Q4 2022 Enbridge Inc Earnings Call
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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 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 Marley and I'm, a director on the Investor Relations joining.
Joining me. This morning are Gregg <unk>, President and CEO , Vern Yu, Chief Financial Officer, and President of New Energy technologies, and the head of each of our business units, calling branding liquids pipelines.
Gas transmission and midstream Michel inheritance gas distribution and storage and Matthew Ackman renewable power.
This call is being webcast and I encourage those listening on the phone to follow along with supporting slides, 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 eliminate your questions to one plus a single follow up as necessary, we will be prioritizing questions from the investment community.
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'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.
We will also be referring to non-GAAP measures summarized fuller.
With that I'll turn it over to Craig you Bob.
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. It was another solid quarter and year. So let me start off by doing a recap of our accomplishments in 2022.
Including as Youll see on this slide our Saint Nazaire projects. This is France's first operational offshore wind farm and it came into service in November on time and on budget at approximately $2 4 billion euros is providing 480 megawatts of electricity.
To provide 700000 people with electricity every year.
I will also spend a few minutes discussing some of the key strategic advancements from our four core franchises and then <unk> will walk you through the financial performance and outlook.
And then I'll come back and close with 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 im excited to be leading this great company moving forward.
For me it starts with the people.
As chairman I have a great opportunity to get to know many of the enbridge team that I have.
Previously known and in the last few months.
Its employees at all levels across the business their passion is evident in their delivery of life, giving energy the people's dependence.
And they do it every day safely and reliably.
I have no debt, we will build on this legacy delivered top tier performance and continue to grow this great company.
Many of you.
I am passionate about the energy industry.
I'll note is the backbone of our society access to safe secure affordable energy supports economic development and wellbeing.
Today the sector is at an inflection point, 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 are uniquely positioned to lead in the energy transition and continue to deliver reliable and.
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 Paul and we served best markets across North America and increasingly in Europe .
And we've demonstrated over our history and ability to adapt wisely allocate capital and capitalize on evolving market fundamentals.
Growing our natural gas franchise investing more than two decades ago and what were then 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 continue to lead on safety and reliability in total we invested over $1 billion on the integrity of our systems.
Our balance sheets in great shape to 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 LNG 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.
<unk>, new digital partnerships and <unk>.
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.
In February and January of 2023 will exceed that as we hustled to move 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 to land 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 our 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 outlook for a long time.
We expect the mainline will remain well utilized once <unk> is in service and we.
We're talking to our shippers the impact of <unk> and it will be accounted for in either commercial totaling outcome.
In addition, we expect to see growth in the basin between now and 2030 as the basin growth 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 that.
Permian basin to our Ingleside terminal.
We sanctioned another 2 million barrels of storage in Ingleside, which will unlock already built docs loading capacity for further exports.
I think youre, starting to see and to create a real value added super system out of the Permian region for our customers.
Beyond 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 Coast.
Our Ccs plants in Alberta.
Where we are leading the development of the problem that the carbon hub with close to 4 million tonnes of Cotwo already secured for sequestration.
And we're advancing our soft power.
Power strategy.
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 debt and our Gulf Coast retail 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.
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 Tesco 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 <unk> North and <unk>.
As you will recall these projects earn under a cost of service framework and given that they consistent 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 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.
Other strong year with approximately 46000, new customers got it.
We put $1 $2 billion of expansion capital into service in 2022, which supports the continued growth of our rate base there.
And we filed the 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.
Able 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 market, 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 for offshore wind projects into service and France on time and hit the $2 4 billion Euro budget quite an accomplishment.
But in this market.
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 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.
In 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 timeframe.
Three gigawatts represents $3 billion to $5 billion.
A potential growth capital investment for Enbridge.
Our combined expertise will help us accelerate our north American onshore renewable strategy, taking advantage of the incentives announced and the inflation reduction Act.
So it really find 2022 for all the business units, which translated into record financials and sets us up for future growth. So let me now turn it over to FERC, who will walk you through those financial results and outlook.
Thanks, Greg and good morning, everyone.
Our strong fourth quarter capped off a record year for us we.
<unk> at 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 quarter.
Our full year EBITDA increased by 11% over 2021, and our DCF per share was up 9% during.
During the quarter, we saw record mainline volumes of $3 1 million barrels per day.
Export volumes at Ingalls side continued to grow throughout the year and we continue to enhance our U S. Gulf coast footprint with the increased ownership in gray oak and Cactus II.
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.
