Q2 2022 Enbridge Inc Earnings Call
Okay.
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Yes.
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Welcome to the Enbridge, Inc. Second quarter 2022 financial results Conference call. My name is Sylvie and I will be your conference 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 and I would like to turn the call over to Jonathan Morgan Senior Vice President capital markets. Jonathan you may begin.
Thank you good morning, and welcome to the Enbridge, Inc. Second quarter 2022 earnings call joining.
Joining me. This morning are al Monaco, President and CEO , Vern Yu, Chief Financial Officer, and the heads of each of our business units, calling vending liquids pipelines, Cynthia Hansen gas transmission and midstream Michel heritage gas distribution and storage and Matthew Ackman renewable power and new energy technologies.
As per usual this call will be webcast and I encourage those listening on the phone.
Following 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 would appreciate you limiting your questions to one plus a single follow up as necessary.
We will 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.
As always our Investor relations team will be available following the call for any additional questions.
On to slide two.
Mind, you that we'll be referring to forward looking information on today's presentation and the Q&A.
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.
Also be referring to non-GAAP measures summarized below.
With that I will turn it over to Al Monaco.
Thanks, Jonathan and Hello, everyone.
I'll start off this morning, with how we're doing our key priorities in the year.
I'll, then cover our business update, including the new investments announced today that further accelerate our natural gas strategy.
Brian will recap our capital allocation framework and review, our financial results and future outlook and ESG performance.
Before we do that let me begin with the bigger picture and the two pronged strategy, we laid out at Enbridge day.
It's pretty clear where that global energy crisis.
And that will need all sources of supply to meet demand with affordable sustainable and secure energy.
And as we've said before North America is extremely well positioned with globally competitive reliable and sustainable supply.
Given the inflection point in energy markets, we've experienced our two pronged strategy is proving to be the right one.
That is to continue investing in the best conventional opportunities while ramping up in France.
<unk> low carbon infrastructure over time.
Our focused in the last few years is to build out our export infrastructure and thats, even more relevant today.
Acquiring the ingleside export facility Buildout, our Gulf Coast liquids strategy and is already opening up low carbon export opportunities.
And with our natural gas systems, along the Gulf Coast and NBC, we're capitalizing on global LNG demand growth.
We've got a plethora of low carbon development opportunities in flight that nicely leverage our existing assets and fit our low risk model.
And we see renewables.
G hydrogen and carbon capture picking up steam and bolstering growth.
With that context, here's the midyear check.
Against our priorities.
Our number one priority will always be safety and we're tracking well this year.
Operationally, we performed well in Q2 strong utilization.
Gas transmission delivery days and good wind resources.
Results Wise, we had a solid quarter and we're on track to achieve our full year EBITDA and DCF per share guidance.
And that puts us in good shape on our three year, 5% to 7% DCF per share CAGR target through 2024 off a 2021.
The balance sheet is strong and we're on track to exit 'twenty two at the low end of our leverage range.
So far this year, we secured $4 5 billion of new investments that are right down the middle of the Enbridge fairway.
That includes expansion of our D C system, and a 30% stake with fiber LNG.
So our post 2020 for secured growth Hopper is filling up nicely.
On capital allocation, we will continue to be disciplined by optimally deploying growing free cash flow.
Part of that is returning capital to a steadily growing dividend and we initiated share buybacks as you've seen.
On to the business update beginning with liquids.
After an extended upstream and downstream turnaround season mainline volumes are ramping up and we expect to get to the full year average die of 295 million barrels per day.
In gas transmission, we had four top five power plant peak delivery days in the last five years, and we had record LNG and Mexico export deliveries at three Bcf a day in April .
A couple of weeks ago. We also reached an agreement in principle on the Texas Eastern rate case, so very good news, there and we're moving along well on $7 billion of capital in execution.
And the utility there is another 3 billion underway, including 40000 customer add this year and three more R&D projects.
And finally in renewables, we're in heavy construction mode with for offshore wind projects and 10 solar cell power projects totaling almost $3 billion.
And again part of that is offshore France, Saint Nazaire is going well and on schedule to start generating cash flow later this year.
Now a brief update on liquids fundamentals and mainline tolls.
The global energy inflection point I referenced earlier is driving improving north American oil fundamentals.
And this is Colin as John Madden type graphic that explains why.
First the historically long turnaround season is winding down.
WCS production is ramping back up as the mainline was a portion for August deliveries. So basically we're at capacity.
And Permian supply is strong with growth this year expected around 500000 barrels a day.
Given OPEC constraints embargo barrels and a return of Asian economic growth the natural outlet for light barrels is exports to Europe .
Over time, you will see inventories building backup, including the U S. Strategic petroleum reserves have you recall inventories are extremely low levels right now.
These shifting fundamentals are positive as we are well positioned on both light and heavy barrels.
On mainline tolls discussions with our customers continue.
You spent quality time exchanging information upfront and we're now in negotiation so overall the <unk>.
Process I would say in our discussions with our customers have been constructed.
As you know there is a preference for an incentive based model, which has worked well for our customers and us over the last 25 years.
We're pursuing that option, but we're prepared to shift the cost of service if needed and either option is acceptable to us as we've said in the past.
And to keep that latter part moving along you'll likely see some required pre filing CER notices in the next month or so.
We're motivated to learn something that works for our customers and a reasonable risk return profile for us.
Timing wise will likely decide which of the two paths will be on by the end of the summer.
Let's shift now to our LNG strategy, starting with the fundamentals and how we're positioned.
And right off the bat, it's clear that natural gas is an increasingly exciting story and will be a growth driver for us in the long term.
Yes.
First North American LNG exports are expected to increase to 30 Bcf per day and everyone knows the reasons behind that.
Our assets are critical to making that happen with last mile connectivity.
You can think of our U S Gulf Coast, and BC mainline systems as headers connecting growing low cost supplies in Appalachia, the Permian Haynesville and our montney with export market demand pull.
