Q3 2022 Enbridge Inc Earnings Call
[music].
Okay.
Welcome to the Enbridge, Inc. Third quarter 2022 financial results Conference call.
My name is Brent 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 Rebecca Lauralee director of Investor Relations. Rebecca you may begin.
Thank you good morning, and welcome to the Enbridge, Inc. Third quarter 2022 earnings call. My name is Rebecca Morley and I recently joined Enbridge as a director on the Investor Relations team 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.
Colin Grunting liquid pipeline, Cynthia Hansen gas transmission, and midstream Michel Harridan gas distribution and storage and Matthew Ackman renewable power and new energy technologies.
As per usual this call is being webcast and I encourage those listening on the phone to follow along the supporting slides will try to keep the call to roughly one hour.
And in order to answer as many questions as possible. We'd appreciate you limiting your questions to one plus a single 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 as always our investor relations team will be available following the call for any additional questions.
On to slide two where I will remind you that we'll be referring to forward looking information in today's presentation and in 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 fully in our public disclosure filings.
Well also be referring to non-GAAP measures summarized below with that I'll turn it over to al Monaco.
Thanks, Rebecca good morning, everyone.
I'll start with the third quarter highlights and our business update.
Brian will then review the results and the outlook capital allocation and the usual ESG update.
Before that a couple of comments on the current energy and economic landscape.
Landscape is characterized by volatility we haven't seen for a long time.
Inflation of tightening monetary policy energy supply shortages and a looming recession.
Those challenges appear set to continue through next year.
Energy wise the situation of Europe has brought security and reliability back into focus.
While ensuring we're on track to reduce emissions.
The investment required to meet energy demand for both conventional and low carbon supply is only half of what we need which has led to sustained high prices.
For our part we proved through Covid and many times before our business model is built to weather storms like this.
Our premier natural gas liquids and renewables businesses are well diversified and we deliver energy to the best markets at very low cost.
Our commercial underpinnings give us resiliency and predictability of cash flows through all market cycles, and our balance sheet is strong.
And you've seen again this quarter, we haven't increasing inventory quality organic investments that will drive growth well into the future.
So enbridge is well positioned not just to withstand volatility but to grow and thrive in any environment and various going to expand on this a little bit later.
So onto the highlights.
In a nutshell excellent progress on our priorities this quarter.
Safety and operations Wise, we performed well and utilization were high across all systems.
That translated to strong Q3 numbers and we're on track to achieve our full year guidance.
At this point, we expect EBITDA to come in above the midpoint of our guidance range and DCF per share above the middle.
On project execution, we have roughly $3 8 billion slated for in service this year.
Which drives cash flow in 'twenty three and beyond.
More good news this quarter on organic growth tuck in M&A and capital recycling.
We secured another $3 8 billion of projects the lion's share being our T cell expansion in BC I'll come back to this later.
That brings newly secured growth this year to $8 billion, which illustrates the embedded opportunities we've been talking about within our four franchises.
Well the smaller scale M&A, where it makes sense, we executed two excellent deals this quarter totaling half a billion.
Lastly, we continue to surface value by monetizing assets at good valuations over one 6 billion this quarter.
That adds to our financial flexibility and in the case of the P 66 joint venture we've reduced our G&P exposure, which is now de minimus.
That's the business update and context this slide recaps, our two pronged strategy and the Optionality, we have in our businesses.
One is to continue to invest in conventional businesses.
The fundamentals of our core franchises are stronger than ever, especially in the context of energy security reliability and affordability concerns.
To ensure we are aligned with our emissions reduction goals. We're modernizing your assets, so powering with renewables and ensuring new investments have a plan.
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At the same time, we are ramping up low carbon investments you can see we're focused on proven low carbon strategies that leverage our existing assets.
Our conventional businesses are each progressing those opportunities on commercial terms that fit our low risk model.
Any way you look at things low carbon energy will need two things to add transportation and storage, we have a lot of that.
Having pipe in the ground will be valuable in any transition scenario, we can see.
A great example, Ccs, which is a must and meeting our emissions goals.
And that presents an excellent growth opportunity for us along with hydrogen RMG and of course women. So.
On to the business update.
In gas transmission, you got roughly $10 billion of projects in execution.
Putting our annual modernization program and recently secured projects Gulf.
<unk> phase six is now in service, we reached a rate settlement on our <unk> system and a good telco customer settlement.
We're seeing strong throughput throughout our systems.
And we recently re contracted capacity on the southeast supply header at very good rates.
In gas distribution, we've got $3 5 billion underway and we'll have five of the 27, new community expansions done by year end.
Earlier this week, we filed our utility Rebased application that will establish rates through 2020, you can think of this is carrying on under incentive rates.
And we sanctioned two new R&D projects in Ontario.
Renewables is performing well and we have $2 9 billion in execution.
Including 10 solar power projects.
Okay.
And our liquids mainline volumes recovered nicely in the quarter, we expect good utilization through year end and 23.
On our Walden Ccs project, we signed our evaluation agreement with the Alberta government and we expect to drill two wells in 'twenty three to prove out the geology there.
And on the Corpus Christi carbon.
We're in discussions with our customers.
So let's get into the exciting growth projects in our gas business.
First curious, how we see the fundamentals and our opportunity set.
Not much doubt that global gas demand will grow given its abundance security benefits and lower emissions.
We see gas continue to be a critical part of the energy supply mix well into the future.
North American gas advantage will lead to growth in global market share with LNG exports tripling over 30 Bcf by 2040.
We're really pleased with how we're situated to capitalize on these fundamentals so here's what that looks like.
Yeah.
Yes, Theres a lot in this picture here, but it illustrates well the reach of our systems and our growing LNG footprint.
Domestically, we feed the best markets totaling around 170 million people.
And we see growing residential commercial and industrial load and gas will be critical to replacing 84 gigawatts of coal.
And we're in discussions now with our customers in the U S northeast.
<unk> solutions that address price reliability concerns, which are only getting worse and I think the price pressures and reliability issues are really starting to sink in.
