Q1 2023 Enbridge Inc. Earnings Call
Ladies and gentlemen, welcome to the Enbridge incorporated first quarter 2023 financial results Conference call.
My name is Brent and I will be your operator today.
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. If you would like to ask a question at that time simply press star followed by the number one on your telephone keypad.
Please note that this call 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 first quarter 2023 earnings call. My name is Rebecca Morley and I'm. The director of the Investor Relations team. Joining me. This morning are Greg Evo President and CEO.
Vern Yu, Chief Financial Officer, and President of New Energy technologies, and the heads of each of our business units, Colin Grunting liquids pipelines, Cynthia Hansen gas transmission and midstream Michel inheritance gas distribution and storage and Matthew Ackman renewable power.
As per usual this call is being webcast and I encourage those listening on the phone to follow along with the supporting slides.
We'll try to keep the call to roughly one hour and in order to answer as many questions as possible, we will be limiting the questions to one plus a single follow up as necessary.
We will be prioritizing questions from the investment community.
If you're a member of the media. Please direct your inquiries for communications team, who will be happy to respond as always our investor relations team will be available following the call for any follow up questions.
On to slide two where I will remind you that we'll be referring to forward looking information on today's presentation and Q&A.
By its nature. This information contains forecasts assumptions and expectations about future outcomes, which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filings. We'll also be referring to non-GAAP measures summarized below with that I'll turn it over to Greg evil.
Thank you Rebecca and good morning, everyone and thanks for joining us I'm excited to be here today to review, our first quarter results and provide an update on our business. It was another great quarter. So I'll start off by recapping some key highlights that underpinned our strong performance.
Then take you through some strategic advancements we made in our core franchises.
Brian will walk you through the financial performance and outlook.
And lastly, I'll close with a few key takeaways and that's always the management team is here to address any questions you may have.
First quarter saw strong financial performance, a little ahead of our expectations and we are on track to meet our full year guidance.
And our balance sheet continues to be in great shape too we exited the quarter at four six times debt to EBITDA near the bottom of our range all of which supports our triple B plus credit ratings.
In addition, we were extremely pleased to announce yesterday that we have reached a settlement in principle with our customers on the mainline toll framework. This is great news for us and our customers and we will comment more on that in a moment.
On the asset acquisition front, we signed an agreement to acquire Aitken Creek gas storage in British Columbia, which enhances our LNG export strategy in Canada.
And we completed the acquisition of trade Palash us further improving our competitive position in natural gas storage along the Gulf Coast.
We also signed an LOI with euro to construct a blue ammonia production facility at our Ingleside Energy Center, which is a great example of how our existing conventional asset base is leading to exciting low carbon opportunities.
In renewables, we were awarded the one gigawatt Normandy offshore wind farm, along with our partners EDF and CPP, EIB, which adds to our visible growth profile, we saw strong utilization across all of our system and delivered our second consecutive quarter of record mainline.
Williams.
And of course, we remain committed to delivering excellent safety performance.
Across the corporation, we continually target lowering our total recordable incident frequency every year and have a great track record of doing so.
Vern and I'll touch on our progress towards our ESG goals and highlight a few new areas, we're focusing on but I would note that you can expect to see our sustainability to report out later this month.
All in all another strong quarter, the new mainline tolling settlement and growth initiatives, all support our near term guidance and our strong multiyear outlook.
So, let's touch quickly on the financial highlights.
First quarter EBITDA is up 8% and DCF is up 3%. These results speak to our strong operational performance and the resilient low risk nature of our business model in all economic circumstances.
Our strong balance sheet leaves us plenty of room to execute the tuck in M&A deals you've seen us announce recently and still leaves ample space to continue to grow further.
Now, let's take a closer look at the mainline tooling settlement.
This really is a win win win.
Our customers will receive first choice service standards at a competitive tool enbridge will earn attractive risk adjusted returns and society will have access to safe secure and affordable energy for years to come.
From a scheduling standpoint, it's status quo. The mainline will continue as a common carrier system available to all customers on a monthly nomination basis.
Year to date mainline volume performance has been strong and Q2 is shaping up to be another solid quarter.
Going forward, our incentive to maximize barrels on the system combined with our new more competitive tool and our unparalleled market access increases the attractiveness of our pipeline compared to others and ensures the mainline will be well utilized by our customers for decades to come.
The new mainline toll will be stable and components of the total will be indexed to inflation.
We will earn an attractive return similar to the one earned during the Cts agreement.
Overall this is a good deal for everyone and as a result of thoughtful inclusive and constructive negotiation. So I'd like to thank our customers and the Enbridge team for working so diligently and constructively on this positive deal framework.
On the right hand side of the page you can see some of the specifics of the new settlement. We can appreciate that there's a lot to digest with this deal and we're here to answer all your questions, but the bottom line that I want everyone to take away from today is that this is a good outcome for all parties involved.
The new toll is in line with our expectations and the provision we've been recording in our financial results.
Looking ahead, our financial guidance and outlook are maintained under the new deal and finally, we're filing a settlement application that the CER and FERC and hope to have final approval before the end of the year.