We supply for operating LNG plants in the Gulf soon to be five actually and today, we make up roughly 20% of North American exports.
And those connections are supported by long term take or pay contracts.
But as you can see here with the bar chart. The precedent agreements we signed it on two more LNG facilities that are pending.
We could see our market share increased to 30% of exports.
While our focus is on pipeline connections, we've been open to liquefaction investments, which we've talked about before providing they meet our investment criteria, namely it needs to be a value chain extension of our existing pipelines that anchor expansions or new lines. So that means pretty much directly connected.
The liquefaction.
It needs to be aligned with our low risk commercial model, so highly predictable cash flows and accretive to future growth so with expansion potential.
So here's how our LNG strategy is unfolding beginning with the Gulf Coast.
With venture global sanctioning of Plaquemines, we're now underway with the Ventas extension Thats, a solid 400 U S investment with a 20 year contract.
We secured now another $1 6 billion with the Rio Bravo Newbuild in the valley crossing expansion both of the associated LNG plants there are pending.
By next decade, and Texas LNG.
And of course, we're now also in discussion with our LNG proponents other than those to see what other opportunities are there.
Related to the LNG connections themselves a recent open season revealed very strong customer interest in upstream access tour headers to connect growing haynesville supply to LNG.
So we're now designing potential options to expand Texas Eastern and valley crossing so stay tuned on that over the next few months.
Moving north to BC and our <unk> system.
The fundamentals here point to strong WCS the supply growth over the next several years.
We've seen a lot of positivity from our customers recently, which also came through an alliance as contract extensions.
This is all being driven by very low cost and the liquids rich resource base that rivals use ships.
And the base and presents a great opportunity to meet growing regional and global demand with natural gas.
RBC mainline will be critical part of getting gas to market, particularly to support LNG pulp.
To that point, we have completed a very successful open season, and now sanctioned a 535 million cubic feet a day expansion of TMR, that's larger than we originally thought.
This one to be expansion is mostly compression and commercially it's under cost of service.
The next step is to engage stakeholders and file a regulatory application in the targeted Isd here is late 2026.
Today, we saw we also launched a binding open season to expand T cell.
Which is driven by the recent.
<unk> of wood fiber LNG.
That expansion would replace capacity currently moving volume to the Pacific Northwest.
Which will be utilized to see wood fiber LNG on the west coast when it's completed.
Our preliminary estimate is $2 5 billion also told under cost of service, but the projected Isd of 2028.
Now if T cell does move ahead, we could see a further expansion of <unk>. So that's another opportunity.
T North and T. So I think really illustrate well the power of our strategically positioned system for low cost access to growing markets.
Now that system also allows us now to extend our value chain to LNG liquefaction.
This morning, we announced a 30% equity investment in fiber, which will be the second LNG facility on the West coast.
This is a really exciting brown floor opportunity for us. So let me provide some context and what's behind the investment.
Our partner specific energy of develop the project and established excellent community relationships.
Where fiber is integrated with specifics upstream reserves of $2 eight tcs in the Montney, which is currently producing around 300 million cubic feet a day with contracted transportation capacity on our system as I mentioned.
Our 30% ownership in wood fiber is structured as a preferred interest which provides us with a predictable stream of cash flow and a solid return.
Our share of the expected cost is U S. One 5 billion with about 70% of the liquefaction facilities project financed.
So our equity investment is approximately $900 million through 2027, which will be easily funded within existing investment capacity in fact vern.
We'll discuss the ample room, we have to deploy free cash flow going forward beyond that.
We've evaluated a number of LNG projects in the past and this 160 investment criteria box as I mentioned earlier and more.
Strategically aligns with our very positive view of natural gas today, and well into the future, particularly global LNG growth.
It extends our value chain is wood fiber connects to our upstream pipes as you see on the map here and anchors their expansion.
Its size and use of existing infrastructure and routing make it highly executable and we're very pleased with first nations support of the project and I'll come back to this in a minute.
It also fits squarely within our pipeline utility model supports medium and long term growth and it generates a strong equity returns. So it clears capital allocation hurdles, we set for organic projects within the framework.
And finally, what we really like because that will be among the lowest emissions facilities in the world at less than 0.4 tons of cotwo equivalent per ton of LNG delivery.
So all in a clearly hits the mark for us strategically financially and it aligns with our emissions objectives.
Wood fiber is located near Squamish cited on industrial land that previously housed a pulp and paper mill.
The plan will produce $2 1 million tons annually, that's around 300 million cubic feet a day.
With 250000 cubic meters of storage.
Theres very good access to the site by how sound, which is well trials and we expect loadings of two to three ships.
Importantly, the Squamish nation itself approved the project, which includes a long term benefits agreement.
And the LNG plant in upstream infrastructure has received local provincial and federal approval.
70% of the capacity of the plant is under long term contracted caustic with BP and more capacity is likely to be locked up.
Florida will expand their system, which connects T cells with the plant itself.
Yes.
What fiber is ideally positioned to meet growing Asian demand and here's how we see that picture.
First Asian, LNG demand is forecast to more than double and.
And wood fiber is among the lowest cost supply sources because of the globally competitive montney supply.
There's roughly 150 tcf of reserves at a cost of less than $2 nine <unk>.
Which means Canadian LNG is very high in the global LNG Dispatch order.
Another part of the value equation here is proximity to markets, which saves two to four weeks are shipping times, so lower transportation costs and emissions.
Combined these factors make wood fiber LNG breakeven on par or better than U S Gulf Coast alternatives.
So even putting aside the today's frothy global LNG market the west coast is highly competitive and any future energy scenario that we see.
More broadly here as a side note.
We see a huge opportunity here for candidate to materially ramp up LNG exports.
The economic benefits are obvious, but also for Canada to play a leading role in improving global energy security and reducing GHT emissions beyond our own borders.
Finally on the execution of the plant will be modular design, which is ideally suited for dislocation under our lump sum turnkey EPC contract.