Another big prizes LNG we.
We serve four plants in the Gulf Coast soon to be five and we make up 20% of U S. LNG exports through our pipes.
We've also secured precedent agreements with two more LNG facilities that are pending.
We are ground in Texas, LNG and there could be more after that.
If those do go ahead, we could see our LNG export market share rise to 30% or above.
Related to that in the Gulf. We're also very focused on upstream expansion opportunities to connect growing haynesville supplied LNG by it Texas Eastern so think of that as an upstream strategy.
Of course, we just landed and investment and wood fiber LNG on the West Coast of Canada.
NBC last quarter, we sanctioned a $1 $2 billion expansion of our team our system, that's Aspen point and.
And launched a binding open season on T cell. So let me update you on that.
The results of the open season was strong and carry long term volume commitments. So we've now sanctioned and are proceeding with a 300 million cubic feet a day expansion, which is comprised of looping and compression.
This effectively replaces capacity currently moving volume to the Pacific Northwest.
Which will be utilized feed wood fiber LNG when it goes in service.
Pacific Northwest demand is also expected to grow so this expansion assures reliability in the region.
Our preliminary capital estimate is up to $3 6 billion.
We'll finalize the cost once we completed environmental and routing work.
Importantly, we'll be engaging in listening to stakeholders and communities and seeking their expertise and look to form economic relationships there.
The T cell commercial structure as cost of service and we expect to file our regulatory application in 2024.
Continuing with BC today, we also announced a binding open season for further expansion on <unk> north.
Given the outlook for Western Canada supply, we're seeing strong customer interest for more egress for LNG exports and downstream access. So in addition to asthma point, there's now an opportunity to expand <unk> by another 500 million cubic feet a day.
This also will include looping and compression at a cost of roughly $1 9 billion with an expected 2028 Isd.
Again this is cost of service model, which generates stable cash flows and good return.
The open season will run to January 10th So, we'll see what that reveals and go from there.
Now these BSC system expansions that I just went through represent about $7 billion of high quality organic investments that are right down the middle of the Enbridge fairway.
And they really illustrates the power of our strategically positioned system for low cost egress to growing markets.
Moving now to liquid starting with mainline.
We're continuing shipper discussions on a new commercial agreement that works for our customers and Enbridge. So thats positive.
Given the importance of the deal to industry and us it makes sense to take a little bit more time to make a final call on which path. We will proceed.
Cts like incentive tolling deal or cost of service.
And as a reminder, we've been on incentive tolling now for 25 years.
Worked out well for industry and ourselves.
Now if we can't land on a reasonable deal then of course, we'll proceed with the cost of service applications.
Which is ready to go and updated for the current inflationary environment.
From a financial and commercial perspective, either two auctions are acceptable to us as we said before.
In fact, once we land on a commercial framework.
<unk> got several cost effective expansions that can give customers added egress.
We're also accelerating our U S Gulf Coast strategy, which builds on last year's anchor investment of the Ingleside export facilities in Corpus Christi.
This year, we're seeing an uptick in export volumes out of Ingleside now with 10 record loading days in October .
We've also now sanctioned a 2 million barrel storage expansion at Ingleside, which allows us to track more export barrels to the terminal and its shovel ready.
We've increased our ownership in two key Permian pipeline, serving the region and local side being gray oak and Cactus II.
The increase in Gray Oak came from our new P 66, joint venture, which I'll come back to and we acquired another 10% of cactus II, So that brings us to 30% with claims.
Most deals bolster our U S Gulf coast position and are financially accretive.
Now to renewables.
Just like natural gas, it's clear that renewables will be a bigger part of the global energy supply mix.
Our European offshore wind business is growing nicely and we've got strong commercial and execution teams in place and great partners. In fact, we got Saint Nazaire project coming on later this month with first power.
But there is another big opportunity to accelerate our north American business, driven by a host of factors, including renewables targets and policy actions, we've seen lately.
Our North American strategy has evolved quite a bit on a couple of fronts.
Primarily acquiring late stage projects in years past to now leveraging our own assets land positions and load.
And second capitalizing on our development construction and operating experience built over the last 20 years.
The acquisition of Tri Global energy, though brings our capabilities and strategy to yet another level.
The Tri Global team building, what I call. The front end of our renewables value chain and gives us extensive origination capability.
Resource assessment site, prospecting land and environment and grid interconnection.
P. J brings a great development track record and a variety of markets Havent monetize six gigawatts are 24 projects.
P. J front end is highly synergistic with our commercial EPC and operating capability.
But we really like is that <unk> allows us to quickly exploit our own labs and existing development opportunities.
The deal also comes with a contracted revenue stream monetize projects. So good early cash flows.
And the Big Prize is three Gigawatts in late stage development projects slated for in service between 2024, and 28 and many of those overlap with our existing operations.
Permitting and environmental reviews on those is advance and the interconnection queue, which is a big advantage given the time it takes to get through grid connection in today's market.
Those development projects alone could drive over $3 billion of investment that triples, our North America near term development portfolio and there is even a larger early stage backlog.
So the Tri global deal drives outsized value for us it not only accelerates growth in our renewables business, but it moves the overall enbridge growth Neil.
To put that in perspective, this slide shows the size and diversity of our renewables business today.
We've got 47 facilities in operation or construction across four countries in North America and Europe .
We built a solid business here generating close to six gigawatts of gross capacity.
When it's fully resource development teams in North America and Europe .
With the GTE acquisition, our global development portfolio has more than doubled now roughly seven gigawatts with even more coming behind that.
Before I turn it over to Zane I'll speak to how we're keeping our eye on surfacing value from our assets and increasing financial flexibility.
Over the last five years, we've recycled 11 billion of capital at good valuations, while further strengthening our low risk model.
Our P 66 joint venture is a great example, providing a trifecta benefits one we reduced our exposure to DCP. This is a well managed G&P business, but not fully aligned with our business model.
Two we increased our ownership and became operator Gray oak.
Which is a key element of our Permian egress and U S Gulf Coast export strategy.