So now let's take a closer look at the other parts of our liquids business.
In liquids pipelines, we continue to advance our U S. Gulf Coast export strategy. We did the initial phase of the heart and expect to see operations began in late 2025.
We're about to launch a binding open season for Flanagan south to leverage available capacity of up to 95000 barrels per day and provide additional market access to our customers.
In addition to securing throughput on Flanagan. So the volumes would also secure long haul demand on the entire Enbridge network.
Subsequent to the end of the quarter, we took operator ship of the Gray Oak pipeline, and we will look for opportunities to optimize that system.
Equally exciting is our low carbon opportunity set which continues to grow.
In March we signed an LOI with euro to jointly construct a blue ammonia production facility at the Ingleside Energy Center.
This facility is expected to produce up to one 4 million tons per year of blue ammonia backed by a long term, 100% off take agreement.
We're also planning to construct a carbon capture and sequestration hub near NGO side as part of our previously announced partnership with Oxy low carbon ventures. So ingleside is shaping up to be a one of a kind Swiss army knife terminal with its world class oil loading capacity onsite storage and our suite of lower carbon.
<unk> and renewable power.
We're also continuing to advance our low carbon plans north of the border, where we're partnering with capital power and Heidelberg materials to construct a carbon capture hub near Edmonton with phased in service states starting as early as 2026 and last but definitely not least we also have seven solar self power.
<unk> operating or under construction, along the mainline that reduces emissions and power cost exposure along our liquids lines.
So let's move on to some of the exciting developments in our gas transmission business.
Last week, we announced that we're acquiring Aiken Creek gas storage from Fortis.
This asset is well positioned and will enhance our service offering to our customers and support our LNG export strategy.
Also in Canada, we're looking to relaunch a binding open season for a second expansion of BC pipelines T. North in the second half of this year.
Engineering work on wood fiber LNG is progressing on schedule.
Of note by using renewable hydroelectric power wood fiber will be the lowest emission LNG export facility in the world.
In the U S. We've just closed a successful open season on Texas Eastern in the Appalachian region and are pleased with customer interest. So we will look to sanction this expansion by the end of the year.
And as mentioned earlier, we've recently closed our previously announced acquisition of <unk> gas storage, adding 35 Bcf of gas storage, which will support LNG along the Gulf coast.
Lastly, we're ready to proceed with the construction of the Rio Bravo pipeline. Once next decade reaches FID on its Rio Grande LNG, which should be by the end of June .
So now let's take a closer look at Aitken Creek gas storage.
Aitken Creek is the only storage facility in BC that has connections to all the key egress pipelines, including Enbridge is west coast and alliance pipelines.
Facility is uniquely positioned to support BC gas production in a volatile price environment and with Western Canadian gas production expected to outpace demand and egress bottlenecks for the foreseeable future Aching Creek is well positioned to have great long term value for enbridge.
We are acquiring the facility from Fortis for $400 million plus.
Plus customary closing adjustments and we expect to earn a typical enbridge return on the asset.
Said another way this is another strategic transaction with a single digit acquisition multiple that should produce double digit returns now lets move onto our latest announcements and our French offshore wind portfolio.
In March we were selected to develop France's largest offshore wind farm to date with installed capacity of one gigawatt.
Similar to our other French offshore wind farms, we have been awarded a long term fixed price CFT indexed to inflation.
We continue to demonstrate how we can grow the business with the same capital discipline and low risk model that applies to our three other core businesses.
This project will Mark the sixth offshore wind project with our partners EDF renewables and CPP investments and plan to continue pursuing future awards in the region.
Once complete Santo <unk>, one will be located 32 kilometers off the coast of Normandy and is expected to supply electricity equivalent to the annual energy needs of one 5 million people.
Next steps for this project are planning engineering and permitting ahead of <unk> and we expect the project to be in operation around the end of the decade.
Now that we've reviewed the updates across our business I would like to share our first choice business model and how it's positioned in the current macro environment.
During the first quarter, there was extreme volatility in interest rates and foreign exchange markets, but our results demonstrate how our low risk model delivers in all cycles.
As you can see from the chart on the right we have hit guidance through challenging times in the past and we expect that to continue.
Our earnings are protected with 98% of the cash flows being generated from either cost of service or contracted throughput.
95% of our customer base is investment grade and 80% of our EBITDA comes from assets with built in inflation protection against rising costs.
As discussed earlier, our balance sheet is in great shape and all of the agencies have reaffirmed our triple B high credit ratings.
We actively manage our interest rate exposure and less than 5% of our debt portfolio is exposed to floating rates lastly.
Lastly, we borrow from more than 25 different lenders and have no exposure to any U S regional banks.
When you add all that up we are able to deliver predictable returns through all micro market cycles and deliver a first choice value proposition to our investors. So now let me turn it over to <unk> to walk you through our quarterly financial results, our outlook and update you on our ESG efforts.
Thanks, Greg and good morning, everyone 2023 is off to a great start strong operational performance resulted in an 8% increase in EBITDA and a 3% increase in DCF per share year over year for.