Our renewables 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 have 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 placed 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 five 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 am 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% to $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.
Recycling capital into new opportunities is just one part of our strategy to keep our leverage in check.
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 shareholder sustainably, we payout about 65% of our distributable cash flow as a dividend and as you know we have a long record.
A growing 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 each 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 shipments 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.
Through the east West tie in line, the Waltham and carbon hub and the <unk> II regional oil Sands equity partnership we are setting the standard for economic participation with third edition as partners.
We see further opportunities to continue to develop more of indigenous partnerships on both sides of the border.
We're finding innovative ways to reduce <unk> emissions in order to executing on our 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 days coming up in Toronto, and New York in March you.
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.
We are progressing on our ESG goals.
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, with 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 will our ability to deliver both 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.
<unk> 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.
Hey, good morning.
Greg I guess first question here for you.
Around the mainline here have you changed the company's priority.
It's nuanced.
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 mainline as well.
The leasing additional capital to rotate into lower carbon infrastructure.
Yes.
Robert first of all thank you.
And Collins on the line here too, but maybe I'll start, yes, 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 us and we'll talk about this March.
I wouldn't read that into it I mean look my strong belief continues to be that from a north American perspective, it's about going through and out.
The liquids business is part of that obviously, 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 our perspective, 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 spitz.
Specifically, Colin do you want to speak to some of the comments.
Question from Robert.
Yes sure.
Sure Greg.
Robert.
Maybe just to build on on Greg's comments and ill give you as much color as I can on the Colombian negotiations, it's obviously premature as 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 company Ministry for Awhile, and Youll recognize that.
We've.
We've evolved through incentive tolling.
For 27 years now seven vintages.
Starting back in the Ninety's and each one of those.
Arrangements.
Matured build on the previous one added.
New features typically added not too many subtraction, but added new.
Please tours.
Around risk and reward.
Around.
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 bad quality.
It evolves to.
Connectivity.
And increasingly now it's including.
ESG stewardship and defense of the system and advocacy.
Will we add new features.
To this one.
Likely yes.
Could include items like Youre talking about.
We're very mindful of.
The dynamic you surface there.
And then in light of increasing industry risks so.
I'd say.
And incentive arrangement here remains the shippers preference thats why.
We're negotiating it.
Hi, all.
I'll add our bid ask.
On the toll component.
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 linked.
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 know I, probably over answered that Robert but.
It's a good question.
Great I appreciate the color if I can just finish on capital allocation or capital recycling.
Good amount of activity in 2022, I'm just wondering.
How active do you intend to be satisfying monetization.
Monetization and as well at this time on acquisitions.
It's not new that youre, focusing on tuck ins, but the annual disclosures very specifically now.
Yeah.
Just some thoughts as well as to how you might be approaching larger deals or is that really.
Focus on <unk> when it comes to M&A.
Yeah, well first and foremost I think the reason why we can even consider those types of things Robert is that strong focus on capital allocation starts with the maintenance 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'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.
Would refer to ingleside as a tuck in.
From that perspective, and as you know the $3 billion range and look at the opportunities that then at.
It created frankly, Matt.
The management team great job in getting a solution for many years to DCP and it leads to Gray Oak and then 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.
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.
What we are 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.
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 I 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.
Okay.
We will take our next question from Jeremy Tonet with J P. Morgan Your line is open.
Hi, good morning, and learning all the best in retirement, Greg looking forward to working with you going forward here.
Just wanted to pivot towards I guess, WCS B and.
Expansion really specifically construction risk going forward, we see a lot of projects out there, we see issues with cost overrun.
And we see pressure on the contractors the strength of this company in so just wondering as you look at.
Expansions with T cells.
How do you think about addressing.
Right.
<unk> cost risks given the dynamics and what we've seen in the basin so far.
Yes 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, particularly in western Canada.
The projects.
We're just.
Secured last year first of all they are all existing right away 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 1950 ish type timeframe with lots of expansions.
Secondly.
They.
They are split over a long period of time right. So youre 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 it I think we should be in it.
Good spot from a from a.
An inflationary perspective, and then of course these are brownfield projects. So I think it's very different when you are building.
Brand new projects and this will go this was very similar to the whole system, where there is a greenfield project. There is not a linear projects, so cynthia and the team from a fiber perspective, obviously that's a.
A big project, but not a massive project and it's not a 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 power teams focused on that.
Obviously right across North America. This is something that we're we're hypersensitive to but I like our positioning from the 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.
Okay.
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 exposure to floating rates at a given point in time.