And three the deal generated $600 million in equity to redeploy within our capital allocation framework.
And equally important transaction is our regional oil sands deal with a somewhat.
This is a real gem as it establishes a solid economic partnership with 23 indigenous groups in number.
You can see the dots on the map here show the breadth of participation of indigenous communities, along the entire rights of way.
This quarter is highly strategic to our customers and Enbridge. So this deal demonstrates the importance we place on alignment with first nations in Beijing.
Part of that is gaining partners with in depth knowledge of the land water environment, which we place a high value on.
The deal also releases over $1 billion in equity at attractive valuation.
Again to redeploy to other opportunities.
And the bigger picture. We think this is an ideal model for how energy infrastructure will be developed and owned in the future.
And model that fully align safety environmental and economic interest with indigenous groups and one that we hope will be applied across our asset base on both sides of the border.
And now <unk>.
Thanks Al Good morning, everyone. Before we review this quarter's results I'd like to follow up on <unk> comments regarding the uniquely challenging macroeconomic conditions, we are facing the.
The financial markets have been very volatile inflation is driving interest rates up and weakening in the Canadian dollar.
In addition society is climate change ambition and the war in Ukraine are driving up energy prices, creating challenges for households globally.
<unk> is well positioned to navigate through these risks and I'll cover that off now.
Typically with the recession, you see demand destruction, but we are continuing to see strong energy fundamentals with tight supply and demand dynamics <unk>.
Supply wise, we expect further tightening given the recent OPEC plus production cuts the ban on Russian oil and the wind down of SPR releases.
Man Wise Enbridge is connected to the best demand pull markets for both crude oil and natural gas.
In addition, we have strong commercial underpinnings that drive predictable cash flow and global energy security concerns are leading to more investment opportunities for us.
Inflation has resulted in the most significant monetary policy tightening that we've seen in the last 40 years.
We're still in pretty good shape here.
We have built in inflation protection for about 80% of our EBITDA with toll escalators or the ability to capture higher cost increases through rate filings on interest rates, we have about 90% of our debt in fixed rates rising rates are a headwind to our floating rate debt program.
We're actively managing this risk with our hedging program.
The energy transition is creating a lot of exciting growth opportunities.
And the recently announced IRET is providing a real catalyst for low carbon investments.
Finally, we are well positioned to leverage our existing infrastructure to transport more north American energy to global markets.
Let's review the quarter.
Our third quarter results were up notably over 2021 with strong operational performance across all of our businesses.
We're now seeing the full benefit of the $14 billion of capital that we brought into service last year.
In liquids the mainline moved over $2 9 million barrels per day. This is in line with our expectations. Following the completion of customer on maintenance in Q2.
Gas transmission utilization was high and we just continue to see growth driven from our 2021 capital investments such as the $1 $4 billion expansion of our BC pipeline system.
In addition, we've gotten recognizing higher rates on Texas Easter fourth our unopposed settlement that we reached with our shippers this quarter.
The utility continues to perform as expected with summer gas use lower than normal due to seasonality.
Strong wind resources in high energy prices in Europe , where we have a small amount of spot exposure.
Made a positive contribution to our renewables business.
Energy services.
<unk> is below expectations due to narrow basis differentials and price backward Asia.
Finally financing costs were up as a result of rising interest rates benchmark rates have risen almost 4% beginning of this year.
Q3 was a very strong quarter and the business continues to operate well, let's move to our full year financial outlook.
As we head into the end of the year, we expect to come in at the top half of our EBITDA guidance range and just above the midpoint of the DCF per share guidance.
Our systems are a high been highly utilized in 2022, and we expect that to continue for the rest of the year.
Mainline volumes strengthened in Q3, and we are on track to meet our 2022 volume outlook of $2 95 million barrels per day.
Timing of the maintenance capital should provide a one.
$100 million tailwind this year.
And we expect that work to slide into next year.
Utility is tracking to guidance and the renewal both business is traveling to slightly above guidance on good wind resource and higher European power prices.
From a financial perspective, the U S. Dollar strengthening has provided us with a slight tailwind.
In contrast, we expect energy services to remain a headwind for the balance of the year.
Additionally, we are seeing some pressure from higher higher costs, driven by both higher throughput and higher power prices.
We will provide our 2023 guidance later this one but I'll provide a brief overview on how thats shaping up now.
We expect the business to remain strong in 2023.
And the capital we've deployed this year will drive EBITDA growth, while benefit from customer growth and higher rates at the utility our capital program within gas transmission will add EBITDA will have the full year benefit from the recent Texas eastern rate settlement.
Energy services should improve in 2023, as we will see a number of our legacy contracts expire.
A stronger U S. Dollar is providing an opportunity for us to layer on additional hedges for 2023 and beyond at very attractive rates.
And as we've already mentioned will continue to see higher power prices next year.
Interest rate wise about 10% of our debt next year is subject to floating rates given today's inflationary environment. It makes sense for us to be at the lower end of our 10% to 25% floating rate debt range and we are actively managing our existing residual floating rate exposure.
Interest rates have been a headwind this year and we expect that to continue next year.
We're also expecting some pressure in cash taxes from legislative changes in Canada, and the U S.
At this point, we are waiting on clarity on certain aspects of the alternative minimum tax in the U S. So we don't want to go into a great deal of detail on that now.
Our initial estimate spend is purely a timing issue as we expect to pay less cash taxes in the future as a result of this and overall, we expect this to be NPV neutral over the decade.
Overall, we believe we're in a strong position to navigate a challenging macroeconomic environment and deliver continued growth to our shareholders.
Let's move over to the secured capital program.
Today, our secured capital program sets at just over $17 billion, we have almost $4 billion of capital entering service this year, which will drive cash flow growth in 2023 and beyond.
As al mentioned in his remarks, we've grown our backlog by adding a number of exciting new projects to the secured bucket this quarter.
These new capital requirements fit well within our self funded model, where we live within our means.
Going forward under our self funded model, we still have ample investment capacity available for further organic growth tuck in M&A.