For the second quarter in a row mainline volumes averaged over 3 million barrels per day.
And with the new tolling settlement, we are confident our system will remain highly utilized well into the future.
Gas transmission utilization remained high in Q1 included higher Texas Eastern revenues from our recent FERC approved rate case settlement.
Our utility business was also up in the quarter, but the outperformance was mostly due to a change in the timing of storage and transportation margin, which will reverse over the balance of the year.
I'll talk in a little bit more about the seasonality in our business are.
Our renewables business benefited from extremely high European power prices last year. These prices have returned to more normal levels. This year.
<unk> energy services, our transportation commitments expired during Q1 and market backwardation of soften compared to the same period in 2022.
The quarter also benefited from a stronger U S dollar, which contributed to higher EBITDA.
Below the line higher interest rates on flooding rate that the timing of maintenance capital and higher NCI distributions from our Athabasca indigenous investment partnership partially offset the strong operational performance coming from our business.
Enbridge continues to be well positioned to navigate market volatility as we saw in the first quarter. Our results demonstrate the low risk nature of our business model and also demonstrate the predictability of our financial and operational performance.
So, let's take a moment and talk about the seasonality of our business.
Q1, and Q4 are typically our strongest financial quarters anthem.
And Tim Winter more gas flows on our gas transmission system and there are more peaking days.
Similarly at the utility of the majority of heating degree days are weighted towards the colder months.
In our liquids business refinery term turnarounds typically take place in the spring and the fall, which means our deliveries were lower during periods.
All of this is built into our annual guidance and we're on track to meet that guidance. This year. So let's talk about that now.
As Greg mentioned, we are reaffirming our 2023 guidance that we provided last November .
The mainline settlement is in line with our expectations and the toll provision that was baked into our plan.
We're expecting continued strong operating performance across all of our businesses and the stronger U S. Dollar provides a slight tailwind for our results. However, warmer weather rising interest rates modest inflationary pressure on operating costs and commodity.
Price backwardation in our energy services business unit, our hurdles were looking to offset.
On the risk management front substantially all of our U S. Dollar DCF exposure has been hedged for the year at approximately 137 and since our last update we've reduced our floating rate debt exposure for the remainder of the year. It's now below 5%. So all in all we're in good shape here.
Sure.
Let's move to our medium term financial outlook, which are also reaffirming today.
There is no change to what we shared with you at our Investor Day in March.
In the first bucket, we've made good progress on rate cases, and the new mainline settlement allows us to continue to optimize our liquids pipelines business.
And the second bucket, we're advancing opportunities to build out our secured organic growth projects with the Normandy offshore wind project and the Eri Blue ammonia JV.
We're also advancing a number of open seasons on our systems, we will be launching our Flanagan South open season soon and we've closed our Appalachian region, Texas Eastern open season.
And we're still planning a T north open season for later this year.
Yes.
Last but not least we're judiciously deploying our investment capacity.
During the quarter, we announced the acquisition of trade last year, our joint venture with divert and this week, we announced the acquisition of <unk> gas storage.
We continue to execute our strategy and effectively allocate capital to deliver the growth and we're committed to.
We view prudent capital allocation as being a big part of our investment thesis and we continue to strive to maximize shareholder returns, let's move on to that now.
Our capital allocation priorities are unchanged.
Our number one priority is maintaining a strong flexible balance sheet.
Q1 debt to EBITDA was four six times, leaving us plenty of room to execute our secured capital program.
While continuing to return capital to shareholders through a sustainable and growing dividend, while maintaining the dividend within our 60% to 70% payout range.
In addition, we will look for opportunities to selectively repurchase shares at reasonable prices and you'll have seen we did a little bit of that earlier in April .
Our free cash flow and financial flexibility provides us with roughly $6 billion a year of investment capacity and we will allocate capital only to the best of the many opportunities that we have in front of us.
Let's now turn to our secured growth program.
Today, our secured growth program sits at about $17 billion, it's diversified across our businesses and will be deployed over a number of years, which mitigates today as cost pressures, which are coming from tight supply chain and tight labor pools.
Cynthia Enbridge day, we've added the Enbridge Houston oil terminal to the secured growth program as that project has now reached F E.
As I said earlier, our equity self financing model provides us with approximately $6 billion of annual investment capacity.
Or we have plenty of room for more organic growth asset acquisitions and debt repayments and share buybacks.
Let's finish up with ESG.
I want to Echo, what Greg said earlier about ESG.
We remain committed to being an industry leader not only because it's the right thing to do but it's a fundamental enabler of our business.
As an example every investment opportunity to reevaluate must have its own net zero emissions plan built into its project economics.
As you've already heard we've announced our JV with euro to build on the blue ammonia production facility.
And we plan to sequester approximately 95% of the facilities <unk> emissions using carbon capture and storage.
This quarter, we issued the largest sustainably linked bond in the in U S history at about $2 $3 billion. This brings our total sustainably linked financings to over $7 billion.