Yes, good question, Jerry I'll turn to burn through that the other thing I, probably should have mentioned as the case in every every location, but desperately in western Canada.
We are 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 Brian 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 is.
There is obviously some interest rate exposure.
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.
Yes.
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.
Hi, good morning, everyone, maybe keeping with the theme can you comment on the on the.
The deferral of the <unk>.
Open season, just given the commentary on producers are reevaluating their long term plans in this commodity price driven or if there's blueberry driven can maybe add a little bit of political.
Sure Cynthia is here, so maybe I'll ask.
At this time in here.
Thanks, Rob I would say that.
<unk>.
It would be.
An opportunity for our customers to step back and confirm 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.
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.
It will take you to progress.
<unk> seen more certainty certainty is always something that we'd like to see in that space. We've always had.
As Greg had mentioned long relationships with indigenous people in that area.
Our customers know we will have this 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.
Great. 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.
Sure so.
Several things obviously getting the books closed for the year and just finished the board meeting all 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.
Thank 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 book.
Both Canada and the United States. This is an issue and were not really answering the call from a sustainability 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 hear.
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 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.
The changes 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 brought tried 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 <unk> 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 their employees there as well that is a.
Growing business.
<unk>.
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 I mean, the 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 going to be critical making sure that we can react to our customers, but also the needs of investors.
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.
Good morning, I'm curious.
Your longer term strategy liquid side for the U S Gulf Coast.
Series of acquisitions over time.
Can you see more to do to shorten the portfolio there and what's your general outlook.
Yes.
Alan 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 and the upside 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 youll give us a few weeks, we will see you and we will talk through this I think it's pretty exciting actually what's going down there.
Which does not I don't want to be clear 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 an.
Not enough money has been spent.
<unk>.
Restocking if you will the reserves on the on the oil front at a medic many commodity fronts, I think thats 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 and particularly in international markets and let's see 3% to.
Six months from now where China is on the 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 thats going to lead longer term to the need for more infrastructure on the Gulf coast.
From my perspective, so we'll chat more about that.
That's my general comments.
<unk>.
Thank you.
Thanks Teresa.
We will take our next question from Robert Kelly.
<unk> capital markets. Your line is open.
Hi, good morning.
Partially answered this with respect to raw.
Robert one, but I'm wondering if in the current cost environment, including inflation higher interest rates is that causing you to change your approach.
Our rate request.
<unk> request, specifically risk sharing or is it more a matter of just insuring.
Proper tools are reflected so that you are.
Covering your corporate cost.
Maybe more frequent.
No our rate cases, so maybe you can answer it.
More 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.
It was.
20 years, plus from the time, we had the Texas eastern rate case and now.
Those muscles have been.
<unk> been 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 maybe.
Maybe Cynthia and then maybe Michelle you can both speak to that issue.
Sure.
For our gas systems, we have done a number of rate cases.
Two very successful settlements just last year with Texas Eastern system and the BC pipe.
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.
So it is our cost our capital cost.
Right 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.
We are making in the assets that we have.
Youll continue to see US go back when the time is right.
I'll, let the experiences so with just having settled out both.
Texas Eastern and BC.
Just on the it'll be a couple of years and that's how we'd go back.
That's just a continuing part of our approach now as we go forward.
Yes.
Right.
Question on the timing and cost close to changing something fundamental and the reassurance.
Right. So when we go into those settlement Robert.
The conversations of what.
The experience has been.
We also look at what rate.
<unk> 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 customers and there's some of that risk and Michelle maybe just some commentary on your filing of the <unk> and how you are looking at that sure you've got Greg Robert at.
It's a little more formulaic and structured we go typically every five years now what's unique here is the first three basing application for both of the legacy utilities in about 10 years, because we've been operating under the the mergers framework for the last five years, but very.
Very heavy lift to get that in and it would be by the end of last year, which has us well on track to have new rates that will be effective for the first of January .
Great content that will move forward with our performance based regulatory model in a manner that is.
Effective as what we've seen in the past and that really does allow us to continue to earn while we're driving our efficiencies we pass those savings on to the customers and then post 2024. After we rebates, we would expect some very attractive returns using that formulaic incentive rate setting mechanism yes.
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 thats 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'll continue to push those forward in some cases that even.
Looking at your equity components as well so all of those around the table and I think we've got constructive mechanisms both.
You bet your opponents, but from the customers, but even regulators again gas.
Gas infrastructures, absolutely critical despite what you see sometimes in the papers.