Net repayment or even share buybacks.
Now, let me remind you of how we approach capital allocation.
Our priorities share remained unchanged our strong balance sheet is still job line.
We have continued to recycle capital into new opportunities to the tune of $11 billion since 2018, and $2 8 billion.
In the middle of last year, we continued to return capital to shareholders in the form of the dividend were repaid $7 billion. This year and we've used $150 million.
Of our approved $1 5 billion.
In our share buyback program.
We have sanctioned $8 billion of new organic growth capital this year.
Our secured capital program now sits at $17 billion.
All of these opportunities have met our low risk business model exceeded our risk adjusted hurdle rates have a strong strategic fit and align with their emission reduction goals.
As always we'll continue to evaluate opportunities to selectively recycle capital and further bolster our financial flexibility.
So I'm going to I'm going to finish up with our quarterly ESG update.
Our newly created regional oil Sands partnership is a win win transaction for both us and the 23 indigenous communities along that right of way.
Our relationships with the indigenous communities along all of our right of way is something that I've always been very proud of and we plan to continue to be a leader in indigenous engagement indigenous economic persistent patients and reconciliation.
We released our indigenous reconciliation action plan in September , which articulate and tracks our progress against our commitments.
Plan built on our success, we have had working with communities through the construction of line three and the east West tie line, which entered into service earlier this year.
We're also very excited about the walkman carbon hubs and we see further opportunities.
Olive garden economic partnership across our entire asset footprint.
Our commitment to the communities, where we live and where we work will always be a huge part of our success with that I'll turn it back to al.
Okay.
Okay. Thanks, Brian as you know I'll be retiring as CEO at the end of the year and Greg <unk>, who will take over leadership on Jan one.
Just for background I informed the board at the beginning of this year that I may wish to retire from Enbridge, which kicked off a nine months long process to identify the next CEO .
Since the announcement, Greg and I and the management team have implemented a transition plan to ensure a smooth changeover and maintain momentum and consistency and that's well underway.
As usual, we will deliver 2023 guidance at the end of November and speak toward dividend. So the timing there is normal.
And then we'll follow that with Enbridge day on March one and March two so after the Q4 results.
Greg and the team will lay out managements priorities and outlook.
Please save the dates and join in either Toronto or New York.
I will remind time at Enbridge less 11, as CEO I am proud of what our team has accomplished but I believe the best is yet to come.
I've been honored to lead Enbridge, and I'm confident that Greg and the management team will continue to grow the business well into the future.
Before we open up to questions. Let me close like we always do with a few takeaways.
The business is well positioned and our low risk model provides resilience in all market cycles.
This downturn is a great example of that as we continue to deliver strong results and execute our strategies.
The last several months have seen significant volatility in global energy markets.
I think it's really proven that our two pronged strategy to focus on both conventional and low carbon investments is the right one.
As Vern noted our capital allocation priorities are unchanged and we will continue to be disciplined putting capital to work.
With that I. Thank you for your continuing support of our management team Enbridge and especially our highly skilled professional and very dedicated workforce. We will now open the call to questions and the team is here with me to respond.
Thank you we will now begin the question and answers.
If you have a question please.
Please press star one on your Touchtone phone, if you wish to be removed from the queue again press star one if you're you are using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press star one on your Touchtone.
Alone.
Your first question is from the line of Robert Kwan with RBC capital markets. Your line is open.
Hey, good morning.
If I can start on the mainline so at a minimum we have seen an increase in the cost of capital parameters, which on a flow through basis is putting pressure on <unk>. So I'm just wondering.
If it's that or to send something else what's transpired since August .
Made you more optimistic of a settlement and have there been any changes in the provision that you have been booking on the mainline.
Okay.
I'll start then Colin can add no changes in the provision.
Robert of course, we look at that provision continually and our assessment is that no changes required at this time.
I think maybe rather than <unk>.
Phrasing. It is whats happened since August I think.
We continue to talk and we got our pencils up rather than down which is good.
Both sides I think are working hard I think it's really just a matter of.
Finding a deal that works for both of that can happen.
As you've heard us say before we preferred.
To continue on and try to to a range of deal here.
Rather than final cost of service, but that option is always there and as you point out.
Theres been an inflationary environment since since around August I guess, and so that's going to be incorporated into our filing if we need it and so that's sort of where we are culling. If you want to add anything to that.
Got you, mostly guided I would amplify.
Robert Your point about the extra time here and maybe it's not extra relative to historic negotiation processes, often take about a year.
But the extra time here I think will allow us to capture if you like this various ratemaking parameters inherent in an inflationary environment right interest rates taxes.
Indexation mechanisms et cetera, So I think what I would say is either either path will contain.
On appropriate modern.
Set of rate, making promises that reflect the macro environment.
Okay, that's great.
If I can ask two and finished on a capital allocation related question.
Got your excess cash flow and it's allowed you to pick up.
Some assets here and there a modest sized deals to bolt on.
Do you feel as accretive to the strategy and your growth.
If you think the market weaknesses to persist in valuations moderate do you see that being a greater part of the capital allocation strategy and then how do you frame that against and other thing you just said rehab market weakness notwithstanding the markets today, if you've got a lower share price, how do you frame that against buybacks anymore.
Okay.
If you want to comment for sure. Thanks, Robert I think as we talk to those job. One is always the balance sheet. So having the flexibility to use the balance sheet for opportunistic opportunities is always the most important thing for us and you rightly pointed out that we have been opportunistic in looking at.
Certain assets that where we can acquire them at very attractive valuations.
I think what we're seeing though is that there is.
Very strong fundamentals for energy very strong fundamentals, particularly for exports of North American energy to global markets. So we're weighing some good opportunity decent seems very strong organic growth opportunities against M&A transactions.
Smaller scale and of course against being able to pay down some debt and the higher interest rate environment. So from my perspective, we see some great opportunities across the whole allocate capital allocation spectrum and what it is.
Great to have the optionality to pick and choose which one of these levers we pull.
Robert with a strong balance sheet to start with like Barry said and you add on the fact that free cash flow is going to be growing.