On diversity and inclusion we have set ambitious workplace representation goals for ourselves and we're tracking well against these goals.
At Enbridge, we are dedicated to creating an inclusive work environment for all of our employees.
Our strong board refreshment practices bring in new perspectives and expertise, including directors with experience in indigenous engagement, new energy technologies and energy transition.
Since 2021, we've added five new directors and effective January one of this year Pamela L. Carter was appointed chair of our board and choose our first female and our first black chair.
With that I'll pass it back to Greg.
Thanks, very much Vern and as we wrap up here for questions. Let me leave you with a few key takeaways with the mainline tolling settlement moving toward approval, our guidance and outlook remain unchanged and we are now even better positioned to serve our customers growth plans and.
Enbridge has low risk commercial model positions us to withstand market volatility and deliver predictable results and consistent growth on your behalf.
We're still laser focused on balance sheet strength and executing on our growth program within our equity self funding model and at Enbridge ESG leadership in the industry is not only good practice, but also a key component of our license to operate and continue growing thank.
Thank you and now let's open up the lines for your questions.
Thank you we will now begin the question and answer session.
I would like to ask a question at this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Your first question comes from the line of Jeremy Tonet with Jpmorgan. Your line is open.
Hi, good morning.
Good morning, Jeremy.
Thanks for thanks for all the information today, just wanted to see if you could go to yesterday's big announcement with regards to the mainline agreement.
I look at the waterfall chart, just a few points one to clarify there if it's scaled proportional to actual number. If this is the net toll impacted 2023 or is it just a half year impact.
A full year impact is it still $5 billion EBITDA next year I'm, just trying to gauge those items.
Yeah. Good question I think maybe we will start with Verna, then maybe call I'll have some of that too we're shocked that the first questions on the mainline.
Jeremy I think.
You are referring to the supplementary materials that we provided yesterday as part of our.
Announcements I think the key thing to think about is.
The provision that we've been booking is based on a whole host of factors and we went through a lot more granularity than we normally would to give.
The street, a better sense of what's actually happening. So there are there's obviously a downward revision of the tall offset by another a bunch of other factors.
All that being said.
The provision is in line a 100% what we've been booking through the interim period and what we expect to see in 2023, obviously, our auditors have signed off on that and as we look forward to 2024 and beyond obviously the EBITDA from the mainline is going to go up and down a little bit with volumes.
The level of toll.
Foreign exchange rates on our Lakehead portion of the tall and now we have this inflation escalator at CPI and the power price escalator at the basket of.
Power prices that we're going to see across all the regions that we pump crude and so I think the long and the short of it is 2023 guidance is intact and our medium term outlook remains unchanged.
Okay.
Got it that's very helpful. Thanks, and then the follow up is just the knock on effects downstream.
There is it seems like there could be some very nice leverage to what this does for your system. So I'm wondering if you could just walk us through a bit on that plan again south expansion. What have you just how do you think about new opportunities unlocked with this agreement.
Hey, Jeremy it's calling out.
It's all part of it.
The singular path right. So we think about it holistically.
And from a competitiveness and attractiveness perspective, so we will be.
Our sounding market right now on Flanagan South.
We're confident we will move to an open season here. This summer shortly there is interest in further.
Egress South.
Think the order of operation here helps with having a mainline settlement in principle.
Underpinning a good chunk of the distance based tolls. So that's now coming into focus on Flanagan South.
And he thought is as exciting to we're going to have a big heavy oil terminal down in Houston for customers.
To work with either for local Houston distribution right.
Displacing what was former.
Imported crude which is declining but then also optionality for future export.
Of heavy out of the Houston market. So.
That whole path is as coming into better focus it's already well used right we're already.
Moving.
On a monthly basis here.
Five to 600000, a day down that down that path. So.
And there is.
40, plus refineries connected.
Redirect Lee.
On that path, so lots of Optionality.
We should I think be very competitive.
Got it that's helpful I'll leave it there thanks.
Thank you your.
Your next question is from the line of Linda <unk> with TD Securities. Your line is open.
Thank you looking beyond this year and thank you for reiterating the guidance just wanted to get an update as philosophy on your earnings at risk approach and where you are at for next year and beyond historically, you've limited too.
Your earnings at risk of below 5% from market based exposures, whether it was FX interest rates residual commodity exposure and I'm. Just wondering if you could give us a sense of how much of your 2024 plus.
EBITDA and earnings are hedged.
Perspective.
How much interest rate floating exposure you might have and any other commentary provided on that front would be appreciated.
Hi, Linda it's Vern.
So we look at earnings at risk on a 12 month rolling basis or 12 months forward.
On that metric were something around two to two 5% today. So were well managed out through this year in the first half of next year I think for our floating rate book. We have started hedging 2024, we have about 20% hedged now and will continue to hedge through the.
Year, just to decrease volatility both in our cash flows and earnings so our philosophy hasn't changed or where we want to be highly predictable and we will take out.
Unpredictability as we go through the year.
Thank you and just as a quick follow up just big picture in British Columbia.
Might you be augmenting.
<unk> service offerings.