The final capital cost will be determined next April .
And that'll be the basis for setting our return and preferred distributions.
The Squamish nation has completed an environmental assessment of the project and actually it's the first one to be approved under the government of Canada's five principles framework.
With environmental approvals in hand, the team is now focused on securing construction cranes.
We laid out the timeline here with an expected Isd is 2027.
Bend is spread out over the next five years.
Before I can confirm a quick recap on our low carbon strategy.
As you know our approach is to capitalize on existing infrastructure to extend growth with the same business model and returns as the rest of the business.
All in we've got close to $4 billion in development with more on the way.
On renewables our development pipeline in France is about two gigawatts, providing good growth visibility there.
10 solar power projects are underway on our own systems with another 300 megawatts in development.
On RMG, we've supported 50 projects, where producers have applied the clean fuel funding program in the gas transmission team is also developing a projects.
On our water than carbon hub in Alberta, we're planning well test to confirm geology, and finalizing commercial discussions with capital power and Lehigh Scenic recall here, we have four mega tons of Cotwo annually signed up and we're in discussions with other potential partners.
Project is also supported by five indigenous groups, who can become equity owners and the projects and we're looking forward to that.
Finally in the Gulf Coast, we're in discussions with off takers for our proposed hydrogen and ammonia production facility at Ingleside.
So with that I'll turn it over to Brent.
Thanks, Al and good morning, everyone.
Before I review this quarter's results I wanted to step back and remind you on how we're thinking about our low risk business model.
We've designed our business to be resilient through all market cycles.
And it's proven itself out over and over again and most powerful examples of this with during 2020.
Where we were able to meet our financial guidance. Despite the significant impact that COVID-19 had on global energy demand.
That's because our business is built on serving demand pull markets with strong long term contracts and we have conservative financial policies.
Our contracts are commercial protections for rising inflation.
We're about 80% of our EBITDA has built in toll escalators or rehab cost of service recovery mechanisms.
The majority of our debt portfolio is fixed rate, which limits the impact of higher interest rates.
Our cash flow stability allows us to be confident in our financial results and provides us with a lot of financial flexibility.
We expect to generate growing cash flows this year, 9% over 2021, and this drives out our 5% to $6 billion of annual investment capacity or.
Our balance sheet is in great shape, and we expect to be at the lower end of our debt to EBITDA range by the end of the year all four credit rating agencies reaffirmed our triple B plus stable credit ratings this year.
We've continued to grow the dividend ratably with another 3% increase this year.
Supplementing that with opportunistic share buybacks.
We've added $4 5 billion of new growth projects. So far in 2022, which provides great visibility to our post 2020 for cash flow growth.
All of these projects come with the same low risk model I, just walked through and generate attractive returns.
And let's remember.
All of these opportunities that competed against all of our other capital allocation alternatives, including share buybacks.
Let's move to our financial performance.
Our second quarter results were up significantly over 2021 on.
On strong operational performance across all of our businesses.
And we're seeing the benefit of the $14 billion of capital we put to work last year.
We're tracking to our plan with some puts and takes across the businesses in.
In liquid mainline move just under two 8 million barrels a day in the second quarter.
He was in line with our expectations, given upstream and downstream customer maintenance activities.
As a reminder, our results and full year guidance include a provision for the ongoing mainline tool in negotiations.
Gas transmission utilization was solid and last year's $1 4 billion expansion to our BC pipeline system is driving growth.
In Q2, we saw good contributions from DCP and our stable on the back of strong commodity prices, but these assets.
Represent less than 2% of our EBITDA. So it's not a big driver overall.
It's business as usual at the utility.
With a small impact from the sale of our <unk> assets at the end of last year.
Our renewables business continues to benefit from strong wind resources.
Energy services remains below expectations due to tight basis differentials.
Backwardation in commodity prices.
Results in this business are expected to return to a positive contribution next year with the expiry of certain contracts that are negatively impacted by current market conditions.
Finally, rising interest rates have had.
Slightly negative financing cost for us so a very solid quarter, let's move to our full year outlook.
We expect our systems to be highly utilized for the rest of the year.
Mainline volumes are rebounding after Q2 customer maintenance and we will go back into a portion of that in August .
In gas transmission strong commodity prices are generating a slight tailwind for our stable and DCP investments.
While the utility and renewables are tracking the guidance.
Energy services is expected to remain a headwind for the balance of the year.
In terms of DCF per share maintenance spending is expected to pick up in the second half.
Which is aligned with our full year guidance in.
And interest expense will be slightly higher than we expected given higher interest rates.
Again, this clearly demonstrates the predictability of our business I will now move to our secured capital program.
Today, our secured capital program that just over $15 billion execution is progressing well with $4 billion of capital entering to service this year driving cash flow growth in 2023.
This capital spend is largely locked in under fixed price contracts, providing good inflation protection.
And we've added a number of new secured projects to our backlog this quarter.
New capital requirements are easily absorbed within our 5% to $6 billion.
The annual investment capacity and there is no change to our equity self funding model as most of the capital that we've announced today will be spent beyond 2024.
Now, let's talk about how this capital program because it's our growth story.
Through 2024, our secured capital program drives a highly visible 5% to 7%.
<unk> per share CAGR.
This grille built off a solid base in 2021 can we expect to continue to deliver 1% to 2% per year of growth from contractual revenue escalators and productivity enhancements, our secured capital program will deliver another 4% to 6% and <unk>.
All of this cash flow will be underway.
Low risk commercial frameworks.
So we have excellent visibility and achieving our three year plan to the ends in 2024.
With there is recent additions to our secured capital and the additional opportunities. We are advancing our capital program provides good visibility for longer term growth.
Yeah.
As we look forward, we continue to see a robust opportunity set to fill and longer term growth across all of our businesses and we're seeing an uptick in development activity across both our conventional and low carbon platforms.
As I've mentioned previously we have 5% to $6 billion of annual investment capacity, driven by our growing free cash flow growth and our balance sheet capacity.
