Q4 2022 Enbridge Inc Earnings Call
Ladies and gentlemen, welcome to the Enbridge incorporated fourth quarter 2022 financial results conference call.
My name is Abby 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 Morley director of Investor Relations. Rebecca you may begin.
Thank you good morning, and welcome to the Enbridge, Inc, fourth quarter and year end 2022 earnings call.
My name is Rebecca barley, and I'm, a director on the Investor Relations team.
Joining me. This morning are Greg Evil, President and CEO , Vern Yu, Chief Financial Officer, and President of New energy technologies and have each of our business units Kevin Grundy.
Cynthia Hudson gas transmission, and midstream Michel inheritance gas distribution and storage and Matthew Ackman renewable power.
Per usual this call is being webcast and I encourage those listening on the phone to follow along.
We will try to keep the call roughly to 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 necessary, we'll be prioritizing questions from the investment community.
If you're 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 slide two where I'll remind you that we'll be referring to forward looking information on today's presentation and in the Q&A.
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 are summarized below.
With that I'll turn it over to Greg.
Yeah.
Well, thank you very much Rebecca and good morning, everyone I'm excited to be here today to review, our fourth quarter and a record full year 2022 financial results.
Another solid quarter and here. So let me start off by doing a recap of our accomplishments in 2022.
Including as Youll see on this slide our Saint Nazaire project. This is Frances first operational onshore wind farm and it came into service in November on time and on budget at approximately $2 4 billion euros, it's providing 480 megawatts of electricity.
To provide 700000 people with electricity every year.
I'll also spend a few minutes discussing some of the key strategic advancements from our four core franchises and then Bert Who'll walk you through the financial performance and outlook.
And then I'll come back and close it a little bit on what you can expect to hear at our upcoming Investor day.
And of course, the Enbridge team is here to address any questions at the end.
Before we get into the highlights let me spend a minute or two sharing why I'm excited to be leading this great company moving forward.
For me it starts with the people.
As chairman I had a great opportunity to get to know many of the Enbridge team that I had not previously known and in the last few months.
Met with employees at all levels across the business their passion is evident in their delivery of life, giving energy the people's dependent.
And they do it every day safely and reliably.
I have no debt, we will build on this legacy deliver top tier performance and continue to grow this great company.
Many of you.
I'm passionate about the energy industry.
We all know it is the backbone of our society.
Access to safe secure affordable energy supports economic development and wellbeing.
Today the sector is at an inflection.
We must support the transition to lower carbon future while at the same time, ensuring we are delivering safe secure and affordable energy Enbridge is right at the center of it we're uniquely positioned to lead the energy transition and continue to deliver reliable energy to our customers.
As this slide demonstrates we have an extensive asset footprint that allows us to realize synergies across our four core franchise.
Our business is highly diversified and is underpinned by low risk commercial frameworks.
Our franchises are largely demand pool, and we served best markets across North America and increasingly in Europe .
And we've demonstrated over our history and ability to adapt wisely allocating capital and capitalize on it falls in market fundamentals.
Our natural gas franchise investing more than two decades ago, and what were they in the emerging renewable energy technologies of wind and solar.
Our balance sheet is in great shape, and we have good visibility to cash flow growth.
Combined this will allow us to continue to deliver strong risk adjusted returns to our shareholders through all market cycles and allow us to build on our tremendous track record of steadily growing our dividend.
I am excited by the passion of our people the strength of our company and by the investment opportunities that we have in front of us both on the conventional and lower carbon fronts. So let's move to our 2022 highlights.
The year was indeed, another solid one for Enbridge, we continued to lead on safety and reliability in total we invested over $1 billion on the integrity of our systems.
<unk> sheets in great shape, Triple B, plus rating and comfortably within our debt to EBITDA range of four seven times, we placed $4 billion of growth Capex into service and secured an additional 8 billion of new capital projects, including investing in liquefaction through our investment in the wood fibre Elena.
G project.
And we continue to be good stewards of capital releasing close to $2 billion of asset value from our regional oil sands assets and DCP midstream.
That brings us to $11 billion in capital recycling to help fund high grade opportunities since 2018.
We made great progress on our ESG goals, increasing diversity, establishing new digital partnerships and and advanced emission reductions across the business.
Now, let's spend a few minutes on key accomplishments of each of our businesses starting with liquids.
Our liquids business delivered record utilization in 2022 with the line three replacement project being put into service in late 2021.
Our mainline is running full average daily throughput was 296 million barrels a day for 2022.
And February and January of 2023 will exceed that as we hustled amongst every barrel we can for our customers.
We continue to have constructive dialogue with our customers on a successor mainline incentive tolling agreement as you know these discussions take time and we're working with a subgroup of shippers.
And on a new framework once agreed upon we would then take it to the broader shipper group for a vote on the proposed agreement before filing it with the CER.
Should we be unable to come to an agreement then we're fully ready to file a cost of service with the CER, which would actually reduce that risk and make us even more utility like.
It is important to note that we've been factoring the impact of <unk> into our financial and operational for a long time.
We expect the mainline will remain well utilized once <unk> is in service.
We're talking to our shippers about the impact of <unk> and it will be accounted for in either commercial tolling outcome.
In addition, we expect to see growth in the basin between now and 2030.
The basin grows our system will fill back up.
In 2022, we extended our light oil strategy by increasing ownership to 68, 5% in the gray oak pipeline through multiple transactions and increased cactus II pipeline ownership to 30% both of which help connect the Permian basin to our Ingleside terminal.
We sanctioned another 2 million barrels of storage at Ingleside, which will unlock already built docs loading capacity for further exports.
I think youre, starting to see and to create a real value add it's super system out of the Permian region for our customers.
Having the ability to move product for our customers on two pipelines, we have the number one export terminal and the capacity to let them access premium markets for their oil.