And don't forget we have.
Obviously demonstrated some opportunities to recycle capital.
So you've got a lot of cash to work with there and then finding and deciding between those opportunities that <unk> talking about I mean, obviously, we executed on some very large organic.
<unk> that are right down the middle of the fairway as I've said the M&A.
Opportunities in the tuck in.
A variety is certainly an opportunity and then as youre pointing out too.
There is other options around share buybacks, particularly at this valuation could make more sense.
So I think it's a whole plethora of opportunity here given that we have a very good outlook for free cash and the ability to recycle more capital.
That's great appreciate the answers and al all the best in retirement.
Thank you.
Your next question is from the line of Jeremy Tonet with Jpmorgan. Your line is open.
Hi, good morning.
Hi, Jeremy.
Hi al.
Just wanted to start with.
Oh transition congratulations on retirement, there if they're successful career enbridge here in <unk>.
Just wondering how we should think about the process at this point should we expect any changes in strategy that you can point to at this point or might be opened for revisiting. We're just curious because we didn't see I guess some of the forward deal.
<unk> CAGR language in the slides that we did in the past and so just curious if we should be looking for any changes on future strategy.
Well, okay, maybe on that the last part first then I'll get back to strategy. So first of all.
There is no change in our outlook, we feel very comfortable with the growth in the business going forward as we mentioned in very uncovered as well 23 guidance is coming end of this month.
And then of course, we'll talk about the medium term outlook at Enbridge day when.
Greg has a chance to lay out the priorities.
And the management team will be there as well of course, but the business is performing very well in fact as pointed out next year looks very strong.
And we don't expect any real change in our outlook as to strategy.
One thing to keep in mind here is that.
Greg has been part of.
The board and cheering for I guess, five or six years now.
At Enbridge just to take you back a little bit.
We engage heavily with our board on strategy.
In fact, we update that every quarter.
Talk about where the business is going and what we're seeing fundamentally so we're essentially very close with the board in terms of where we're headed as a company and our strategy and our priorities. So I don't expect any changes and I certainly heard him say that through the transition process several times when engaging with.
Management and our employees here, so that's how I see it Jeremy.
Got it.
That's great to hear.
Just one.
To talk about I guess, the crude oil export strategy, if I could it seems like <unk> into that quite nicely and built and synergies on the platform.
And.
I noticed in the slides is T spot on the slides as well is that an area, where you would have interest or do you see other organic or inorganic opportunities to expand on the crude oil export side of the Gulf Coast.
Okay, well, maybe Colin can speak to that as close to it yes, hey, good morning, Jeremy.
Thanks for the question, Yes, we're pretty excited about this.
Strategy, we'd be talking about it for a few years I think it's really starting to come into focus now or a puzzle as the pieces are coming together.
We've been patient as you know and there's two elements to it one is on the heavy strategy should be probably down.
Down Flanagan seaway into the Gulf region, and Thats, where.
Spot could come into play and we're still looking to develop our <unk> hot.
Houston terminal there to provide a tremendous for heavy Canadian and maybe ill liquid pricing point, which would be nice.
Then on the light oil side, which is more so a straight shot south from from the Permian right and we've got two interests in two flagship pipelines in a gray oak and now a 30% interest cactus too. So that's all integrated it's all light oil.
We've got a value chain, there are going to be operator, gray oak and Q2 of next year.
We're excited about both strategies have been big bolt on export Alan mentioned, some record loadings at Ingleside here lately. So.
There is a number of ways to win.
On the export strategy.
Got it that's helpful I'll leave it there thanks.
Thanks, Jeremy.
Your next question is from the line of Rob Hope with Scotiabank. Your line is open.
Okay.
Good morning, everyone.
Maybe a follow up question on the LNG strategy.
We've seen you talk about the numerous opportunities to feed the U S Gulf coast, but when you think about getting supplies down into that region. How does your.
Network potentially how could your network potentially be expanded cortex, <unk> turn to further move additional volumes to the Gulf coast and what constraints do you see there.
Okay, well I'll start off.
Robert.
And then I think Cynthia would you want to add on.
If you just visualize Texas eastern.
Which is essentially a massive header system.
On the Gulf Coast, which is the reason why we've been able to position so well with LNG exports.
The reality is and sometimes people forget this gas is going to come from somewhere.
And certainly.
The Haynesville is increasing and we're a natural player there just given our position geographically, but also from a cost perspective, so it's very cost effective way to get those volumes into LNG.
Areas.
Further south into the Gulf.
There is opportunities as well to move volume sales.
From the Marcellus given our position there and there is also opportunities frankly to move more volumes.
Florida, So you've got this.
Ideally position header system, that's very low cost.
Thats ideally positioned to get supply. So this is what I was referring to.
When I mentioned the upstream part of our strategy related to LNG. So.
That's the high tree top level.
Sure Cynthia may want to add to something here.
Thanks, Robyn Thanks Al I would just build on what al said by reminding everyone that we did go out and have that exploratory open season.
Consistent apparent Louisiana area, and we are we had some great inbound interests from the customers that we're working through so we hope to be in a position over the next couple of quarters to really come out with the project and help support that.
Thank you for that and then as a follow up question more broadly in an inflationary environment and one where we've seen interest rates move up has that altered the commercial framework or how you are looking at new capital investments to ensure that.
Our risk and return are properly.
And figure it out.
Okay.
Robert do you want to speak to that as you see inflation and interest rates go up.
Obviously, our low risk commercial models designed to take that into account so.
Generally with new.
Investment opportunities, we look for cost recovery on pretty much everything that we are exposed to and then as rates go up obviously that impacts the underlying risk free rate and that causes our hurdle rates to go up so all in all I think it just.
Raises the bar on some of these projects we're looking at.
Thank you and I guess finally al congratulations on all that you've accomplished and all the best in that endeavor.
Thanks, Rob.
Your next question is from the line of Theresa Chen with Barclays. Your line is open.
Good morning, Congratulations al on your pending retirement and to create the new role.