Investment wise, what continues to prioritize rate base growth in our gas businesses.
Along with low capital intensity optimizations and expansions across our footprint.
The low risk investments are highly executable with attractive returns and should drive a base capital program of about $3 billion per year.
That leaves roughly $2 billion per year of excess investment capacity is.
That will go to the next best alternative.
Either more organic growth share buybacks tuck in M&A for debt repayments.
Even with the capital, we announced today, which is spread out over several years, we have meaningful investment capacity to deploy through our current three year plan.
We will continue to be disciplined benchmarking all of our new investment opportunities against all of our capital allocation alternatives.
Before I turn it back to let me update you on our ESG priorities and the great progress we are making now.
At the end of June we released our 20 <unk> annual sustainability report where.
We believe that ESG is foundational to our business and we are proud of our performance you can see here in 2020, we set new ambitious goals across all aspects of E S and G.
With clear pathways to achieving them.
In 2021, where we put in place the organizational building blocks to make it happen.
Establishing specific plans across businesses and aligning our compensation and financing costs to ESG performance.
Our focus now turns to executing those strategies to achieving our goals and we're making good progress there.
On safety, we reduced our trip rate over 29%.
And we are heavily invested in pipeline integrity over $6 billion in the <unk>.
Last three years this underlies our commitment to drive the industry, leading safety and reliability are.
Our emission performance remains on track as we have achieved a 27% reduction in emissions intensity since 2018, and a 20% reduction in methane emissions in our gas transmission business.
On diversity, we're on our way to meeting our diversity and inclusion goals in.
Internally that means enhancement to our recruiting process and mandatory training to reduce bias combat racism and increased cultural awareness.
And that's translating into real improvement across all levels of the topics, including our board of directors.
Ultimately, we believe our approach to ESG aligns us with our stakeholders customers investors are right away communities and provides us long term strategic advantage with that I'll turn it back to al to wrap up.
Thanks, Brian .
Summarizing the business is running well and we're on track to meet our financial targets.
Along with the global focus on reducing emissions the importance of energy security and affordability has validated our two pronged strategy of investing in both conventional and low carbon infrastructure.
We're executing our capital program advancing our export strategy on both gas and liquids and securing new investments to support post 2020 for growth.
And we will continue to be disciplined capital allocators protect the balance sheet and advance our ESG commitments.
We'll open it up to questions.
Thank you we will now begin the question and answer session.
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Okay.
Yes.
And your first question is from the line of Rob Hope at Scotiabank.
Good morning, everyone.
First question was on the wood fiber project and the investment in LNG liquefaction facility. This looks like a bit of a unique situation, where you have a preferred interest limited commodity risk can.
Can you speak to moving forward, if you do get comfortable and investment in LNG liquefaction facilities would you be willing to take a little bit of commodity exposure. If it does yield additional upstream opportunities and then I guess the follow up question there would be in the past or in the future.
You're having discussions with.
Proponents about other facility investments.
Okay. Thanks, Robert I'll start off.
With respect to the first part of your question around would be would we be willing to take additional risk I think the short answer to that probably notch researched.
Far and wide for this opportunity, we we looked at a lot of others actually.
And we landed on this one because as I said in my remarks.
It ticked all the boxes for us and one of the important boxes is ensuring predictability of cash flows. So we won't stray too far from that going forward and we'll continue to look for the commercial models that support the rest of our value proposition, which which you know well.
Yes, the short answer on the second one are we talking to others, yes.
You know theres a lot of opportunities.
Particularly in the Gulf Coast and as I mentioned earlier, we are really well connected there and lots of lots of development going on so.
Sure Theres opportunities, but.
The investment criteria will stand and we will continue to be very disciplined on this going forward.
Alright. Thank you for that and then just a follow up for I guess another question on the mainline.
Contracting efforts, it's been relatively quiet from a producer community on this one right now can.
Can you maybe speak to what the main sticking points in terms of negotiations have been and from the outside.
I believe the investments community is taking the fact that it's been quiet from producers that they have seen and we will call. It relatively level aligned and the expectation is that a negotiated settlement will be reached.
Well.
I'll turn it over to Colin here, but generally speaking.
Like I said it earlier, it's going pretty well in terms of our discussions but as you can imagine there is all kinds of different interests at play here overall theirs.
38 potential shippers involved in your discussion and who have to approve any kind of settlement.
<unk>.
There is lots of different views on it and.
Yes, I'm not surprised that it's relatively quiet as youre putting it.
In terms of the public picture, but I can tell you there's lots going on behind the scenes in terms of the discussions.
With our customers and as I said earlier.
A lot of information being sure to make sure that we have the transparency not just to.
What we think the future holds but how we performed.
Under this mainline tolling over the last 10 years and a big part of that Robert is.
The service, we provided and I think a real good value for our customers out of the basin and our refiners downstream so.
I think we're going to continue to work on it but collyn you may want to add something to that.
Thank you.
Briefly I think.
Robert D.
Thank the historic.
During mainline contracting.
Proposal there was.
Disagreement amongst industry as you recall that was around contracting the line.
We've taken that off the table to be clear and so once we remove fat.
It's remove that that point.
A different so.
Our industry is now.
Our view relatively aligned on what they want from us as al said, which is alignment too.
Hustle towards their interests.
For.
We've now contained in our tolling proposals.
But were not there we cannot we cannot assure we're going to we're going to get to the negotiation here and we've got.
Alternatives that are.
<unk> attracted to us so.
It was a little more color there Robert.
Alright, thanks for the answers and that's it for me.
Thanks, Jeremy Tonet My apology, Jeremy Tonet from Jpmorgan is online with a question.
Right.
Hi, good morning.
Good morning.
Just wanted to come in a little bit more on wood fiber here and the preferred structure that you set up and I was just wondering if you could touch a little bit more about specific I guess risk versus reward parameters or hurdles youre welcome for here, where you always seeking a preferred equity structure.