We also advanced several exciting low carbon opportunities, including the development of a hydrogen ammonia plant at the Ingleside terminal and the JV with oxy clean carbon ventures to develop a carbon capture hub in Corpus Christi.
I think there are some really exciting times coming for our Gulf coast connected liquid assets.
These low carbon opportunities on the Gulf complement our Ccs plans in Alberta, where.
We are leading the development of what him and carbon hub with close to 4 million tonnes of Cotwo already secured for sequestration.
And we're advancing our south tower.
Our strategy with.
With seven projects in construction at our pump stations with more on the way.
Lastly, we executed a landmark transaction with 23 indigenous communities in northern Alberta, selling roughly 11% stake in the regional pipeline and storage assets.
With this transaction, we have strengthened our relationship with neighboring indigenous communities and surface strong value for reinvestment.
We see this as an ideal framework for future partnerships and as a tool to recycle capital more on that and our Gulf Coast Regional plans at Enbridge day in March.
Moving to gas transmission, we have another we had another excellent year, our systems were highly utilized and particularly during the winter storm Elliot.
We continued to demonstrate our reliability by reversing the flow of our Texas eastern system to supply much needed gas to the U S northeast.
A net swing of close to three Bcf was instrumental to avoiding potentially devastating impacts to our customers and underlines, our competitive advantage and serving customers and changing environments.
During the year, we also achieved positive rate settlements on the Petco and BC pipeline systems and.
And further underpinning the value of our pipeline system all contracts up for renewal in 2022 were successfully re contracted.
We placed $900 million into service, including modernization projects and our veto offshore pipeline system.
Our natural gas export strategy continued to play out as we began construction on our Venice extension projects, serving Plaquemines LNG.
In addition, our investment in wood fiber LNG has helped spur new investment along our BC pipeline system, where we secured another $4 $8 billion of expansions on a T north and T cells.
As you will recall these projects burn under a cost of service framework and given that they consist of brownfield construction on existing right of ways, they have considerably lower capital cost risk.
Overall, we see tremendous potential for North American LNG to meet global demand for secure lower carbon energy and we're engaging with governments in the United States and Canada to advocate for permitting of reforms to support development.
We also further reduced our exposure to commodity prices by decreasing our economic interest in DCP and in favor of a higher interest in the gray oak pipeline that is highly contracted.
This was another good example, recycling capital to lower volatility and better risk reward investments.
Turning to our gas utility they had another strong year with approximately 46000, new customers about it.
We put one $2 billion of expansion capital into service in 2022, which supports the continued growth of our rate base there.
And we filed a new incentive rate application for the period 2024 to 2028.
We have a long track record of working under incentive rate mechanisms that provide quality safe service and predictable rates for our customers, while also allowing us to achieve a premium return, but then the return parameters set annually by the lead.
Michel will have more to say on this important initiative at our Enbridge day in March.
Our dawn hub and transmission systems continue to perform well, particularly in December as winter storm Elliot wreaked havoc on North American markets are integrated dawn storage hub was able to reliably provide gas to the market, which helped to stabilize prices in fact, just before Christmas It was.
<unk> helped to deliver a record $6, one bcf of gas to the market in a single day.
The distribution team continues to progress our R&D strategy with two new projects sanctioned bringing the total to eight in service or under construction in Ontario.
We're also seeing encouraging performance from the 2% injection of hydrogen into the gas stream and Markham, which serves 3600 customers with low carbon or lower carbon natural gas.
While we are still studying the impacts we are also exploring the merits of extending this strategy to more customers.
Looking at our renewables business 2022 was a pivotal year for that segment. We placed the first of four offshore wind projects into service and France on time and hit the $2 4 billion Euro budget quite an accomplishment in this market we.
We have three south power solar projects in service and another 10 under construction, which will produce 113 megawatts of power for liquids and gas transmission businesses lowering scope two emissions and.
And we acquired a top renewable developer in North America try global energy.
The acquisition brings near term cash flow from the sale of three nine Gigawatts of advanced projects over the next couple of years and the power team has over three gigawatts of new development in progress that we expect to enter service between 2025, and 2028 with more beyond that time frame.
The three gigawatts represents $3 billion to $5 billion of potential gross capital investment for Enbridge.
Our combined expertise will help us accelerate our north American onshore renewable strategy, taking advantage of the incentives announced in the inflation reduction Act.
So it really find 2022 for all the business units, which translated into record financials and <unk>.
Sets us up for future growth. So let me now turn it over to <unk>, who will walk you through those financial results.
Thanks, Greg and good morning, everyone.
<unk> fourth quarter capped off a record year for us we exceeded the midpoint of our DCF guidance range and when we finished at the top end of our EBITDA guidance range strong operational performance resulted in a 6% increase in EBITDA and a 7% increase in DCF per share quarter over.
In a quarter, our full year EBITDA increased by 11% over 2021, and our DCF per share was up 9%.
During the quarter, we saw record mainline volumes of $3 1 million barrels per day.
Export volumes at Ingalls side continue to grow throughout the year and we continue to enhance our U S. Gulf coast footprint with increased ownership and gray oak and cactus to gas.
Gas transmission utilization remained high.
We have increased our revenues with recent rate case settlements.
Texas Eastern and that the BC pipeline.
Q4 also benefited with a full quarter of operations from our T cells and spruce Ridge expansions.
The utility what's up with strong customer growth rate escalations and some slightly colder weather.
<unk> business was down slightly in the quarter due to lower U S. Wind resources, the timing of annual operating expenses, which was partially offset by strong European power prices energy services remained challenged in the quarter due to tight basis differentials in backwardation.
But as a reminder, we expect energy services to return to profitability this year.
The quarter also benefited from a stronger U S dollar.
DCF in the quarter reflected higher distributions from our alliance and Gray Oak joint ventures, offset by higher interest expense cash taxes, and the annual timing of maintenance capital.
Let's take a moment now to remind ourselves and how we built a business that's resilient and all market cycles.