So I wanted to ask about on the.
Utilization on the mainline.
Our comments could utilization through year end and.
2023, and in light of Cemex and coming online how much volume do you think.
It could move off your system pulling the in service date.
That project and how long do you think it would take to recover to full utilization as you look at your producer plans your customers' plans on the base case.
Within this development I guess, one wrinkle is that just given the large naphtha cut inherent in WCS and elevated inventories in Asia, which would be the natural destination for many of these tariff on that pipe and coupled with ongoing pet chem demand weakness in booming global recession per your earlier.
Comments al.
But at least near to medium term.
The natural home for Ewc's barrel as <unk> comes online.
The U S Gulf Coast anyway, where we had some of the most complex and flexible refining facilities.
Which should result in continued strong utilization of mainline.
I think you've got it trees on that last point, so it maybe maybe Colin I should address that one.
Yes, I just wanted to agree with what you said basically Teresa so.
Utilization right now is basically full especially Q3 Q4 eight were seasonally more fall.
We're full.
With with typically a Q2, but I think your question that was more kind of year by year end.
And further out so.
For full now we should be pretty much full.
Again in 'twenty three.
And then depending on when <unk> comes into service and by the way we are respecting public in service dates.
<unk> by <unk> and we're building we've always built our plans around that so we are expecting it.
So if we're at 90%, 95% utilization now and through 'twenty three we expect to unlike other I think all other egress competing alternatives will.
We will see a small drop probably proportionally across the board, we will probably lose.
Circa 10 percentage points.
For a few years.
And.
So we do see.
Modest growth in the basin over time and that should refill all all egress.
Options over the ensuing few years.
And for the reasons you note.
Thank you.
The mainline will see.
A useful future tar.
<unk> targeted down to our our pad two and pad three markets, which have that that strong poll.
And.
<unk> global.
Relevant refineries, so generally agree with what you're saying.
Thank you.
Thanks Theresa.
Your next question is from the line of Robert <unk> with CIBC capital markets. Your line is open.
Hey, good morning, and congratulations on your retirement here and specifically for staying as active as the company has been in the last little while.
And in particular I wanted to follow up on that on the current M&A environment.
We've seen a lot of activity here, so I'm curious.
This has been a bulge or if you expect.
Opportunities to continue.
Continue at this rate and where are you finding the best opportunities to fit your strategy. Both on the tuck in acquisition point of view as well from a capital recycling point of view.
Yes, well I think broadly speaking Robert.
The market looks pretty good I mean did the transactions that we've done mind you we've been pretty.
I guess selective in what we're looking at we found to be reasonably well priced.
If you start back from mingle side.
And then we sort of popped in TGE and a couple of others here recently cactus.
We've done it at reasonable valuations I think the market's pretty reasonable at this time and.
We will pick off those opportunities as we see them, where they fit our strategy.
And specifically, where we can build out.
The business and again <unk> is a good example.
As I said earlier, so outsized impact so we're seeing them across the businesses.
Gas transmission liquids and of course in renewables. So I think it's just.
A positive environment for that let's call it singles doubles, maybe even triples.
In the next two three years, that's how we're looking at it and Auvergne do you want to add anything to that.
You've covered it off al I think having the balance sheet capacity is giving us more opportunities than we've seen in a long time. So we're.
We're very happy to be in this free cash flow positive position.
Okay and my follow up here it has to do with the renewables, you've obviously added to the North American onshore with Joy global.
I just wonder what your current thinking is on the value and expanding.
Two other markets.
With onshore and offshore.
Okay, well maybe Matthew.
You can chime in on that one please.
Sure.
Robert Thanks for the question.
Right now, we feel we're really well positioned across all our markets.
Organic growth opportunities.
As you know you've followed us closely in the offshore in Europe , we have several gigawatts of potential development there some underway a bunch under construction.
We really like those markets and we'll keep building those out.
Western Europe focused.
Long term contracts.
With visible Ppas and Counterparties.
In North America now.
Really like our position with <unk>.
We'd like to the portfolio.
There are several gigawatts of Optionality, there that adds to what we already had there which was over a gigawatt. So we'll optimize that.
In terms of sharing.
Cherry picking the best projects to do and to do in terms of timing so.
We will maximize our risk adjusted returns there and maintain capital discipline. So we don't we've got tons of opportunities when you look at both markets.
And we're really well positioned both in offshore Europe down in North America. So I think we'll just build those out.
Maintain our discipline, we don't really see the need to enter any other markets from there right now.
Robert we get invited to a lot of stuff and we see a lot of opportunities globally.
So as Matthew said I think we're pretty happy with where we are in Europe , given all we have going on there we get we get a lot of opportunity as well U S northeast offshore.
Which as you've heard us say before has been just too frothy and uncertain with respect to timing to.
Cash flow on those projects. So again, we've got so much going on onshore North American offshore Europe .
We've got a long runway here of development opportunity to keep us going for quite a while.
Okay. Thanks, everybody.
Okay. Thanks Robert.
Your next question is from the line of Brian Reynolds with UBS. Your line is open.
Hi, good morning, everyone.
Maybe you can talk about the future liquids expansion the acquisition of Tri Global can you just talk about how you see this acquisition is complementary and maybe a sense of what's the liquids expansion I'm curious if you could provide any commentary on how shippers are looking at potential tolling arrangement and how they receive the deal.
Okay sorry.
I think youre talking about try globals first part of it.
Yes, well, yes, I think I referred to it in my remarks.
We have pretty darn good capability I would say when it comes to.
Commercial arrangements.
Construction and operation of renewables and we built that up over a good 20 years here 20 years, plus actually I think what we're missing is what I referred to as the front end and origination so.
In this business and renewables.
A lot of works required and prospecting identifying the right wind resources.
And critically figuring out how to get on.
The transmission grids and that involves a very significant process.
So I think that's really this fill in that this provides for us.
And I think now we legitimately have a full value chain of capability. We're excited about it actually and as I said earlier.
Having this try tribal.
<unk> actually accelerates what we already have.