This preferred equity convert into common or have any other upside levers down the road just trying to get a better feel for this.
The short answer on the second part is no it's not convertible to anything.
Under this arrangement and.
Probably the biggest upside lever to think about here is the integration we have upstream Jeremy as you see.
It's anchored in a lot of opportunity.
And.
The investment itself is is really as we said earlier kind of an extension of the value chain.
We've got in BC, we're a big player there operationally, we've got we've done a lot of project execution in that region. So I think we're bringing that to the table in terms of the structure itself, we'd always intended to essentially eliminate as much commodity exposure here as we could and I think we've achieved that with this.
Structure.
The simple way to think of it is.
But we'll have an investment here with a certain level of equity and will earn.
Pretty much.
Our return in that business that that is again pretty much fixed and very consistent with the rest of us.
Cynthia has GTS business. So that's at a high level. That's how we're looking at it I don't know Cynthia if you want to add anything to that.
Okay. Thanks Al I would just add as you said earlier in your comments that it is.
That opportunity for us to have very assuring cash flows.
Where we can.
With that partner, we're going to have an opportunity to continue to build on the existing relationships, we have NBC and it's a great opportunity for us.
And just maybe a little bit more color Jeremy.
What we really like about this is aside from what I mentioned earlier about very low rate of emissions really world class on that front, but this is an integrated project, which means that.
The supply costs and tolls are essentially locked in if you look at the partnership level structure here and there.
Then of course.
Theres a.
Our commitment by BP to take 70%, which is really the driver here. So it is pretty much locked down from our point of view.
And as we alluded to earlier, that's sort of what we're looking for with this investment and it's a smallish investment for us to start out in liquefaction and will develop more capability as we go forward, but this one really fits the bill for US I think at this point.
Yes.
Got it. Thank you for the details, yes that makes sense a lot of pull across the portfolio. So obviously a lot of leverage in that sense.
And next question I had just really wanted to talk about those a lot of natural gas logistics growth that you're talking about here, but the haynesville specifically it seems like there's a good amount of growth. There I think you had talked about kind of initiatives. There in the past I was just wondering how you think haynesville growth might play into Enbridge.
<unk> future.
Well again, let Cynthia.
Back to the details here, but essentially.
We carry we carried out an open season.
A little while ago here and we were.
I'm quite impressed I guess with the level of interest.
In order to get onto our system. So we.
We heard from a lot of customers and.
Yeah.
We're really in the process now just designing options for them.
And I alluded to we'd probably see some some activity here later in the year, but.
Again big header system.
Cost effective and the natural lead into the Gulf Coast LNG projects from the Haynesville directly. So that's the big picture Cynthia maybe you want to speak to some of the other aspects of this.
Yeah. Thanks, So as al said with the results of that.
Gains how positive we are just.
The details now with our customers. So it's both.
Paul from the LNG exports and some of the industrial users in that space and then the supply push from Haynesville and as we're working through those project details of course are our connectivity with that header system the ability to tie in just another existing infrastructure really.
It's where we're looking to add value with our customers. So.
We are working through those details now it is an exciting exciting time, but it is.
To us to work with our customers and come up with.
Tenant installation Marty come in the future that's exactly right Jeremy.
When you think about it this is a competitive space right.
Other players have.
Desires to to add more capacity in this region, but the advantage. We have is we're in the right spot and expand the ability of the system is there and this is all about costs, ensuring that you've got the lowest cost solution right from the supply source into the LNG.
<unk>, so we have a good.
Carve out of advantage here, if I can put it that way.
Got it Thats very helpful. Thank you.
Thanks Ben.
Then Scott.
No. He is online with a question.
Excuse me thanks, good morning.
I appreciate the disclosure on <unk>.
Inflation protection on existing assets.
I'm wondering as you sanction new projects and we're seeing cost creep on some of the bigger infrastructure projects out there and I'm thinking specifically of what fiber can you go through cost estimates like how do you how do you balance that.
<unk> risks against achieving growth targets and other.
Ways to achieve returns thanks sure.
Share buybacks.
Yes.
A great question very topical and so maybe what maybe what I'll do is I'm going to have burnt and talk to the protections you referred to in that business, maybe I'll just touch a little bit on the broader issue around investment and how we look at that given the pressures.
First of all I think generally if you look at our capital spend.
Profile here in the last two years and then going forward.
We've really completed.
Very large chunk of the secured program.
Of course that includes line three if you look at the program size that Glen referred to.
At $13 billion, yes about three of that has been spent so we got another 10 to go.
And if you look at the list of projects.
Certainly smaller there isn't sort of a mega scale line three.
Projects in there they are diversified across the business and geographic areas.
And if you look at the projects right now the way we're situated we're pretty much on time and on budget. There's a few things here and there, but that's the bigger picture.
What really gives us.
Some comfort, though is around our major projects execution process I think we've had a pretty good track record here.
We try and locked down as much of the cost as we can.
And fixed price a lot of it the scale of Enbridge.
Helps here in terms of supply chain and what we can command in the marketplace and of course in some cases, we have recovery mechanisms.
To make sure that we're getting a return on enough capital so.
That's the big picture.
We got comfortable on wood fiber after a lot of diligence around the capital cost estimate.
At this point and then as I said earlier the final cost estimate for for purposes of the.
Our distributions and preferred the churn here will be set sometime next April or thereabout. So that's that's sort of the big picture on how we're thinking about the pressures, we're seeing inflation and so forth, but maybe vern you can cover off.
The rest of the businesses protect.
Okay. Thanks, Phil so on the capital side, obviously, we try to lock in all of our costs as we sanction projects employ a fixed price EPC.
For Oxford, we are able to our large scale, obviously allows us very competitive supply chain.
Most of the new contracts in commercial agreements that we have announced half.
Cost recovery mechanisms should the capital to work.
We move to the Opex side, I think I mentioned in my prepared remarks that 80% of our EBITDA has protection of the interesting deflation.