The financial markets continue to need to be extremely volatile inflation is driving central banks to raise rates stoking the potential of a recession.
Enbridge continues to be well positioned to navigate through these risks our low risk business model is built on minimizing our exposure to market price volatility and provides us with contractual protection against any of these movements.
We have a proven track record of meeting our guidance. Despite volatile market conditions. This resiliency is once again demonstrated in our 2023 outlook, let's move to that now.
We are reaffirming our 2023 guidance that we provided last November .
We expect the business to perform strongly in 2023 with high utilization across all of our systems and we will benefit from the capital we placed into service in 2022.
The additional capital that we place into service this year.
Rising interest rates or a modest headwind in 2023, but this has already been reflected in our guidance. We entered the year with approximately 10% of our debt and floating rates.
We're also substantially hedged on foreign exchange, so we're well protected here as well.
Our 2023 dividend increase of three 2% marks our 28th consecutive annual dividend increase and our dividend payout remains in the middle of our target range.
We continue to prioritize the balance sheet and are targeting to exit 2023 in the lower half of our four and a half to five times debt to EBITDA range.
At Enbridge day, we will provide more detail on our medium term growth outlook. So please join us for that I'm now going to move on to our secured growth program.
Today, our secured capital program sits at $18 billion.
We had $4 billion capital enter into service in 2022, which will drive cash flow growth in 2023 and beyond.
We also added $8 billion to our growth capital program last year, where the majority of this capital comes into service between 2026 and 2028.
Our $5 6 billion of annual investment capacity allows us to fund these projects under an equity self financing model.
Going forward, we have ample investment capacity for more organic growth tuck in M&A debt repayment and share buybacks, so with that let's move to capital allocation.
It all starts with balance sheet strength and financial flexibility at.
Recycling capital into new opportunities is just one part of our strategy to keep our leverage in check our balance sheet does not require us to do so, but we will continue to opportunistically evaluate future asset sales at attractive valuations, we continue to return capital to shareholders sustainably.
We pay out about 65% of our distributable cash flow as a dividend and as you know we have a long record of growing our dividend.
We renewed our $1.5 billion normal course issuer bid.
Which allows us to opportunistically repurchase shares.
Buybacks, we will of course compete with any other capital allocation opportunities, but they will also act as a benchmark for our business developers.
We will prioritize low capital intensity and utility like investments and then deploy any remaining investment capacity the next available option.
All of these opportunities fit our low risk business model exceed our risk adjusted hurdle rates have a strong strategic fit and align with our ESG goals.
The bottom line is we continue to be focused on maximizing shareholder value.
Let me finish up with an ESG update.
I'm truly proud of our ESG, a concert which meant in 2022.
Most of all by the work we've done indigenous reconciliation.
We released our indigenous reconciliation action plan in September , which articulate and tracks our commitment and progress with their indigenous stakeholders.
To the east West tie line, the Wap them in carbon hot and the <unk> II regional oil Sands equity partnership we are setting the standard for economic participation on a third edition as partners.
We see further opportunity to continue to develop more of indigenous partnerships on both sides of the border.
We're finding innovative ways to reduce our G. H G emissions youre executing on your solar cell power strategy that supports both of our liquids and gas businesses.
On governance, we're honored that Pamela Carter has been elected our first female chair person. Finally, we issued another sustainability linked bond in the fourth quarter, bringing our total sustainability linked financings to over $4 billion with that I'll turn it back to Greg.
Okay.
Well, thanks, very much Vern and as we mentioned earlier, we're really looking forward to spending time with you at our Investor Day is coming up in Toronto, and New York in March.
You will hear that those days from our business unit leaders on the prospects for each of their businesses there'll be providing you with views on the following questions.
What are the near and long term fundamentals of the business.
How will we continue to drive efficiencies, how can we grow our core businesses and invest in new energy technologies, while leveraging our existing business positions horizontally across the enterprise how are we progressing on our ESG goes.
In addition, youll hear from myself and the team about the positive positioning of our business, our strategic priorities, our capital allocation discipline and our medium term financial outlook.
We hope to see you there and look forward to a great discussion.
Before we take questions, let me wrap up by saying that over the last decade al Monaco and the senior leadership team have transformed enbridge to be the leading energy delivery company.
Building off that strength, we've entered 2023 with a solid plan and a committed team to continually continue safely and reliably delivering energy across North America and beyond for our customers and our investors.
2022 was an inflection point for our industry and policymakers as energy security and high commodity prices from Underinvestment and energy was put under the spotlight.
The need for both conventional and lower carbon solutions to meet the growing demand for global energy will be critical as well our ability to deliver.
In an economic and environmentally sustainable way for our customers, our investors and stakeholders at large our business model is resilient and our low risk value proposition should make us your first choice energy investment opportunity.
We will demonstrate that at Enbridge day and show you, how we will bridge to the energy future by meeting the needs of today Tomorrow and beyond.
Thank you for joining us today and now let's open up the lines for your questions.
Yeah.
Thank you we will now begin the question and answer session. If you have a question. Please press star one on your Touchtone phone, if you wish to be removed from the queue Press star one again.
If you are using a speakerphone you may need to pick up the handset first before pressing the numbers and we will pause for just a moment to compile the Q&A roster.
Okay.
And we will take our first question from Robert Kwan with RBC capital markets. Your line is open.
Great Good morning.
Greg I guess first question here for you just around the mainline here have you changed the company's priority, even if it's a nuance, but just part of a potential deal and specifically.
As you think about transitioning the business over time and their desire to push for higher depreciation.
Both manage the residual value.
The main line as well.
Our leasing additional capital to rotate into lower carbon infrastructure.
Robert first of all thank you.
Collins on the line here too, but maybe I'll start yeah, I would not see the mainline negotiations as anything.
About changing the priorities of the company.