Provide to shippers in the region or might you be.
Maybe doing a little bit more self with the open capacity on Aitken Creek and some of the other physical transportation assets in the region and can you comment as well how can creek kind of enhances what you might be doing on key nordson T cells can return.
Okay.
Thanks for the question Monday, Yeah, Aitken Creek is obviously, a great fit for us because of our existing infrastructure in that area and there's going to be synergistic opportunities and how we operate those assets.
Part of that we'll be looking at as you say what those opportunities are to work with our customers to look at contracting in that space. Obviously, we're bullish on the fundamentals and we see that as a great opportunity to look at providing additional contracting opportunities to our cut.
<unk> in that space and so more to come on that but just with their asset it does provide more flexibility for.
How we operate our other existing storage with Lee lean in and other.
Synergistic opportunities for us like that thank you Hey, Linda you know the only thing I'd add is that.
Consistent with <unk> comments as you know it can creek had a little bit less contracted storage than what we usually look at so don't be surprised to see us look to contract that up over 50%.
It may even be closer to two thirds. That's just I think that makes sense for us and our model, but as Cynthia says that's the kind of asset that should give us a lot of flexibility to serve our customers on the LNG side and of course folks in the lower mainland and beyond so pretty excited about that asset.
Thank you.
Your next question comes from the line of Theresa Chen with Barclays. Your line is open.
Good morning, turning to the U S Gulf Coast on the liquid funds can you talk about the status and the potential branch expansion now that you've taken over operator ship at the system and just given the backdrop as Permian to corpus lines continue to be full and are you in.
Interest in owning potentially more of that corridor.
Given the incremental interest acquired so far.
Yeah.
Yeah, Hey, good morning, <unk>, it's calling.
Yes, generally to answer more specifically.
We just took over operation of Gray oak in.
In April so our last month.
Have extra capacity, which is indicative of demand to your point <unk>.
Strong foreign bid for that for that crude and of course.
Our ingleside facility is a natural pull as well which is <unk>.
Very competitive.
So.
Again, we're in market sounding four shipper interest and preference and that will inform our open season that will run. This summer we're looking ballpark upped up to another 200000 barrels per day <unk>.
Expansion there.
Many are maybe even most customers are interested in dual service, including ingleside capacity.
That integrated path.
That's looking.
Really good and Theres also the potential that we could extend gray oak over too hot over in Houston, There, which would would bring heavy down from Canada and light over from the Permian.
It's pretty exciting so listen we're really bullish on what's happening there we're excited about our.
Our our strategy and how that's been unfolding.
Through acquisition selectively through some asset swaps to get into Gray oak.
<unk> up some of the minority interests and registered another assets in the region.
If you step back from the global supply demand lens on this the world cannot function without western Canadian or Permian crude full stop so we're following the fundamentals.
Got it and as a follow up just when we think about the broader Gulf coast crude infrastructure assets something that we've heard discussed repeatedly in the industry is that importance of being able to deliver a new apparel and quality segregation, especially if you are going to extend Graham <unk> and have a more comprehensive.
Handset integrated system.
Can you talk about Europe ability to do that and how that may lend itself to a competitive advantage when seeking commitments or dedications overtime.
Yes, that's been a hallmark of Enbridge on all of our systems, whether in Canada or in the Permian is that batch quality.
Fedex service, if you like segregating quality, it's a valuable commodity and needs to be protected.
I think I think we are.
I have a track record of doing that.
Relative to other business model so.
Yes, that's a part of our competitive offering.
In addition to just outright.
Cost effective tools and some of the advantages at Ingleside that we've talked about many times too.
To be competitive $30 $40 50.
Integrated export.
Tools are material in the global and the global scheme. So it's all part of the mix I'm glad you mentioned that one thanks.
And it's you know when you think about it even with the tool deal right. I mean, everything we're trying to do is designed to be the first choice supplier.
And so sure on the total deal Theres always a little give and take but a good fair income that really incent us to give better service to our customers to use the mainline and obviously that ultimately can get people down to the Gulf and pad three and then just what we're doing out of the Permian I think we really are trying to build that super system.
And really make sure that the shippers and the customers that we have actually have an opportunity to maximize their returns and the best markets.
That's what it's all about it and I think we're just getting more competitive every day.
Thank you.
Your next question is from the line of Robert <unk> with CIBC capital markets. Your line is open.
Hi, good morning, congratulations on the mainline deal I know that's a monumental task for everyone involved I wondered if you could spend a minute on on the risk sharing front and it looks to me like the setup here is for a lower dispersion of outcomes most risk it would seem so.
I Wonder if you could talk about what you see as the biggest ones on reassuring and.
In addition to that what are the key leverage points to achieving the upper end of the row color.
Other than obviously just volumes.
Yes.
Sure Robert I can I can take it so.
This is our seventh vintage of incentive arrangement with customers and they.
I should tell you something right away that the.
Customers want us to be aligned and hustle for them and win win they win so we've got another version of it each each time, we renew or renegotiate it.
We tweaked a couple of things I'd say thematically in this version of the incentive framework.