Really we're seeing that through fixed revenue escalators or the ability to come back for cost of service rate filings. Although there is a little bit of a delay there and finally I think it's important to point out that most of our costs are fixed.
We're a large capital user so it's not.
O&M, that's really at risk, we do have some exposure to power prices and labor.
On the power price side of things.
We have in certain instances the ability to flow those costs back directly to customers.
And then our solar cell powered program on the in the long term provides us a hedging gains horizon power prices. So I think that covers it all.
Thanks, very fulsome answer.
And then maybe my second question going back to LNG.
As you think about capital deployment for LNG exports.
Is it more of a learning process for you now with what fiber in them.
Executed and constructed pathetic and then youll look at potential investments.
Typhoon may be doing something else.
Yes, I think we have appetite but.
On the one hand, it's a new area for us, but on the other hand.
If you look at the execution, we've had in large infrastructure, it's been roughly $100 billion over the last decade. So we've put a lot of projects into the ground.
This of course.
<unk> infrastructure and it's similar to what we do so sure we're going to learn something through the process here, but we'll also look for other opportunities and see if theres something that could fit commercially that debt.
Again addresses the investment criteria that we go after which is higher degree of predictability.
And back to the cost question.
We've got enough surety here that we're comfortable that the project will be strong and Theres a lot of built in mitigation too.
The developer to this point is constructed.
And designed the commercial arrangements here, so we're happy with that.
Okay, great, Thanks, and I have to.
While we can.
Thanks, Tim.
Matt Taylor from Tudor Pickering is online with a question.
Hey, Thanks for taking my question just first off congrats on that masks. The success was that recent ride for cancer in Alberta.
<unk> almost all of us have been impacted by cancer in some way.
It was close to home there nice to see it back in person.
Just one question for me maybe a question for you al is there a role for Enbridge to Plano and pipeline infrastructure in Europe .
Hence we pulled away from Russian gas.
Yeah, well first of all on that thanks for mentioning the right I mean, I think it's pretty clear this is our.
A very center piece.
Our.
Community initiatives, which we have many but this really stands out and some of the people around the table here today have been involved for a long time.
It really is.
Our premier event, so thanks for mentioning that.
Short answer is sure.
If you look at the fundamentals around.
How gas is going to have to be diversified.
In terms of.
Sources of supply for for Europe , It's an opportunity.
For us it always comes down of course too.
Whether we can get the right risk reward profile just like any other project.
Good news is that.
With their renewables renewables business that we've established there we have some good experience in Europe , we've got some good partners.
Also being of course in Europe before when we had a large investment in Spain. So we're familiar with the neighborhood if you will.
And.
It will depend on whether we can find something that fits the commercial model, we like and return.
Great. Thanks, I'll leave it there.
Okay. Thanks, Matt.
Robert Kwan from RBC capital is online with a question.
Great Good morning.
Alright.
Thinking about your two pronged strategy and capital allocation, you've got growing gas opportunities as evidenced by numerous secured projects.
And you're also targeting the low carbon strategy.
It's picking up steam so.
If you think about those opportunities, but youre your capital discipline in the equity self funding model that effectively is capital constraining you today, you talked about cherry picking the projects with the highest risk return profiles, but if the portfolio opportunities within your core footprint in the strategy of growing can you just talk about how you might or might not change here.
Capital allocation priorities.
Okay, well I'll start off and burn can chime in.
Well in a nutshell, Robert we're not changing the capital allocation framework that I think we're pretty happy with.
The opportunity it provides but not.
Not only that it's just the ranking process that we go through.
Two to assure that we're generating that value. So as you know, we've got $5 to $6 billion debt.
Have available to invest and we said that roughly $3 billion of that is let's call. It ratable growth if you want to refer to it that way.
So on Michelle's utility business.
Since it is gas transmission business and of course, maybe lower capital intensity.
Projects in the liquids pipeline areas. So we've got a lot of capacity aside from that $3 billion to deploy and have options to deploy either in new organic projects like the ones. We're just talking about today.
Opportunities for tuck in M&A.
Obviously share buybacks is on that list and as you know Robert it sort of went up in the order given the current valuation.
We see as attractive for buybacks or of course, you could retain that capacity.
Pay down debt temporarily so as you look at the numbers today for example, our new newly secured projects.
It really eat into that $2 billion, but really not that much annually. So we've got a lot of flexibility still to deploy and we will continue to be very careful.
To put that 2 billion to the best.
Opportunities that we see based on that list.
List of options that I mentioned.
<unk> do you want to add anything to Roberts question, well I think you hit on the main point of all of the balance sheet has lots of capacity that 5% to $6 billion per year is very ample and that goes out over many years. The projects that we've recently announced all have spends that are relatively elongated so in <unk>.
So in any individual year, its not a lot of capital.
And then I think as you see us pursue more low carbon opportunities generally the capital associated with those are a little bit lower will have partners with a matters and other.
<unk> groups and things like that so I'm not too worried about running out of balance sheet capacity anytime soon here and that's a good point actually if you look at the two pronged strategy I think there is a very visible runway here, obviously with let's call them. The conventional projects that we've been used to.
But youre going to see the ramp up in lower carbon.
Probably a little bit further down the road.
And then it will start.
<unk> significantly that's how we see it in carbon capture.
Whether it's hydrogen opportunities of course.
The renewables business itself has some good legs.
But that will ramp up so in the near term here.
Combined with that longer term ramp up I think we're well situated with that investment capacity.
That's great and that's actually a good segue into the second question I got on the low carbon strategy historically your big in North American onshore wind when the opportunities are pretty plentiful and you can easily get double digit returns but.
You slowed that down when the returns were ground down you actually exited some of those assets. So.
How do you think about what you did then and where are we right now with the European offshore wind cycle.
Can you maybe just frame, where we are with that offshore side against some of those other low carbon platforms that you just highlighted.
That's a very good observation. These things go in cycles and I think we were in.