As I've tried to speak to the investment community today in one on it. So we will talk about this on March.
I wouldn't read that into it I mean look.
Strong belief continues to be that from a north American perspective, it's about going through and out.
And the liquids business is part of that obviously is a critical component that will remain from a western Canadian perspective, as we serve those customers not only in Canada, but also their desires to go south.
And as we talked about a little bit in the opening comments.
From the perspective of the Gulf Coast.
We're building what I think is a really great Super system. There. So I don't think it's a it's an either or it's an and so I definitely don't see the mainline.
Negotiations has changed in any way in the priorities. This is a great business that earns about $9 billion in EBITDA and we will continue to be the backbone of the corporation, which does not take away from the other business units, but you know specifically Colin do you want to speak to our to some of the comments and questions from Robert.
Yes sure Greg.
Robert.
Maybe just to build on on Greg's comments and ill give you as much color as I can on the unfunded negotiations, it's obviously premature to dig into it too much.
It would be disrespectful to our counterparties, but.
Here's what I can tell you and Robert you've been around the.
The company and industry for a while and you'll recognize that.
We've Ah.
We've evolved through incentive tolling.
For 2007 years now seven vintages.
Starting back in the nineties and each one of those.
Arrangements.
Matured build on the previous one added.
New features typically added not too many subtraction, but added new fleet.
Features are.
Around risk and reward.
Around.
Uh huh.
Speaking to ways, we can maximize value for industry.
Right.
To recap a little bit these have included initially.
Cost envelopes, then it evolved to batch quality.
It evolves to.
Connect activity.
And increasingly now it's including <unk>.
ESG stewardship and defense of the system and advocacy.
Well, we add new features.
To this one.
Likely.
Could include items like you're talking about.
We're very mindful of.
The dynamic you Hugh you surface there.
And then in light of increasing industry risks so.
I'd say.
And incentive arrangement here remains the shippers preference that's why we're negotiating it.
Hi, all.
I'll add our bid ask.
On the toll component of the arrangement has narrowed.
Meaningfully.
I want to caution that we're not there yet we've made progress, but we're not there yet and we may not get there.
And obviously, we've advanced and fully prepared the alternative cost link.
Cost of service pass through model, which would be which would be equally acceptable.
To us we don't have comments on timeline.
I don't think Thats helpful, but we are making progress.
Either outcome here will be competitive for our customers and investors.
I don't know I, probably over answered that Robert but.
It's a good question.
Great I appreciate the color and I can just finish on cap allocation of our capital recycling you had.
Good amount of activity in 2022, I'm just wondering how active do you intend to be satisfying monetization from Venezuela, just time on acquisitions.
It's not new that youre, focusing on tuck ins, but the annual disclosures very specifically no tuck ins.
Just some thoughts as well as to how you might be approaching larger deals or is it really just focus on <unk> when it comes to M&A.
Yeah, well first and foremost you know I think the reason why we can even consider those types of things Robert is that that strong focus on capital allocation starts with the maintenance of our of our balance sheet and the equity self financing model and all of that of course, ultimately ends up and being able to increase that.
Dividend on a steady basis, but you.
You've seen us recycle capital over the last four or five years $10 billion plus that allows us.
As well as some of the capacity on the balance sheet to go out and do tuck ins. We'll continue to look at those and the next thing is for a company the size of Enbridge with itself equity financing model and the balance sheet capacity, we tuck ins for us are pretty substantial deals I mean, we would refer to ingo.
As a tuck in.
From that perspective, and as you know it's in the 3 billion dollar range and look at the opportunities that then it it created frankly.
The team great job in getting a solution for many years to DCP and it leads to gray oak and that leads to cactus and some of the opportunities and I would even argue to the to the work. We're now doing in the early stages with oxy.
And pieces like that so I think you can continue.
Continue to watch for that continue to see us.
Look at Tuck ins I don't think we explicitly set in our 2023 guidance, we wouldn't do that that is part of the core.
Of what we were able to do now and you should expect to continue to see that Didnt get smart stuff that we can fit in.
And they can add incremental value not just to the business that maybe it's coming to but also that horizontal perspective of some of those tuck ins and that and that includes on the new energy technology side.
Look the Matthew and the team, bringing in tried global energy. That's a great example, and a whole variety of opportunities and they know all the business units are looking at those types of thing again, driven by the strong balance sheet and the ability to equity self finance.
That's great I appreciate the color. Thank you.
Sure.
We will take our next question from Jeremy Tonet with J P. Morgan Your line is open.
Hi, good morning, and wanting al the best in retirement, Greg looking forward to working with you going forward here.
Sure.
Just wanted to pivot towards I guess, the WCS D and.
Expansion really.
Specifically construction risk going forward, we see a lot of projects out there we see issues of cost overrun.
And we see pressure on the contractors the strength of this company and so just wondering as you look at <unk>.
Expansions with T cells that have to you know how do you think about addressing.
You know the.
Project costs risks, given the dynamics and what we've seen in the basin so far.
Yeah look it's a great question and we're obviously very much focused on it as you know we're not new to building projects, but this is an interesting environment. Several things that I think probably put us in a bit of a unique situation.
Kelly in Western Canada.
Projects.
We're just.
Secured last year first of all they are along existing right of way that is an important issue that cannot be underestimated in terms of us understanding what we're doing and remember we've been through one company or another been running that system since $19 50 ish type timeframe with lots of expansions.
Secondly.
They are split up over a long period of time right. So you're talking about brownfield projects of which the capital is spent over multiple years and much of it not for several years ahead. So unless you believe there's going to be a very long time period of inflationary pressure on us I think.
We should be in a good spot from a from a A&M.
Inflationary perspective, and then of course these are brownfield projects I think it's very different when you're building a brand new projects and this will go. This is very similar to the whole system, where there is a greenfield project. There is not a linear projects, so cindy and the team from a wood fiber perspective are obvious.
That's a.