We've added a risk package I think as you put it.
Is a few different.
Sure.
The performance color, which acts as kind of a.
A big.
<unk>.
Risk package in itself, which is.
All inclusive so we've got a couple of layers of defense here.
Well, we need them, maybe not but it's the enbridge preference too.
To have them right you have seen our commercial model so.
We've been managing these risks.
For a long time.
The one we can't control is volume.
That's a shipper controlled risk.
We have strong views on fundamentals and high conviction and the competitiveness of our system and it's going to remain.
<unk>, 95% to 100% full here through the piece.
There is there is.
An improved foreign exchange.
Outlook for us in the Canadian portion of the tool will be told in Canadian dollars not U S dollars like it was.
We've got the line three toll ratchet, which isn't new by the way, but I think it's relatively new so I'd remind people of that three five cent toll ratchet, which.
It is meant to temper.
Volume volatility right for every 50000 barrels to almost three assets.
Sure.
We have also.
I think it was implicit before but now we have.
Agreement in principle to.
We recover on and of capital frontline five investments.
So theres a few different I would say.
Smaller risk mitigates and then there is the bigger color risk mitigating so.
Alright, all with the intention of kind of narrowing the dispersion of outcomes.
For all right shipper.
And Enbridge.
So that it's a fair competitive solution.
As Greg was saying earlier that society has to win as well.
That help is that we are going with the question Robert.
It was within the second piece of that is just what do you think other than volume is the biggest leverage point to hit the upper end of the row color.
Yes, I think.
On that count.
I think it's well understood that the first few years here, we're going to be.
In the upper half of that range just given.
'twenty, one 'twenty, two and 'twenty three have strong volume.
Throughput is already.
And then over time.
You've got <unk>.
Through the term here and on a slightly declining rate base. So.
Think about that as well I think the other smaller drivers would be or our ability to manage within the in flavors and control our cost and power cost.
Shippers want us to do.
We'll try to do that FX as well I think we will.
We will play a part in there, but vernon's team is is on that.
Trying to trying to manage that in a market down as well.
Yeah. That's helpful. Thanks, everyone.
Thanks Robert.
Your next question is from the line of Rob Hope with Scotiabank. Your line is open.
Good morning, everyone.
A question on the mainline.
It would seem since the or lets say over the last six months.
Commentary on the volume outlook for the mainline has strengthened.
And Collyn just noted that.
Youre expecting 95% utilization there can you maybe talk to kind of what is driving this increased confidence on the mainline volume outlook is there.
It.
Potentially where the total shook out for the mainline is a word trans mountain towards potentially could move up or is it just kind of a sharpening the pencil on the competitiveness of the system.
So I think.
Our conviction is thank you.
You're observing that correctly, our conviction is strengthening.
And in the strength of that substantially fully utilized outlook.
I think even at Enbridge day.
Find our point of view tighter on that.
But even since then let's just reflect on what's happened here.
<unk> announced the delay.
Another delay.
And as <unk> has delayed it allows.
Time for the basin too.
Increased supply, which is which is good for all.
Point of view of grass.
We understand <unk> is likely to have higher tolls.
With cost increases.
We've seen.
Keystone.
Incident, and subsequent pressure restrictions invoked by FEMSA, it's questionable.
When those will come off.
We've advanced our FSP any heart.
Solution.
Refinery ads are occurring in the Gulf Coast and Mexico is.
Now going to refine more of their own.
Creating a bigger bid out of the golf for Canadian crude and to your point, we have a lower lower toll.
And our rail economics are getting worse so.
I think <unk>.
All of that leads to a strengthening conviction in our outlook that the mainline will be.
Well utilized and very competitive.
Maybe I can just add a comment I think if you just go back to 100000 feet and look at the fundamentals of crude oil.
Had two and pad three are the strongest heavy crude markets in the world those refineries are globally competitive and we will make.
Very strong crack spread margins, so there's going to be a strong bid from those refineries forever for Canadian heavy crude and as Colin mentioned theres going to be less Mexican crude available.
And global heavy crude production is declining elsewhere. So it lines up for a very strong fundamentals for us and our customers.
I appreciate that.
And then maybe on another note just in here.
Capital allocation you have been quite active on we'll call it kind of small to mid size M&A.
Can you maybe update us on potentially what your pipeline looks on this and given market conditions are you seeing opportunities to invest in we'll call. It small to medium size assets that given your existing operations, you should be able to yield synergies on the revenue and cost side.
Yes for sure ill look it starts with having a strong balance sheet of course, right and remember we've got about $3 billion of.
Capital a year based on our on our financial position that we can put to work discretionary so beyond just our typical activities and you've seen us do that in the first quarter. We look at everything as you can imagine.
The corporate development group here have a good list of assets that we're interested in and I would say that covers everything from <unk>.
Gas assets to liquids assets, even renewables as well and as we look at those or if they come to market. We've already got a view on those and if we can do those accretively.
And we think is a fair multiple.
We're going to look at those and if we haven't got a better alternative I think we can execute and execute quickly and I think thats, a real advantage not a lot of folks.