In terms of development opportunities.
As Matthew said.
We've got on our own lands certainly solar soft power those are all opportunities where this team now can help move that quicker and that's that's the big part of it.
There was another part of your question, maybe you could just repeat it.
I guess, just ultimately how the shippers.
Ultimately doing it in the greater context of potential mainline.
Ranjan.
Okay. So you are talking about.
Renewables being solar cell power and how it relates to the mainline I think that's your question.
Yes, yes.
Hey, Brian its call, yes, thanks for that question.
We are we are mindful of that.
We're looking to get our own emissions.
Down right as part of our.
ESG pledges and I think as Alan mentioned, we've got about 10 self solar projects in flight right now many of them will be on the liquids system.
We're a major.
Power draw in jurisdictions, we operate if we can self power, we can free that power up for other other uses and we can also.
Green it up.
So we're.
Prepared pretty closely with Matthews power business to see if we can.
To accelerate that further it's our intent.
And.
It also.
Manages the economic exposure as well so.
It's kind of a two for that way for us.
Ryan.
These days in this environment.
It's not just mainland customers I think all of our customers whether it's upstream of us are downstream of us Theyre looking for service providers that are very much focused on ESG and emissions being a big part of it. So I think in today's environment. It's almost table Stakes that you have.
To focus on reducing emissions, whether you're in the midstream or upstream or downstream part of the value chain. So they're looking to us to make sure we're well advanced on reducing emissions and that's going to be critical for all energy providers.
Going forward.
Great great. Thanks, and just as one follow up.
I'm curious if you could just talk about how you view the ultimate ownership of BCP. It on your prepared remarks, you talked about.
The appetite for a little bit less commodity exposure and just given the evolving NGL strategy out of Corpus just curious if there are any opportunities within tcp's asset base that could ultimately be exchanged for that ultimate ultimately less commodity exposure.
Yeah well.
Honest before.
Before we did the joint venture with P 66, it was a pretty small component.
G&P component of our of our business and with this.
With this joint venture it actually is even lower so and Thats why I referred to it being pretty much de minimis in terms of commodity exposure. So I don't see the need to.
Make any change here going forward I think we've got it pretty much where we want it.
And I don't think it's a good idea to speculate on what assets might be workable into the U S. Gulf Coast I think it's a good point that you raise Brian but nothing on the horizon immediately on that front.
Okay.
Fair enough I appreciate the color and enjoy the rest of the morning.
Great. Thanks, Brian .
Your next question is from the line of Ben Pham with BMO. Your line is open.
Hey, Thanks, good morning.
On our renewable earnings.
Hey, good morning.
On the renewables side with the inflation reduction Act.
It's in the outlook in the U S renewables better then.
The development pipeline you have in Europe .
Well.
Matthew do you want to chime in on that first.
Yeah, Ken we really.
It's a really good insight.
Really we feel a time this one really well.
On the <unk> with the inflation reduction act coming into play in.
Hopefully just makes those projects even more economics, so we really like the North American outlook right now, we really like the Optionality, though and I think that's that's key is we're going to like I said before in response to a prior question. We have so much on the go now both in Western Europe , and North America, we can really pick and choose the.
Best projects as you know capital discipline on our risk profile are always front and center at Enbridge and so having all of these opportunities in this portfolio just gives us.
Great Optionality, but yes, I think youre right I mean, we love our developments in Europe , but right now the U S looks.
Very attractive and so with this three gigawatts that we got with TG combined with we had over a gigawatt plus a front of meter internally those projects should get great tailwind and the customer demand is fabulous right now.
Very very buoyant so we'd.
We'd like North America, a lot and we like the Optionality we have.
I think Ben right now.
Maybe to add some balance to it as well.
And I think Matthew pointed this out it gives us a lot of options to choose the best projects and we shouldn't discount Europe , either I mean, typically they've had very strong PPA structures. They have a very smooth process for connecting to grids, especially from onshore offshore.
<unk> locations regulatory processes are pretty smooth as well so anyway, it's good to have choice.
Two really good markets.
Okay, Great and then.
My second question.
The fall update from the King government yesterday, and maybe some that's expected maybe some of it isn't what are your initial thoughts on implications on your Canadian business and outlook.
Yes.
No.
At a high level it appears that.
This is intended.
It was do that close the gap to the U S.
And I think that's important because I think it's recognized from what I read last night that you have got to be competitive and I think as I said this will try to close the gap so that we get our share in Canada.
Investment dollars I think broadly speaking that the tax credits for wind solar and support our business here in Canada.
There is.
There is some references to financial insurance on carbon pricing, which I think can be very helpful to carbon capture performance in Canada and as I said earlier in my remarks, that's a big opportunity you've got investment tax credits for hydrogen.
And by the way it appears that that's for both Green and Blue will have to get more into the details there.
And then of course.
There's indigenous benefits sharing our major projects. So my read of this early on is it will be.
Active for our business here.
And both in terms of Canada, attracting capital, but also for for US are specific to our business generally.
Okay that's excellent.
All the best in retirement.
Okay. Thanks Pam.
Your next question is from the line of Linda <unk> with TD Securities. Your line is open.
Thank you and I want to add my congratulations very sincerely how to you. Thank.
Thank you.
So.
Maybe you can help us understand and delineate a little bit more about that.
The mainline process beyond the end of the next year. So basically there is two paths that I understand will likely be taken.
If you were to go down the settlement path I assume it would be a fairly quick process, but maybe you could update us on.
How long do you think that would from beyond the end of this year and then.
Firstly, if you were to go down a path of cost of service can you give us an update on how much extended you think that process would be and then the second part of my question would be around risk sharing.
In the past producers valued toll certainty and enbridge provided that.
And took on that risk.
You also earlier in your comments mentioned.
Inflationary indices et cetera. So just wanted to comment on what potential no fly zones. If you can offer in terms of what risks you might be less inclined to take on in this iteration.
<unk>.
Volume risk.
Do you want to take that.
Sure. Thanks, Linda so.
Youre right too.