Big project, but not a massive project and it's not that linear project and one that's been worked for the better part of 20 years and now coming to a good fruition. So I'd say you know not just in Western Canada. This is something we're focused on all fronts and other power teams focused on that are obviously right across North America. This is something that we are.
We're hypersensitive to but I like our positioning from their perspective, as I said existing right of ways, largely brownfield or timing and capital spend should put us in a better spot than maybe some others are dealing with right today.
Got it got it that's helpful. Thanks, and just wanted to pivot towards I guess floating interest rate exposure. It seems like theres. Some locking in for this year, but just thinking on a longer term basis is there any thoughts to kind of.
Terming out more of that and reducing the amount of our exposure to floating rates at a given point in time, yes.
Yes, good question, Jerry I'll turn to burn through that the other thing I, probably should've mentioned as you know it's not the case in every every location, but desperately in western Canada.
Under a cost of service structure to which is definitely different than a lot of other people in terms of their contract structures and infrastructure, but Bert you want to speak to the floating rate debt issue. Okay. Thanks, Rick.
Jeremy as you know we run run our debt book with the percentage of floating rate debt in each and every year and over the long run we create shareholder value by having some floating rate debt out there.
Our target is to run between 10% to 20%.
Some of the book and floating rates and as you've seen obviously interest rates go up we have gone to the short shorter or the smaller end of that.
Target range.
We're highly hedged on new issuances as well so there's a there is obviously some interest rate exposure.
But we will carefully manage that and I think youre right. There is some value.
In the shape of the curve right now and that will be part of how we manage our debt portfolio. As we go forward because obviously in today's market a five or 10 year bond is actually cheaper than floating rate debt. So.
You raised a good point.
Got it that's helpful I'll leave it there thanks.
Thanks, Jeremy.
We will take our next question from Rob Hope with Scotiabank. Your line is open.
Good morning, everyone, maybe keeping with the BC theme can you comment on the on the deferral of the T. T. Open season, just given the commentary on producers are reevaluating their long term plans in this commodity price driven or if this blueberry driven can you maybe add a little bit of political.
Sure Cynthia is here, so maybe I'll, let cynthia chime in here yeah.
Yeah, Thanks, Rob I would say that it would be.
Opportunity for customers to step back in queue.
How they want to approach that so it is both the blueberry and they may be looking at inflationary pressures, but.
Our west coast customers when they asked us to propel can postpone this to the second half of the year, it's basically just to allow them to SaaS.
Plans are and their gas transportation requirements. So with that blueberry decision I think it's great that we're able to continue to progress we're going to see more certainty certainty is always something that we'd like to see in that space.
<unk> always had some as Greg had mentioned long relationships with the indigenous people in that area, but our customers now will have the opportunity to really look at how the blueberry decision is going to allow them to continue to do so it's a combination of both.
Okay.
Alright, Thank you for that and then Greg you've been in the chair I guess just over 40 days now can you give us an update on where you are on your 90 day plan, what <unk> been focusing on so far and what changes you've made.
So.
Several things obviously getting the books closed through the year and just finished the board meeting.
Good on that front, but I've really been spending time AC investors and a lot of investors.
Getting out and seeing our employees I've sat down with every vice president in the company I think for at least Npower and get their views on where things are.
And and also huge employee groups as well and it's been a long time and this is going to be a big focus of mine with policymakers to permitting is a huge issue. We said this off the front, but you know both Canada and the United States. This is an issue and were not really answering the call from sustainability.
<unk> fuel perspective globally, and we can do that in North America and look after ourselves well, helping the rest of the world. So I'm going to spend a lot of time on that front.
I think youll here.
In March and I'll ask you to wait till then.
Some of the priorities going forward, but again I would not expect to see a significant change on the key areas right. So the liquids business, we chatted about that as well the gas business look the LNG side of things is absolutely a focus of mine both here in Canada, but also in the Gulf coast in the United States those are.
Opportunities are big.
We've got to continue to do that and then as well on the renewable side of things how are we going to continue to grow out that business. We bought triad global we've got a focus on that and make sure that the results. We expect to that come in in the next few years as well as advancing our iron GE ARCC U S and in the longer term some of the hydrogen.
Opportunities that are out there and I will not forget the gas distribution business I love the gas distribution business had been there to see employees there as well that is a growing business.
You know it is frankly, there is no future with natural gas I don't care, what anybody says that's the reality of the situation and obviously, having a gas distribution business is an important element of that so that's been my focus will come out in March I have I'll say it pushed some authorities down to people to make decisions. So that we can move.
A little quicker I think that's gonna be critical making sure that we can react to our customers, but also the needs of investors going.
Going forward and really starting to look at look I think we're in a good position for 'twenty three.
Are we going to go in 'twenty four 'twenty five 'twenty six and look forward to chatting with you about that in March.
Looking forward to it thank you.
Thanks.
We will take our next question from Theresa Chen with Barclays. Your line is open.
Yes.
Good morning.
As to your longer term strategy on the liquid side for the U S Gulf coast, given the and.
Series of acquisitions over time.
Do you see more into Q2, shortly a portfolio there and what's your general outlook.
Yes, well Collin and I will speak about this in March but the short answer is absolutely again I think you can you can just see since the acquisition of Ingalls side, just a little bit over a year so ago we've.
We've continued to kind of move the ball forward on that front as I said I think the future both on the Canadian side in the U S side is through and out of the continent. We have got to be a bigger player on the Gulf Coast and I think we're set up to do that so.
If you'll give us a few weeks, we'll see you and we will talk through this so I think it's pretty exciting actually what's going down there.
Which does not I don't want to be clear it does not take away from anything that whats going on in Western Canada, as well, particularly on the oil side look theres a lot of discussion about gas, but I think as China reopens.
And.
We have and not enough money has been spent.