Very high development mode on the offshore side I think what Youre seeing is it now a switchover.
To the point, where onshore wind and solar in North America is really.
Perking up if you want to put it that way just based on.
A lot of demand for for Ppas or corporate type Ppas.
That we're pursuing and.
So the good news here is we are well situated with our own so solar cell tower business as well as opportunities that we see to utilize our land positions. For example, you saw that happen in Ingleside, where we're putting in the solar power. There. So I think that's a broad brush at it but I'm going to let.
Matthew chime in here.
Sure some more thoughts on it.
Thanks, Al I think you hit it.
Thanks, Rob.
Good observation so.
I think the big messages.
Disciplined approach and renewable.
Given we recognize there's a lot of capital flows and it can get pretty frothy.
So.
Youre right about offshore.
We're really fortunate to have a great pipeline.
The construction project.
Great contracts leases.
And we'll build off of that but we're going to be disciplined.
On the onshore side like Al said.
The discipline there is.
Development using our advantages, which is we have lands we have load.
And as we talked about at Enbridge day.
We have over a gigawatt of Greenfield projects. So we're going to focus on the development. There is lots of demand that would be great.
17 gigawatts of onshore.
Onshore Ppas corporate Ppas signed last year in the U S. So that was probably trending a little bit better in terms of opportunity, but again got to maintain commercial framework and discipline on both both areas.
That's great I appreciate the color.
Okay. Thanks Robert.
Thank you we have reached our time limit and are not able to take any further questions. At this time I will turn the call over to Jonathan Morgan for final remarks.
Sorry, operator, I think we'd like to take a few more call. So let's let's continue.
Operator, let's continue the call please.
Sorry, Linda as a jealous from TD securities.
Thank you.
Wanted to get a bit more context on the.
The outlook for potential extensions and expansions of the mainline given that you are going into a question then.
But there is a competing pipeline potentially coming into February .
In 2020.
Right.
Thanks, and congrats really for less.
Can you comment on what factors need to be in place to proceed with any sort of initiatives and.
And provide a color of what.
Timing scale could be to help industry.
Okay Paul.
Yes.
Thanks Al Thanks Arlinda.
And it is a timely question.
I think the condition thats, a good way to put it.
First is.
Our commercial foundation on the mainline itself to provide that clarity.
Commercial framework.
To take care of returning.
Return of capital and return on capital.
I think you're.
Oh lay of the land is right.
We do expect production over time too.
To fill the mainline.
Back up.
Is dependent on a variety of factors including policy.
Producer capital allocation, but we do expect that.
That to occur.
And.
The basin has been <unk> constrained.
For a couple of decades here, so I think.
Beyond.
The need for.
For physical capacity and B. Moreover, the associated netback that goes with every barrel not just the incremental barrel.
I think industry will also be looking.
To enbridge for Optionality and insurance.
Capacity to get to.
The best markets. So.
I would say also we're keeping those expansions of the mainline and downstream market access pipes.
Warm we've mobilized some early long lead.
Supply chain things in permitting.
Parameters to enable that for when it's when it's triggered so I think there is.
Continuing joint alignment to make that happen.
But there will be some lead time, and we think it will feather in.
Nicely to the disposition profile and.
Linda.
I think Collins covered it really well.
Bigger picture, if you look at the basin in Western Canada, and whats been done on the emissions and lowering our breakeven.
And really sort of setting themselves up for the long term.
Good opportunity at least in R&D to here, obviously, it's up to the customers too.
Move volumes up, especially on incremental basis going forward, we know the Permian is really well set up and that's all driven by exports.
Particularly for light barrels and products products exports. So we are setting up well here for an export driven environment, especially given what's happened.
What we call the inflection point around energy security, so it's setting up well.
And it sort of flows into what we'd like to.
See with respect to the commercial arrangement that we're just negotiating here.
Certainly we could take our time, but.
There is some.
There is some level of urgency to make sure that we're providing the service that our customers are going to want it. So thats what were trying to do with the mainline arrangement.
Perfect. Thank you and just as a quick follow up.
Your company has been one of the earlier pipeline company to pivot to an export orientation, but.
But my sense is your commitment to extension upstream into gathering and processing.
Then come and gone a few times I'm, just wondering updated appetite for providing a fuller path upstream into into gathering and pricing I guess more on the natural gas side.
Are there situations, where from a strategic perspective that might be.
Interest.
Yes.
I'll go and then we'll get since his comment too.
The short answer is we've kind of been there done that.
There is always I think some level of strategic.
Rationality you could.
Used to say underpinned projects with gathering and processing volumes our experience on the gas side.
It is.
Probably.
Supply risk profile that we're not excited about taking on again, so I think thats.
That's kind of where we are.
It makes sense don't get me wrong for a lot of companies, but the business model we have.
Really doesn't call for a lot of G&P type in the portfolio do you want to say anything else on that Cynthia Yeah I can just.
Add that.
We are focused with working with our customers to find a solution.
But it is largely on that on the transportation side. So.
We will continue to be our primary focus.
Thank you.
Okay. Thanks Lindon Robertson.
Robert <unk> from CIBC capital markets is online with a question.
Yes, I just have a follow up question on wood fiber on the risk return profile I want to make sure I understand it here.
Just with respect to construction gross notwithstanding the fact that we've done a lot of due diligence and it looks like Theres a sound contracting strategy in place November if you have any exposure to cost overruns on the project.
If you do need to make an additional contribution.
Is there a mechanism in place where you can earn a return of a non capital for that.
Yeah, well, maybe maybe we should just start with what the mitigation on on the capital cost is in the first place. So it is a product there's two things at the project level.
You've got a fully permitted.
Project here, the design and cost estimates are pretty well advanced.
And youre dealing with a brownfield site.
And of course, as we mentioned earlier it will be a lump sum EPC contract. So that actually gets triggered in April when we got.
Let's call it a substantial amount of engineering design to Lockdown, what we'll call. The final estimate don't forget here, we've got a modular design and floating storage so that that helps mitigate risk as well and of course.