Okay.
Very helpful. And then just a follow up question on your mainline discussion.
I'm inferring from your comments that.
Obviously every every negotiation takes on a life of its own has its own character, but Greg.
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.
For you 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 because it is an artificial timeframe.
We obviously continue to serve our customers we want to get the 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.
And we are ready prepared and willing to go down that cost of service route 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 and Thats, 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 again good.
Good rapport between the players and trying to reach a solution, we may not get there but.
We shouldnt, creating false deadline.
To be able to pull that collyn.
If you want to chime in please do so.
Yes, that's well said.
Yes. Thanks.
Oh I.
I apologize.
Okay.
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.
Hey.
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 we're 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.
Michelle.
You can speak a little bit.
First of all.
We have a huge storage position both on the Gulf Coast, let's not forget.
And in <unk>.
Asleep central part of the continent. So several hundred Bcf I think theres.
Theres a variety of reasons why youre 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 we're not doing it but we are 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.
But the big ambient temperature swings are relevant 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 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. Our bank, we have seen a lot of.
Opportunities to continue to.
Look at whether it.
You know, whether it's re contracting.
In customers that we've had a lot of inbound interest from others and as you said, Greg a lot of that tied into the.
Incremental dry now for exports and creating some stability.
As well as just the volatility that you're starting to see so it has been and our teams are continuing that have lots of conversations and we're seeing strong re contracting rate, yes, and so in the U S side on the Gulf Coast all of that would be third party.
Michelle on the utility side, how much of the storage would be before you guys announced would be third party, yes, Greg it roughly breaks down to about two thirds.
Doug preserve for rate base, and then about one third that is.
Related.
Do you have to say that our dawn storage hub.
<unk> performed incredibly well through some of these.
Really challenging winter conditions, we've seen and in fact, what we're seeing is the 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 towards the northeast I mean, we've added a lot of flexibility into that storage distant we've invested over $100 million in the last 10 years to increase the rate ability.
And performance out of it.
Stepping up to do that we're also seeing longer term contracts being signed up to that and regulated storage and certainly our unregulated storage if you're sold out for 2023, Yeah. That's great and are more when you get these big swings and weather as well, let's not forget.
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. So it would be 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 good question.
Thanks very helpful. And then just switching gears with your leverage now down to four or five or seven 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 can potentially pivot.
<unk>.
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 the lots of our assets are highly regulated with highly regulated capital structures.
Theres a limit on how far we can push that debt to EBITDA down, but being in the lower half of the range provides us tons of 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 will.
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 I can't point, when you've got 65% debt required by regulation in the utility.
And not too dissimilar number on all of the gas pipes in Canada, that's going to by definition, given us a little larger number but as Brian says the way it structured now and the way our DCF kind of comes through you've got $5 billion to $6 billion of investment capacity annually that we can handle with the self equity financed.
Model and the balance sheet with that.
Making any net.
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 when it gets fire them.
Thank you.
Yes.
And we will take our next question from Linda <unk> 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.
Sure.
Sticking points potentially is everything still at play in being traded off or are there a number of items.
Largely settled such as potentially duration and off ramps with just a few sticking points can you comment on what.
It might be more versus less contentious and what are the sticking points, particularly still potentially be trading off competing customer priorities.
Linda It's a good question I'm going to let Colin jump in here, but you know until the negotiation is done.
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.
Yes, I agree I can appreciate your curiosity here Linda.
But yes, I don't think it's.
It's appropriate to.
Pick a pull those apart.
Sure.
More to come and we will.
We will advance this is.
Expeditiously as appropriate.
And I know as you mentioned too that we've got our Enbridge day 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.
Negotiations will continue actively likely through that period.
And remember too there is there was a vote that's required by by industry.
So.
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. That's good that everyone's taking a thoughtful process just as a quick follow up more from a financial lens.
<unk> got a bit less than 2% of cash flow at risk.
Can you commented on interest rate exposure that some foreign exchange exposure can you talk about maybe where you are on commodity prices and the services business continues to lose money what is their strategic value there.
What's the outlook for that and how might that.
Business evolve over time.
Yes, Linda <unk>.
You saw last year.
Traded our DCP 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 costs associated risk with power prices and liquids.
The gas transmission business, but really that's pretty much all the commodity outright commodity price risk we have in a <unk>.
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 gives us a good lens on basis differentials, which generally drive pipeline development. So it could continue to 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.
2022 was a very tough year for that business.
Effectively there was no basis differential across menu pipeline.