On restocking if you will the reserves on the on the oil front at a medic many commodity France, I think that's going to lead to some real opportunities and people being real careful with capital, which is the right thing to do but as we go through the year I think youll start to see more upward pressure on the price of oil, particularly in international markets.
And let's see three to six months from now where China is on there on the reopening.
Sure economy is a little softer here, but outside of North America, I think youre, starting to see a little bit of green shoots going up and that's going to lead to longer term does it need for more infrastructure on the Gulf coast.
From my perspective, so we'll chat more about that but that's that's my general comments.
Thank you.
Thanks Teresa.
And we will take our next question from Robert <unk> with CIBC capital markets. Your line is open.
Hi, good morning.
Partially answered this with respect to your answer Robert one, but I'm wondering if in the current cost environment, including inflation and higher interest rates is that causing you to change your approach.
For rate request, specifically risk sharing or is it more a matter of just ensuring proper tools.
So that you are covering your proper cost.
Maybe more frequent.
No our rate cases, so maybe you can answer it.
On the gas side given your prior comments on liquids.
Sure and I'll, let I'll, let Cynthia chime in here too, but I think I think the answer to that is also yes, we are.
It was.
20 years, plus from the time, we had the Texas eastern rate case and now.
You know those muscles have been.
<unk> been a been toned again, so I think we're getting good at that I think our customers recognize some of those costs and the same thing on the distribution side of things too.
Cynthia and then maybe Michelle you can both speak to that issue.
Sure.
And for our gas systems, we have done a number of rate cases recently two very successful settlements just last year, both with Texas Eastern system and the <unk> pipes.
And we continually look at when is the right time to go in to a rate case settlement and we look at all of those things.
Robert So it is our cost our capital cost.
Crist rates all of those costs come into that we do have that opportunity.
Greg was mentioning to go back on a regular basis. So this is just part of our standard approach to making sure that we're getting the right return for investments, we're making in India in the assets that we have so you'll continue to see US go back when the time is right.
Based on what the experiences so with just having settled out both.
Texas Eastern into BC system, it'll be a a couple of years and that's how we'd go back on hours, but that's just a continuing part of our approach now as we go forward.
Right. So certainly is a question of timing and our Cogs, so as opposed to changing something fundamental on the reassurance.
Right. So when we go into those settlement Robert we do have those conversations about what the experience has been and we also look at what rate we're approaches for us to have in that risk environment. So the framework is flexible and we continue to create that balance both for us and for our past.
And there is some of that risk and Michelle maybe just some commentary on your filing of the S. C O B and how you are looking at that sure you bet Greg Robert.
It's a little more towards formulaic and structured we go typically every five years now what's unique here. It's the first three basing application for both of the legacy utilities in about 10 years, because we've been operating under.
The mergers frameworks in the last five years, but so very heavy lift to get that in and it was in by the end of last year, which has us well on track to.
Have new rates that'll be effective for the first of January and we're quite confident that we will move forward with our performance based regulatory model.
In a manner that.
Effective as what we've seen in the past and that really does allow us to.
To continue to earn while we're driving our efficiencies we pass those savings on to the customers and then post 2024. After we rebase, we'd expect some very attractive returns using that that's formulaic incentive rate setting mechanism, yeah, and you know most of our programs our most of our assets.
Have some element of inflation tracking and I think that's important it's not instantaneous roku, but we shouldnt forget that goes in this environment I think that's unique and we are looking at things and both on the gas side and definitely the gas utility side like depreciation.
So if people have a view on risk so do we and so.
We will continue to push those four and in some cases that even that means looking at the equity components as well so all of those around the table and I think we've got constructive mechanisms both.
You get your opponents, but from the customers, but even regulators again, Texas gas infrastructures absolutely critical despite what you see sometimes in the papers.
Okay. That's very helpful. And then just a follow up question on your mainline discussion you know as I'm I'm inferring from your comments that obviously every every negotiation takes on a life of its own has its own character, but.
Greg I'm wondering if you can comment.
When do you when will you know.
When it makes sense to file a cost of service application what has to happen.
To make that decision.
Well first of all as Colin said look I don't think creating artificial time frames on these things is a wise idea. It's not it is because it is an artificial timeframe.
We obviously continue to serve our customers we want to get to a solution as soon as possible, but I'd say, if we came to a point where as Colin pointed out we just werent, making progress then.
We are ready prepared and willing to go down that cost of service rep, but as long as there is some progress and as long as there is goodwill between the parties that doesn't seem like the way to go in and that's where we are right now so I understand the frustration sometimes on this but I can assure you following in the team.
And our customers are very focused on this issue and there is a again good.
Good rapport between the players and trying to reach a solution, we may not get there, but we shouldn't create a false deadline.
To be able to pull that off to call and Youre. If you want to chime in please do so.
Well said.
Yeah.
We have to really thank everyone I apologize.
Thanks.
As a reminder, it is star one if you would like to ask a question and we will take our next question from <unk> Satish with Wells Fargo. Your line is open.
Okay. Good.
Morning, I wanted to touch on the gas storage business. It seems like the value of storage is going up with the winter storms and some of the supply.
Low gas prices that were seeing I guess are you seeing any positive traction in storage rates and then maybe can you remind us how much of your gas storage is is third parties versus used by your utility.
Sure I think.
But michelle and Cynthia can speak of it but I I first of all.
We have a huge storage position both on the Gulf Coast, let's not forget.
And then obviously central part of the continent. So several hundred DCF I think it's there's a variety of reasons why you're seeing an increase in the value.
I don't know if I want to give you the specific rates and I'll, let Cynthia decided where I do it but we're seeing markedly higher rates for re contracting and LNG is playing a critical component of this I've been waiting for this for a long time.
Big ambient temperature swings are irrelevant issues for storage.
And then also just things like obviously your standard winter and regional differentials are important too but.
Michel I don't know, what well, maybe I'll turn to use Cynthia because I definitely see storage is one of those growth areas for us as well.