Pretty much existing pipeline route.
Through the Florida, so right of way so.
Thats a project level mitigation then in terms of the.
Okay.
Structure of this thing as we mentioned Thats an equity.
Preferred equity structure, so we're not really susceptible to LNG merchant exposure here.
Now.
Yes beyond.
Let's call it the final cost estimate.
Sometime in Q2, let's say next year, there's always execution risk, but remember by that time, you pretty much locked everything down to what would be our satisfaction as part of the.
The project execution here.
With the PSC contracts, so we think thats that slow, but ultimately I suppose there could be.
Changes to the cost after that point in time.
Alright, and then.
That would be.
Respond then would you get a traditional return than on the any additional funds or is that contemplated in the well.
Great.
The return.
That we earn on the project and the distribution is going to be set as I said in Q2, so from there.
The return will float, but based on the sensitivities. We've done we don't see a significant variation to the return after that second quarter when all of the costs are in.
Okay. Thank you.
Okay.
Andrew Kuske with credit Suisse online with a question.
Thanks. Good morning, you have a number of irons in the fire on the low carbon side, but I wanted to specifically focus on Ccs.
And just how big of an opportunity set do you think you are competing for in both Canada and the U S on the Ccs.
Yes.
Well.
That's a that's a broad question Andrew it's a good one.
I'm not sure we have a great answer in terms of.
The ultimate size I do I do know that we're pretty well positioned.
And basically if you look at where the high intensity areas for carbon capture will be.
Basically where we are number one obviously in Alberta, we're advancing a project there.
As we mentioned earlier in terms of export capabilities on the Gulf Coast.
That's another area of opportunity.
We've got obviously a big position.
In Eastern Canada, and the Sarnia area. So I think at this point were sort of developing options and opportunities there.
But we haven't put a figure on that potential I think the main thing is we've got a natural advantage because we are in those areas and we'll just have to see what projects pop out of it.
Okay I appreciate that I'm going to take it from a really broad day, maybe a little bit more narrow, but not too narrow.
Just on the tax support side in both Canada, and the U S with a merchant credits into the future whether it be on the Canadian regime or the most recent important inflation reduction knock proposal earlier. This week, how do you think about the tax credit environment, and what you really need to see the industry expert along as well.
Well certainly on both sides of the border.
We're much happier with what's happened certainly in Canada with the investment tax credit I think that's going to be very helpful to get these projects moving and as you know we need to see action on carbon capture.
Right away and so that will help remember, though in Canada.
It's also about.
Ensuring that there is.
The price of carbon debt.
Producers can have clarity on so we'll have to make sure they will have to make sure that.
You are getting the right revenue profile related to carbon in the U S. Certainly yesterday's announcement, if all things.
Go through us.
Announced moving.
Moving that 45, Q number up to sort of that 85 dollar market, including both blue and green hydrogen.
Part of that I think that's very positive. So the bottom line is in order to achieve the emissions targets that we have both societally globally.
And as well in North America, we need to have carbon capture so I think thats now been recognized and this will help get investments off the ground for sure.
I appreciate it thanks.
Okay. Thanks, Andrew.
Patrick Kenny from National Bank is online with a question.
Hey, good morning lots of discussion on inflation already but just on the potential T cell expansion, given the $2 $5 billion price tag it's been out there for a while obviously a lot has changed on the construction front here since Enbridge day.
I appreciate Theres, a theres now a plus sign added to the tune of affiliate dollar estimate but.
Perhaps.
High level.
You could comment on what gives you confidence that the budget on.
On your T cell expansion or even the T north expansion won't spiral out of control like we've seen from some of the other larger scale developments in BC.
We're going to give that Cynthia.
Yeah. Thanks, Patrick I think al touched on this earlier in his comments, we do have obviously I'm pretty extensive experience in managing capital projects of this size and Youre trying to go through all of the things that we do when we get into.
Project development to lock in our cost as soon as we can see the other thing just to note, though on that T North and T cell system. In particular is that those are cost of service.
Our regulatory regimes. So we're going to do everything that it is prudent to control costs, but at the end of the day.
<unk> is pretty London, when it comes to our total capital spend.
I think that's right Patrick the only thing I'll add on that is.
Going back to what we have in the ground here and these days it is about pipe in the ground. So to the extent, we can add compression or do some minor looping.
And youre doing that and Youre right of way and where you have existing relationships with indigenous groups.
That's part of the equation here to try and try and manage costs as best we can of course, theres inflation pressures, but I think we are in decent shape.
I'll, let Cynthia said and then the fact that we're in the existing right of way it helps.
Great I appreciate that color.
And then just as a follow up on the Ccs hub.
Any update on potentially coming in to invest alongside your customers there on the.
The capture infrastructure part of the value chain.
And I can't recall, if whether or not.
The select Savant is technology plays any factor.
And your interest level to invest upstream months, if the U S.
Yes, that's a good question Collyn.
Yes.
I think the answer is yes, with a common than <unk> been saying all morning subject to the right commercial model.
So.
The full value chain does interest strategically our focus is primarily on the pipe and storage at this point, but we remain.
Open too.
Upstream element you talked about subject to the recognitions.
It's a little bit like what we said before.
It's still infrastructure, so that interests us and as.
As we've indicated this this is all about cost and so to the extent, we can bring our <unk>.
Experts to extent, we can bring.
Let's call it a utility like model to infrastructure, including I guess capture.
It could make sense, but.
That will have to depend on an hour.
Our parents feel about it too.
Got it thanks guys much appreciate it.
Thanks Pat.
We have reached all time limit we are unable 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 we appreciate your ongoing interest in Enbridge as always our Investor Relations team is available following the call for any additional questions. You may have and once again, thank you and have a great day.
Thank you ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending and at this time, we ask that you. Please disconnect your lines have a good weekend.
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Well.
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Thanks.
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Yeah.