And then the crude oil markets.
Prices were backward dated pretty much for the entire year.
So going forward, we're going to see some.
Our contracts roll off at the energy services.
<unk> will go away and we expect the business to return to profitability. This year, so long winded answer, but hopefully that gets you.
I think well said Vernon, obviously staying completely within all the regulatory confined.
I think it's a fair focus we take a look at it.
Energy services in total.
Create more value for the customers and making sure that they understand all the capabilities back in for us. So.
And that's 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 than just wait for 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 the morning, let's say something on the gathering side.
And then similarly, just staying in the Permian now.
Now that you're a bigger stakes in those.
The corpus pipes, just any interest in potentially expanding those sooner rather than later thank you.
Sure.
Saying never but having just got out of a major gathering system on the other side of the NGL side I think our focus and what we're really good at is as big pipes.
And tied.
Tied to the export side of things. So Colin you may want to add to this I guess if it if it was really we saw incremental value on the on the export side of doing that but 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.
<unk>.
Yes, yes, I agree on the gathering point.
Less interested there for sure.
And.
But 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.
We're building out and up from there.
But only so far.
Uh huh.
Sure.
It's initially.
At acquisition Tuck in acquisition strategy here, where.
Fair point.
But risk adjusted returns.
Versus build better.
Relatively attractive given build risks.
Then synergies.
Along the integration value chain.
Potential expansions here.
So that's the strategy in nutshell building out of late.
Oil strategy to complement.
The top notch heavy one that we've got further north.
Alright Thats helpful. Thank you I know, we're on top of that 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.
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 isn't a future without natural gas and I think parties. One thing I would 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.
North America's energy is needed abroad, and the only way to do that is through exports. So definitely I don't see any pullback on the LNG side alright. These players on that side or <unk>.
Much they've got a very long term focus on the price of the commodity and who they're serving so I see I think they're used to the commodity prices move up and down and.
But they've got that long term focus as do we and so I don't think youll see any pullback on that side the biggest challenge the analogy.
So the permitting issues right and so yes some.
Some of our customers in the Gulf coast, they need some rail.
Out of the FERC.
Course appear thats always an issue as well, so permitting permitting permitting not commodity commodity commodity.
Yes.
Alright, let's clear appreciate the time thank you.
Okay.
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 can you go to cost of service or are you following cost of service.
Once at take two.
That's not through the regulatory process.
Yeah.
Carmen I'll leave that to you.
It's not it's less short then the negotiations I can tell you that.
Yes, yes, that's right and I think we've got some gantt charts on some standing IR presentations, where we've.
Compared to contract <unk>.
Process and timeline I'd refer you to those but yes generally.
We would file our cost of service and by the way the applications ready to go here. So if we need it.
We can quickly.
But it is a longer process.
It would take into.
Yeah.
Probably late 2020.
For I think probably good clarity on that.
Yes, it's another thing to consider.
And the mix of our alternative.
Okay.
And.
Thank you and then maybe.
Follow up on that says.
In your prepared remarks, you mentioned.
Both adequate cost of service.
Move more towards utilities.
Risk cash flows is there.
So is there maybe.
If that does happen.
Do you think it's warranted to move to that.
Earnings per share guidance metric and do you think that you can answer it.
<unk> taken a bit more leverage credit rating standpoint.
Well I think look I don't see the leverage piece being in that calculation, yes, maybe on the EPS.
We'll give some thought to look at it I'm very focused on teams focused on delivering our cash earnings right. It's all about cash all the time and it should be.
So we really havent crossed that Rubicon, let's continue to see the negotiations move forward as Todd said, we're ready to go on cost of service and Youre exactly right that could.
That makes it even more utility like so either either is possible but.
Across the EPS comment today.
Okay got you and then maybe one.
One last one offshore wind.
Markets have seen.
Dislocation.
Do you think it's better to buy offshore wind assets now than then built just wasn't the capex risks.
But the industry is seeing.
Well Matthew sitting there 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 there is a little bit of a dose of reality coming in with some of the inflation impact and timeline, we're in a great position because we've got.
The project, we just brought into service we've got two others in service and then we've got a couple under construction that.
It's never easy, but are going quite well now also.
Then some in development that are advancing nicely.
Also have contracts attached to them so.
We're not rushing into.
Acquisitions in the offshore space, but it's something.
But 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.
Okay.
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.
Okay.
Thanks.
Yes.
Yes.
Yes.
Yes.
Okay.
Yeah.
Yes.
Yes.
Okay.