Yeah, Greg I don't think they'll get specific as to what our renewal rates are but we have seen a lot of.
Our opportunities to continue to.
Whether it's.
You know, whether it's re contracting with the existing customers that we had a lot of inbound interest from others and as you said, Greg a lot of that tied into it.
Incremental dry now for exports and creating some stability for that as well as just the volatility that you're starting to see.
And it has been getting our teams are continuing that have lots of conversations and we're seeing strong re contracting rates, yeah, and so in the U S side on the Gulf Coast all of that would be third party.
I'm Michelle on the utility side, how much of the storage would be for you guys announced would be third party, yes, Greg it roughly breaks down to about two thirds.
Preserved for rate base, and then about one third that is unregulated and I do have to say and give that they are dawn storage hub.
They've performed incredibly well through some of these.
Challenging winter conditions, we've seen and in fact, what we're seeing is a trend towards them really propping things up in the mid continent.
Over the holidays, when we saw extreme weather across North America, they were flowing into the Ontario market for certain backstopping things into the mid continent get out towards the northeast.
Added a lot of flexibility into that storage system, we've invested over $100 million in it in the last 10 years to increase the rate ability and.
And performance out of it and it's absolutely stepping up to do that we're also seeing longer term contracts being signed up to that unregulated storage and certainly our unregulated starts youre sold out for 2023 Yep. That's great in a more when you get these big swings in AR and weather as well, let's not forget yeah, you got it.
If you move Texas Eastern both directions, now theres, a different need where that storage is now customers drop on that so just to be clear storage contracts are still sure alright, so cut storage contracts.
Typically two to five years, so when we say they're getting longer that means they are no longer spot, but still that's a great spot for us to be and so a good question.
Thanks very helpful. And then just switching gears with your leverage now down to 4547, I think lowest it's been in a very very long time I guess, what is the right leverage for your business as you look out over the next few years and are you going to keep driving driving that lower or are you hitting a point, where you could potentially pivot.
More of that free cash flow back to either back into the business or the equity holders.
And then just tied to that how do you think about leverage in the context of of ESG, recognizing the more oil weighted asset base.
Well, that's a great question I think.
We're quite comfortable where we are in the debt to EBITDA range you have to remember that lots of our assets are highly regulated with highly regulated capital structures. So theres a limit on how far we can push on the debt to EBITDA down but being in the lower half of the range provides us.
The flexibility to allocate capital to all kinds of great stuff more organic growth tuck in M&A.
Share buybacks and potentially at a slightly lower leverage but.
I think we're happy where we're at and we'll and we'll continue to try to be around this point and a debt to EBITDA range, Yes, I think the nice thing and it's a really important that I think our U S investors, sometimes miss and we maybe need to do a better job with the U S rating agencies again to <unk> point, when you've got 65.
Percent debt required by regulation in the utility and added two dissimilar number on all of the gas pipes in Canada, that's going to by definition give us a little larger number but as Brian says the way, it's structured now and the way our DCF kind of comes through you've got $5 billion to $6 billion of investment capacity and.
We believe that we can handle with the self equity financing model and the balance sheet with that.
Making any negative.
Negative change to our balance sheet that is a really strong position and it goes back to some of the comments about things like tuck ins as well. So we're in a good spot right now.
Thank you.
Yes.
And we will take our next question from Linda either gave us with TD Securities. Your line is open.
Thank you just a follow up question on the mainline to give us some more context around how this is progressing.
In terms of.
Yeah.
Sticking points potentially is everything still at play in being traded off are there are a number of items largely settled such as potentially like duration and off ramps with just a few sticking points can you comment on what.
Might be more versus less contentious and one of the sticking points points, particularly.
Still potentially be trading off competing customer priorities.
Linda It's a good question and I'll, let Colin jump in here, but you know until the negotiation is done.
I don't think it's fair for us to kind of throw out one offs and assume we know exactly where the other side is till it's done, but we're calling with that maybe you'd like to chime in.
Yeah I agree I can appreciate your curiosity here Linda.
But yeah I don't think it's.
It's appropriate to.
Kind of pick or pull those apart.
<unk>.
More to come and we will advance this is.
Expeditiously as appropriate.
And I know I should mention too that we've got right are at Enbridge day any approaching in three weeks.
I think probably to manage your expectations that we may not have commonality or much more color on this by then.
<unk> will continue actively likely through that period.
And remember too there is a there was a vote that's required by by industry.
No.
Yeah I appreciate the question sorry, I cant help you too much more at this time.
No I understand and given the importance to the basin. It's good that everyone's taking a thoughtful process just as a quick follow up more from a financial lens.
Right now you've got a bit less than 2% of cash flow at risk.
You commented on interest rate exposure, you've got some foreign exchange exposure can you talk about maybe where you are on commodity prices and your services business continues to lose money like what is their strategic value there.
The outlook for that and how might that business evolve over time.
Yes, Linda.
You saw last year.
Trade at our D C P position for a larger position in Gray oak.
And that materially reduces the amount of commodity price risk rehab business, we still have some more.
Commodity price risk.
Within the gas transmission business, primarily associated with alliance not stable, we have some cost associated risk with power prices and liquids in the gas transmission business, but really that's pretty much all the commodity outright for commodity price risk we have.
In a very very large organization. So there is a pretty de minimis amount of commodity price risk.
All of our businesses.
With respect to energy services, I think we've talked about in the past that it.
It gives us a good lens on basis differentials, which generally drive pipeline development. So it's good.
Tinder have equipped not door to understand what our customers are seeing both in natural gas and crude oil I think we've talked about.
Previously that yes, 2022 was a very tough year for that business.
Effectively there was no basis differential across many pipeline systems and in the crude oil markets.
<unk>, where we're backward dated pretty much for the entire year. So.
Going forward, we're going to see some.
Contracts roll off at energy services.