Acknowledged that I think the different paths could have different regulatory.
Follow on time Horizons.
Thats intuitive settlement could be shorter.
It could be much shorter.
Hey.
A full on.
Cost of service application what would it take.
A year or more.
We everyone understands that I think is.
Blending that into their.
Discernment here on.
On the whole package.
And I think I'll amplify the word package because I think your next question part of the question kind of tried to dive into specific.
Puts and takes and I think it will be a package if there is a settlement.
In the past you are right.
Shippers have like toll certainty, we have accepted the risks plural in exchange for a risk premium and the tool right. So that's.
The nexus of of the conversation again.
What is the appropriate premium for these risks and again we mentioned.
This extra time does allow us to ensure we have captured a good look at what those new macroeconomic parameters are so I think everyone's got good visibility too.
To make that judgment on an appropriate risk premium.
We we won't look again too tall indexation I think Brian referenced that is a hallmark of our commercial model, we would look for that again.
And it's probably a question of what that index.
Level is so.
At the end of the day.
I think we're hearing shippers.
Like the service they like the alignment model that al.
Characterized over 25 years trades hustle.
And we're aligned so the question is really is what is the appropriate tool and in recognition of that I think.
The other thing I would add.
Colin I think you mentioned volume risk.
Linda.
As Colin said, we manage that.
And whole bunch of other things over the years and we're comfortable doing that but it will come down too.
Risk versus reward and getting an appropriate return to manage that volume risk, but embedded in that as well as I think you're pointing to it.
In the past the shippers.
Have preferred toll certainty and thats one of the big benefits.
Of what we provided we start with the toll and we may escalate it depending on what the arrangement might be there, but certainly in our cost of service you don't have that certainty on 12, and that's been one of the factors that is.
As.
In the discussion.
Okay. Thank you and just as a follow up maybe.
Continuing on the risks discussion when you're allocating capital.
How do you account for geographic risk specifically.
Geopolitical risks I think the perception is it's going up in certain parts of the world.
And.
Our supply chain as well.
There are there would be certain components and some of your energy.
That might become more uncertain in terms of cost as well as timeline.
Our U mitigating that and how are you factoring that into your capital allocation decisions and how often do you reassess that.
It does appear to be quite dynamic.
Yes, yes, I think youre right well.
<unk> Finance group is pretty <unk> about.
Cost of capital and those types of risks that you pointed out so maybe I'll turn it over to him for that one.
So Linda when we look at each and each and every individual project that we invest in we come up with a hurdle rate for that specific project. So that hurdle rate will take into account schedule risk and capital cost risk so schedule risk really gets into how.
Long does it take you to get permits how long do you think it's going to take you to build the project is there going to be our position so that that.
The uncertainty of.
Those things get baked into the hurdle rate similarly for supply chain that generally comes into how much capital cost risk or are you going to be exposed to and building out a specific projects. So again, we will look at the very specific aspects of supply chain for an individual project when we come up with.
Project specific hurdle rate.
Over and above that.
If we're entering a new jurisdiction that we haven't done business before.
It can be a country risk premium added on top of all of these other premiums we've talked about so hopefully that answers. Your question probably goes down to the state level to Hey, Vernon Hello, absolutely different regions in the U S where.
Frankly, its easier in some places way more difficult than others. So that's built into his schedule risk premium comment.
Okay.
Thank you I was just a housekeeping question would you be able to provide the actual day youre going to be giving 2023 guidance later this month and the scope of what would be included in that beyond maybe.
DCF per share guidance and.
And EBITDA guidance given at your Investor Day has been pushed to March.
Brian do you want to speak to that.
Our plan right now is to provide that on November 30th.
We'll provide a full suite of information on 2023 at that time.
Yes, I think we will do the usual notice.
<unk>.
Maybe weaker two out just to make sure that we've got that day rate I think <unk> got it.
Yes, so that's the process.
Thank you.
Great. Thank you.
Your final question comes from the line of <unk> Satish with Wells Fargo. Your line is open.
Thanks, Good morning.
South I think on the last earnings call you had pegged the cost of the project or at least the initial cost to be $2 5 billion, but now it looks like it's $3 6 billion.
So I guess, what's changed and maybe can you help us understand the cadence of Capex spending which years, we'd see the the most most of the capex to be deployed and then finally are there any stretches of the project that could be challenging either from a construction standpoint or permitting and thats. All I have thank you.
Okay. Thank you, maybe we'll turn this one over to Cynthia.
Thanks, Alan Thanks.
So with the T South project to our original cost estimate.
We've had an opportunity now to build in some of the inflationary pressures that we've seen recently so that is more of that comprehensive estimate associated with that.
And.
That's still an order of magnitude estimate we're going to be going through and doing the detailed.
Design work and the environmental impact assessment type work and the outreach, but that will be done and we will have a more detailed estimate kind of in Q1 of 2024 to support the 2020 for filing.
As I look at the other parts of your question.
What's going to be critically important for us as we go forward with the permitting and the approval of this process through the regulatory is to make sure we engage with the indigenous communities.
So that's a critical part of our ongoing outreach and how we're going to be successful in moving that project forward as well as looking at our mission impact.
Focusing in on electric drive when it comes to the actual right away again. This is an area that we're familiar with it's not greenfield projects.
It's a good start, but we will do that detailed assessment from the overall permitting process this fits into.
And kind of that middle category. So we're very familiar with the activities, having said that though as I mentioned, it's going to be critically important that we engage with all our stakeholders to fruition and that really good positioned to move forward through that permitting an approval process.
Maybe I can just follow on to answer about the capital the capital.
The large bulk of the capital does not get spent until you get through the regulatory process and Cynthia mentioned that the regulatory process is scheduled to start in 2024. So if you envisioned at 2028 in service date, the bulk of the capital is getting spent in that 2007 2008 timeframe.
Got it. Thank you appreciate it.
Great. Thank you.
This concludes our question and answer session I will now turn the call over to Rebecca Morley 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, we appreciate your participation. This concludes today's conference you may now disconnect.
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