on.
Beyond the commercial frameworks.
Okay.
Okay, well I'll start off Linda Thanks for the question.
Well first of all I think youre right in pointing this out this is going to be a let's put it this way a collaboration as I mentioned in my remarks. This is going to take.
A lot of integration if you just think about the capture of the transportation all the way through to storage. So we see this as a combination of players and it's going to take emitters.
There'll be certainly some government policy angles with respect to.
The regulatory part of it but also how.
How we manage poor space. So there's a lot to go on here.
Another element of this which I mentioned.
His first nations participation and we could see them become equity owners, which I think is just a great opportunity for us and for the first nations. So I think at a high level. It's a combination in terms of governance and how we actually operate an asset like this.
Its probably it probably developing as a large joint venture where.
We're going to take the expertise for each part of the value chain and have the experts roll with it so.
Envisioning that we run with the transportation and the storage and then of course.
The upstream capture part.
Maybe others involved particularly on the emissions front. So that's the big picture on this a lot of this of course will be TBD as we move forward on the commercial construct.
Thank you and just as a follow up recognizing that each jurisdiction has unique geographic and likely regulatory and policy attributes.
Much of this the discovery of this process could be used and leveraged for other other jurisdictions and what other jurisdictions do you think enbridge would bring value to the table in terms of getting involved in carbon capture initiatives.
Okay, well this one maybe as you saw on the map there we've got a number of these were working on so maybe I'll invite.
The business units to talk about specific areas. So I'll start with call in and then.
Haps, Matthew if you want to cover anything else. So collyn, what do you think.
The preliminary answers, yes Linda.
Port the learnings here and I think as Alan mentioned in your question and further there's lots to learn here.
So Alberta is at the front end.
Of this.
And good for them.
But we feel we can we can port this to other parts of our footprint right.
Where we have physical.
Presence and local knowhow and customer relationships, so on our liquids footprint.
We have conversations.
<unk> concepts in Houston.
And in the Corpus area for starters.
Yes.
Cynthia.
Sure. Thanks Colin.
As you know from the map that we have a lot of infrastructure around some industrial hub.
And in Ontario, and whether that's Hamilton.
In the industrial area.
There with our storage capabilities that we have in our knowledge of the geography in Ontario I think.
There's opportunities for us.
Thank you.
Yeah.
Your next question comes from the line of Preneed cities with Wells Fargo.
Thanks, Good morning.
The takeaway situation in the Bakken.
Can you still are constrained and I know in the past you're evaluating an expansion of alliance to except more Bakken gas I guess the question is where does that expansion stand today and I know, there's a bunch of competing projects, but is that something you are still pursuing.
Bill that's probably something for you.
Yes, we've been talking to producers on and off.
Over over the course really over the last few years and it's just a matter of getting the right concentration and traction.
We feel as though there is there is great connectivity and we bring the gas to the right place. So.
Nothing to report as far as new contracts, there, but we keep we do keep pursuing that.
Okay, Great and then I guess I was just wondering if you could comment at least directionally on how either of the two commercial frameworks youre advance on mainline.
Impact your financials, I know you've embedded the reserve and the guidance for toll uncertainty, but is it fair to assume that if youre able to events either of the commercial frameworks. It would have a modest positive impact on your financials.
Sorry can you repeat that last part of the question again.
The last part is just is it fair to assume that if you are able to advance either of the commercial framework you would have a modest positive impact on your financials.
I think the reserve or.
Our provision really.
Is our best guess at where we ended up at the end of the day.
I think maybe if I if I understood the question right.
What <unk> said is the answer really with the provision you can think of it is.
Neutral.
Outcome.
We booked a provision.
As to the best outcome. We think there is are the most likely.
I don't think we've seen much beyond on the upside or downside. So I wouldn't say that it's a modest positive effect as you had mentioned.
Yes, I should reiterate that obviously, we think on the context of the R.
Consolidated EBITDA of over $15 billion for 2022 any outcome is not material.
Thank the bigger takeaway here, though is really.
What we said about the commercial outcomes. So we're quite comfortable managing our Cts like environment, we've proven that for the last I think 25 years working on incentive free making.
<unk>.
As I said earlier, we're equally comfortable though with cost of service and so with the provision and the fact that cost of service would certainly minimized the risks that we were talking about.
I don't want to say, we're agnostic because I think as we were pointing out earlier and Colin was referring to.
I think our shippers were probably happy.
Moving onto a new Cts so.
So those are the things that we look at it really is more of a.
Commercial.
Issue going forward here given that we've booked the provision.
Got it thanks and bill Congrats on your retirement thank you.
Thank you.
Your next question comes from the line of Andrew Kuske with Credit Suisse.
Thanks, Good morning out Alex you kind of started at the beginning of the call framing the energy crisis people are experiencing right now with high pricing and then also the producer discipline side of it and I guess, that's a bit of a two edged sword for you you can wind up with a lack of volume growth, but better counterparties.
Just how do you see that translating to your business overall, and then does that really compare you to pivot faster into some of the energy transition activities.
Yes.
I think Andrew.
The way we see this is as I alluded to there.
It's pretty clear that the conventional runway is going to be there for a long time at the same time you've got.
<unk>.
Pretty solid discipline, we're seeing out there I mean, there may be some upticks that you've heard about recently, particularly in the Permian around drilling and so forth but.
Generally speaking.
Producing community is not unhappy and in our view given where prices are and the fact that they're not really deploying a lot of capital and returning it back to shareholders. So I think that discipline is going to be maintained with with respect to how we pivot.
Again.
If you look at any of the three areas as I said R&D is probably the fastest.
Growing, but maybe lower capital investment opportunity is there, but hydrogen as Ccs are going to take some time.
Policy wise incentive framework wise.
Got his skills develop so I think we're going to have to be disciplined here.
And really focus on the two pronged approach conventional energy will have runway and we will capitalize on those opportunities, but we'll also look to gradually invest in low carbon providing that we can make those work economically and scale up over time. So those are going to happen, but they will happen.
Not in the next two to three years, but after that will certainly be scaling up those investments.
That's great no that does help and then just a follow up and it really focuses on the producer health.
The discipline they have at this point of the cycle has that changed the dialogue that you have with them at this point in time and your customer focus or is it more of the same from an average perspective.
Alright.
It's pretty much the same.
I mean, we have a lot of dialogue across the four businesses with our customers.
All kinds of issues, so I think so far.
Their health has been very positive for our industry and us.
We like the fact that.
They've sort of turned over and balance sheets are strengthened in and ultimately I think that's going to be very positive for the industry and they'll probably get back on to.
Sure.
Growth year outlooks, but as for the next two to three years I think we're keeping in touch and in being very responsive.
The Ccs project that Colin was talking about is a good example.
There's a lot of producer interest in that but we're being very careful to make sure that whatever we talk about with them has cost in mind.
That that'll be a big driver on the growth in <unk> going forward.
Okay. That's great. Thank you.
Okay. Thanks, Andrew.
We have reached our time limit and not able to take any further questions. At this time I will now turn the call over to Jonathan Morgan for final remarks.
Great. Thank you and thank you for joining us. This morning, we appreciate your ongoing interest in Enbridge as always our Investor Relations team is available following the call to address any additional 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.
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