Commitments will go away and we expect the business to return to profitability this year.
Long winded answer, but hopefully that gets done.
Well said Vernon, obviously staying completely within all the regulatory confined.
So it's a fair focus we're taking a look at it didn't happen.
You know energy services entitled.
Create more value for the customers and making sure that they understand all the capabilities back and forth. So definitely something to look at I appreciate that.
Thank you.
We will take our next question from John Mackay with Goldman Sachs. Your line is open.
Hey, everyone. Good morning, Thanks for the time.
At risk of getting the answer that just wait for a Toronto I just wanted to follow up on <unk> question on the Permian strategy. I mean is there any interest at this point of reaching farther back in owning it let's say something on the gathering side.
And then similar you kind of just staying in the Permian now.
Now that you're a bigger stakes in those.
Big Corpus pipes, just any interest in potentially expanding those sooner rather than later thank you.
Sure never saying never but having just got out of a major gathering system on the other side on the NGL side, I think our focus and what we're really getting at is as big pipes.
And tied to the export side of things. So Colin you may want to add to this I guess if it if it was really good we saw incremental value on the on the export side of doing that that something be open to but at this point I think the way. We're building. This out is bigger pipes and figure out ways to really serve customers on that front, but Colin you may want to add to that.
Yes, yes, I agree on the gathering point I'm less interested there for sure.
<unk>.
But you know exclamation marks behind the export strategy and.
I think it's becoming quite clear that the.
Corpus egress point out of the Permian is quite attractive.
Where we're building out and up from there.
But only so far.
Uh huh.
Where.
It's initially.
At acquisition Tuck in acquisition strategy here, where.
We are deploying.
Risk adjusted returns versus build better.
Relatively attractive given build risks.
And then synergies yeah.
Along the integration value chain.
Potential expansions here.
So yes, that's the strategy in nutshell building out of light oil strategy to complement the.
The top notch heavy one that we've got a further north.
Alright Thats helpful. Thank you and there were a top up our I'll just ask one more quickly and Thats, probably easy answer any change in LNG export appetite that you're seeing either from your partners or potential.
Potential customers given the pullback in global prices recently.
No I think people are looking at this from a long term perspective again I'll go back to there is no future without natural gas and I think parties, one thing I'll say I feel that come back five or six years, because there was a more practical approach to energy transition five years ago, we seem to.
Get fat and happy on the fact of.
Plentiful fuel and stuff like that and I think people are realizing unfortunately due to the situation in Europe and elsewhere that.
North America's energy is needed abroad, and the only way to do that is through exports. So definitely don't see any pullback on the LNG side Alright. These players on that side are have a much they've got a very long term focus on the price of the commodity and who they're surfing. So I see I think you know that they're used to the quad.
The prices move up and down and.
But they've got that long term focus as do we and so I don't think you'll see any pullback on that side. The biggest challenge to analogy continues to be permitting issues right and so you know some of our customers in the Gulf coast, They need some real help out.
Out of the FERC.
And of course appear that's always an issue is as well so permitting permitting permitting not commodity commodity commodity.
Yes.
Alright, let's clear I appreciate the time thank you.
Thanks.
We will take our last question from Ben Pham with BMO. Your line is open.
Hi, good morning, Thanks, Tom going back to the mainline and I was wondering if you do go to cost of service or your falling cost of service how long does it take to put that through the regulatory process.
Yeah.
Collyn I'll leave that to you I know, it's not it's less short then the negotiations I can tell you that.
Yes, yes, that's right Ben.
I think we've got some gantt charts on some standing IR presentations, where we've.
Compared to contract.
Process and timeline I'd refer you to those but yes generally.
File our cost of service and by the way the applications ready to go here. So if we need to pivot.
We can quickly but.
But it is a longer process.
You would take into.
Probably late 2020.
For I think probably get clarity on that so yeah. It's another thing to consider.
And the mix of our alternative.
Okay.
And okay.
Thank you and then maybe a follow up on that says in your prepared remarks, you mentioned you know hypothetically cost of service.
Move more towards utilities tiers.
Derisk cash flows is there.
Is there maybe a.
If that does happen do you think it's warranted to move to an.
And earnings per share guidance metric and do you think that you can actually potentially take on a bit more leverage credit rating standpoint.
Well I think look I I don't see the leverage piece being in that calculation, maybe on the EPS on something we'll give some thought to look at it I'm very focused on teams focused on <unk>.
Levering our cash earnings right, it's all about cash all the time and it should be.
And so we really havent crossed that Rubicon, let's continue to see the negotiations move forward as Colin said, we are ready to go on cost of service and Youre exactly right that kit.
That makes it even more utility like so either either is possible, but I don't we're not going to cross the EPS comment today.
Okay Gotcha, and then maybe one last one offshore win.
Markets have seen significant dislocation.
Do you think it's better to buy offshore wind assets now than then built just wasn't the capex risk of here, but the industry is seeing.
Well, Matthew Sydney are happy that he's getting the questions. So I'll turn it over to him.
Thanks, Ben for the question.
We're really happy with our offshore wind position right now.
There is a lot of moving parts over there right now in terms of.
I think some some of the players are theres, a little bit of a dose of reality coming in with some of the inflation impact and timelines. We're in a great position because we've got.
The project, we just brought into service we've got two others in service now and we've got a couple under construction that.
It is never easy, but are going quite well now also.
And then some in development that are advancing nicely.
We also have contracts attached to them so we're not rushing into.
Acquisitions in the offshore space, but it's something.
Ben that we that we always watch and certainly opportunistically, we'd look at that but right now we're real happy with the position we have there.
Okay, great. Thank you.
Yeah.
And ladies and gentlemen. This concludes the 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 that you may have once again, thank you and have a great day.
Yes.
Thank you ladies and gentlemen, we appreciate your participation. This concludes today's conference you may now disconnect.
Yes.
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Okay.
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