Are in that position the other thing I would say the dynamics have changed and it's just like it has on the liquid side to promote greater volumes on our system and what's going on in the Gulf Coast et cetera. The same is true from a M&A tuck in perspective.
Players that can participate or fewer higher interest rates. So I would say are probably most impactful on <unk> ability to play and that creates opportunity for us and so we're going to be ready on those fronts. If they makes sense well do them and of course, you know, it's a classic discussion of build versus buy multiple too right. So we know how challenged.
It is to build anything these days if we can buy good existing assets that have both strategic and financial benefits to us it actually behooves us to kind of play that role sometimes than it does try to build the assets themselves and you know if we can't find that stuff flips. Let's remember we've also got the ability and we did a little bit of that in the first quarter to buy back shares so.
It really comes down to that full suite of what's the best financial outcome and strategic outcome for us and we're just fortunate to be in a good position to pull the trigger on any of those.
Thank you.
Yes.
Your next question is from <unk> Satish with Wells Fargo. Your line is open.
Thanks, maybe if you could just give us a little insight into what the returns are looking like for the potential.
Potential blue ammonia.
The wind projects, I guess, especially in light of the higher interest rate environment, There's usually a lot of debt financing on these types of deals is it still competitive or the returns still competitive with the rest of your backlog.
Yes, absolutely I mean look we're.
Early days still on the Blue ammonia project, but I'd say, we have and the way we structured that member has 100% offtake. So fitting in the Enbridge model of utility like returns and Fortunately, we've got a partner there that likes that theyre in the ammonia game day to day.
So I would still expect to have a nice double digit returns there, we'll see how it all shakes out and remember that project has of call. It like stuff and say, you've got three or four ways to play.
Obviously have the NGO side of that where the where the ammonia would be exported from we've got the.
Carbon capture and sequestration, which is R.
<unk> venture on that front in that area with Oxy and then Cynthia we would expect would build the gas line into that facility as well. So it's a real opportunity to augment the returns, but yeah. We're still seeing the same thing, but that's you might want to speak to offshore and onshore because it definitely depends what market we're talking.
Talking about there, yes sure. Thanks.
Matthew So we did announce the Normandy project, we really like that project I mean, I think it's important to remember that.
These projects have long term contracts with fuzzy government counterparties.
And if we proceed to <unk>. They will include full wrap EPC. So they can be very low risk. So.
You don't see blowout returns on these but youll see strong returns, especially.
And that risk profile and of course, there's lots of work to do between now and then to RFID and it'll have to earn and Enbridge style return to achieve that milestone. The other thing we like about that is it extends our horizon of visible growth in our commercial model and Normandy also comes with a potential one.
Five gigawatt extension, so kind of one of these projects that has.
Potential organic type growth associated with it that will be competitive, but obviously, we'd have an inside track for the extension too so.
Yes, we really like this these kinds of projects and we do count on them, earning over our hurdle rate. They all have two and renewables as well as the other areas Youre seeing good returns on the solar front too right. I mean those projects continue to proceed in <unk> acquisition is really start.
The heat up yes, we're seeing great prospects as I mentioned at Enbridge day, we do expect Fid's later this year on our organic onshore portfolio.
We're getting tailwind just from the.
The quality of those projects were seeing out of the <unk> acquisition and also the tax benefits that was.
Cardiopathy time for us to so we're pretty optimistic on that front as well.
Thanks, that's helpful and switching gears you've done two acquisitions now in recent months.
Gas storage assets.
It's clear there is there is growing value for storage I guess, how do you think about the economics of buying gas storage versus building it organically.
The market rates high enough to support Greenfield expansions of storage or is it still cheaper to acquire storage how wide is that gap.
Yes, thanks to the question I think we.
We continue to monitor that so we're excited about the opportunities as you noted with storage with more.
LNG as you look out in the next five to 10 years, we see that that value is going to continue to increase.
As we've noted we have the capital discipline and when opportunities come up in this space for acquisitions, if it needs.
Men thresholds for Gannett.
Participate, particularly when it ties into our existing assets like the two we've done so far but there we think in the long run that there will be opportunities to build out some storage as you look at the economics, but that obviously takes a little bit more time, and we'll be very prudent with that.
Sure It makes sense to build out that storage and you have to remember that you have to have the right kind of geological formation area to allow you to do that.
As Greg noted earlier, you have to look at that.
This is bill scenario and make sure you're positioned well, but I think there'll be opportunities in both spaces.
Because we have a huge base in storage. So sometimes I think people forget we're pushing 300 bps of storage in the great Lakes region that becomes increasingly important as well and then of course, yes.
Cynthia the team just picked up so critical on the LNG front, but for new storage you still have to get permitting and we know how challenging is permitting and even in the environment. So again. It goes back to if we can buy at single digit and earn double digit returns, we're going to do that.
What we've done in the first quarter.
Got it thank you.
Thanks, Brian .
Again, if you would like to ask a question press star followed by the number one on your telephone keypad. Your next question is from the line of Ben Pham with BMO. Your line is open.
Okay. Thanks, good morning, maybe to start off with growth opportunities as I look at your secured backlog and maybe some of that.
<unk>.
<unk> highlighted over the last quarter.
It seems like when you head towards the post 2025 timeframe that your capital.
Your capex is going to accelerate.
Dramatically.
And maybe what looks like a lot to me hard to swap that $6 billion 3 billion.
How do you think about it.
Managing that change in Capex and a U.
Placement of constraint on.
Capex each year.
Like what's the high level thought process on that.
I'll, let vern chime in here, but I will tell you from my perspective.
Right I mean, we've got remember we've got four really great businesses that are all big businesses on their own and that creates competition and each one of the business units is tasked with getting the best risk adjusted returns possible. So when we sit down as a as a team and look at it it's pretty pretty easy you know where the where the.
Best returns with the lowest risks.
And that's where it will go and so it means we won't do everything and I think that keeps the business development folks and the execution folks with a very sharp pencil and a keen focus on the future.
Of course every time, we continue to.
To build this stuff out.
Obviously, it adds to earnings and don't forget so I guess, if we ran up against some of the the.
The $6 billion in capacity a year, we've done a great job of recycling over the years. So we could do that as well. So I think whether you look at the self equity financing model just as it is or you look at recycling.
Look if the folks big bring projects that are accretive to our earnings and our growth we're going to find a way to do that.
I think Greg covered most of the points Ben the key is our balance sheet. We're.
We're in great position right now we're at four six times and as we grow our EBITDA our balance sheet capacity continues to grow. So post 2025, if we continued to grow at the rate that we're growing at today well you actually have more balance sheet capacity than we do today and greg's absolutely right we.
When you to recycle capital don't forget since 2018, we've recycled on an attractive basis over $11 billion and we will continue to push forward with more of those opportunities and I am hoping we can do more deals like we did with the Athabasca, Scott and digital group.
Because I think thats a win win win scenario for us and our stakeholders.
Okay. Thanks, maybe to.
Sure.
The mainline.
The way that you've structured the caller.
Actively.
Utility assets for seven plus years.
Anything you can comment on credit rating agencies.
Our thoughts in this agreement.
Yes, I think you got it but I think as I mentioned earlier, it's the most utility like version of an incentive agreement so.
We've got opportunities to outperform and we've got.
Our return floor so.
Essentially the best of both worlds, but.
We're going to hustle hard to serve our customers.
And.
The best we can.
Burnt on the credit rating issue you want to cover that yeah. We have currently the lowest business risk profile for major midstream pipeline companies in North America, and I think with this deal even lowered it further so we're in active regular dialogue with the rating agencies and this will be definitely looked upon positive.
<unk>.
Okay, great. Thank you.
Your next question is from the line of Andrew <unk> with Credit Suisse. Your line is open.
Thanks, Good morning, if we could come back just to the natural gas storage business given some of your acquisition activities and just with the rise of renewables, maybe a greater call intra day on gas across North America.
If you break down your existing asset base number the storage assets are really within the rate based construct and then a number of really operational associated with pipelines I guess, how much of it is.
More merchants are and oriented and orientation and what kind of opportunities do you how long.
Well, maybe it's a little it's just I'll start and then Cynthia can jump in so youre exactly right I mean, we're starting to see some of the needs for the storage. So im not sure merchants the right word so Steve They can creek side remember our typical contracts run one or two years, so while we typically cause.
Tracked up our market based storage. It is relatively short term there are some longer deals in there, but that's been really positive because you've seen.
I think just going to continue for a while storage rates that have gone up 50% to 200% over the last year or so.
So that's been really great and then Youre right a lot of it is in the utility as well, but theres about 80, 65% to 80 Bcf of storage, there and the Great Lakes region.
That is market based and we've been able to realize including in this first quarter. Good results. There Cynthia do you want to add to that yeah, I mean, I'd only add that we've obviously seen some pretty wrong opportunities when it comes to pricing so.
As we've seen over the.
Last little while we're seeing increases in our pricing.
200% and even.
Question in terms of longer so that is creating stronger economics and I would note that we don't have any what you would call naked exposures in that space right. We're always getting that match. So it does create that.
Okay.
Balanced exposure in that space as we contract with them.
Okay. That's very helpful. And then maybe just an extension there are some that do make and exposures in this space.
Just the sheer.
Scale of your asset base. So the pipeline grid itself and then the balance sheet, maybe it gives you.
Bigger advantage in taking taken.
Taking some opportunities from those who do have the negative exposures should assets come into the marketplace.
Yeah, what I would say.
Greg mentioned earlier, we want to be the first choice for customers. So we're always looking at how we can optimize that ability to leverage our full infrastructure yourself trade splashes in particular is great because along with the storage. We got some really great interconnectivity pipelines. So that is how we.
Hi, this together and making sure that we're building out for stable long term return for us providing incremental value to our customers as well.
Okay. Thank you very much.
Yes.
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.
Ladies and gentlemen, we appreciate your participation. This concludes today's conference you may now disconnect.
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