Q2 2023 Enbridge Inc Earnings Call
Ladies and gentlemen, and welcome to the Enbridge incorporated second quarter 2023 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.
If you would like to ask a question during that time simply prestige Sharkey followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one a second time.
Please note that this conference is being recorded.
And I will now turn the call over to Rebecca Morley director of Investor Relations. Rebecca you may begin.
Good morning, and welcome to the Enbridge second 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 Evil, President and CEO, Pat Murray Executive Vice President and Chief Financial Officer.
And the heads of each of our business units, calling grunting like with pipelines, Cynthia Hansen gas transmission and midstream Michel inheritance gas distribution and storage.
And Matthew Ackman renewable power.
Per usual this call is being webcast and I encourage those listening on the phone to follow along with the supporting slides. So I'll try to keep the culture, roughly one hour and in order to answer as many questions as possible, we will be limiting questions to one plus single follow up if necessary.
We'll be prioritizing questions from the investment community. So if you're a member of the media. Please direct your inquiries to our communications team, who will be happy to respond as.
As always our Investor relations team will be available following the call for any follow up questions.
On to slide two where I'll remind you that we'll be referring to forward looking information during today's presentation and question and answer period.
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 and 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 strong second quarter results and provide a business update.
I'll start off by doing a mid year checking in on some of our key priorities that we laid out for you at our Investor day.
I will then take you through some updates from our four businesses and provide highlights from our 20.
Annual sustainability report.
I'll also highlight how our industry, leading diversified cash flow profile underpins, our strong balance sheet and we'll continue to support Enbridge as a first choice investment opportunity.
That will then walk you through the financial performance, our capital allocation priorities and growth outlook Lastly.
Lastly, I'll close with a few key takeaways and as always the Enbridge team is here to address any questions you may have.
Q2 was a really good quarter for Enbridge, we saw high utilization across our assets and had strong financial results consistent with our expectations.
This performance puts us on track to meet our full year EBITDA and DCF per share guidance. Our balance sheet is in great shape, we have a high investment grade credit rating and we exited the quarter at four five times debt to EBITDA at the very low end of our targeted range of four five to five times.
We are pleased to have reached a settlement in principle with shippers on the mainline tolling early in the quarter.
It was great news for us our customers and the industry overall.
We will provide an update on next steps when we discuss our business units.
On growth, we made good progress on our U S Gulf coast crude oil strategy by extending and upsizing Flanagan South open season, where we saw very strong interest for customers for that pipeline service.
We also sanctioned new storage capacity with Enbridge, Houston oil terminal or yacht enhancing the competitive profile of our mainline system to deliver Canadian to the U S Gulf Coast.
We have filed a partial settlement on our utility Rebased <unk> application, which includes important matters and has been verbally approved by the <unk> panel, we expect a final outcome on 2020 for rates by Q4.
This will provide benefits to our investors and customers and we will support Ontario's population growth energy affordability and economic growth in the province.
We continue to see growth opportunities in our renewable business and anticipate reaching F E on certain U S onshore development projects by year end.
And we're pleased that next decade reached F idea on phase one of their Rio Grande LNG facility.
We are in the process of obtaining necessary permits and regulatory approval for our Rio Bravo pipeline project and plan to start construction in 2025.
We've executed over $1 billion of accretive tuck in M&A year to date.
We increased our ownership in acquired operator ship of Gray Oak pipeline, which delivers crude to a world class export facility at Ingleside.
In gas transmission, we enhanced our north American LNG export strategy by closing the Tres Palacios natural gas storage acquisition and acquiring Aiken Creek natural gas storage facility, which we expect to close in Q4.
Lastly, we continue to sustainably returning capital to our shareholders.
All in all the great start to the year and as mentioned we are on track to achieving our financial guidance and we are making good progress on our growth commitments, which include all forms of energy across our premier franchise.
We continue to believe that all forms of energy will be required for years to come natural gas and all of that will remain critical components of our energy supply in all energy transition scenarios that balance the energy trilemma of reliability sustainability and affordability.
Our asset network as large diverse and unmatched providing opportunities to grow each of our base businesses, while our customer relationships diversified asset footprint and capabilities open up new opportunities for lower carbon investments.
Now, let's take a closer look at some of the recent highlights in our business units, which support our low risk pipeline utility model, let's start with liquids.
In liquids pipelines the mainline system remains highly competitive we saw record volumes in the first half of the year and extended and Upsized a binding open season for the Flanagan South pipeline.
FSP will approach being 90% long term contracted reinforcing strong utilization of mainline infrastructure delivering barrels into Chicago and downstream infrastructure, serving the U S Gulf coast, including Seaway pipeline and Enbridge Houston oil terminal.
Then the liquids system really is one of the card it provides attractive transportation access to approximately 75% of north America's refining capacity.
As mentioned, we reached a win win win mainline totally agreement in principle with our customers in may.
This was the result of committed engagement and negotiation by both our team and the shipper Representatives.
The settlement will provide utility like returns and aligns with customers' desire for safe reliable service at a competitive tool.
A key feature of the agreement as a performance culture that will allow enbridge to earn a return on equity between 11% and 14, 5% on a capital structure of 50% equity and 50% debt.
This call and our mechanism.
Centralizes us to control costs and maximize throughput to earn in the upper part of the ROE range. While also providing some downside protection in the event of extreme volume disruptions.
Cash flows generated by the asset will be protected from inflation with Owen and power expense escalators set to begin in mid 2024 with annual increases thereafter.
In terms of next steps, we expect to jointly finalized the settlement with industry and submit an application for its approval to the Canadian energy regulator by October with the expectation that the new tolling settlement could be approved and implemented later this year.
Now life Sciences has made a few headlines over the past few months. So I thought I'd spend a few moments addressing our position on what's happening in Wisconsin.
We were pleased that the Federal District Court agreed that line five continues to operate safely and it's critical infrastructure delivering life saving energy to millions of consumers downstream.
Three years ago, we filed for a 41 mile reroute in Wisconsin to relocate the pipeline not the bad River band plan.
We believe the pipeline can be relocated in the three years provided regulatory approvals are obtained in a reasonable timeframe and as a reminder, the new mainline tolling agreement also provides support for investment in both the line fiber plant in Wisconsin, and the tunnel project proposed in Michigan.
<unk> continues to operate safely and reliably and we look forward to working with the bad River band regulators and other stakeholders to relocate line five with no service disruption expected.
Looking at our Permian strategy, the Enbridge Ingleside Energy Center is turning out to be an all purpose Swiss army knife. It is indeed, a one off accounting terminal with the largest crude export capacity in North America onsite storage and a suite of lower carbon development opportunities, including renewable power.
We've seen a record quarterly volumes at the facility and our Gray oak pipeline confirming our belief that a full pass service for our customers from the Permian to Tidewater is a highly attractive competitive offering.
In March we signed an LOI with <unk> to jointly construct a blue ammonia production facility, adding a site that is backed by a long term offtake agreement.
Also planning to construct a carbon capture and sequestration hub in the region as part of our previously announced partnership with Oxy low carbon ventures.
A key competitive advantage of the terminal is ownership of two pipelines cactus II and gray oak that deliver Permian crude to the facility.
We are looking to expand gray oak pipeline by up to 200000 barrels per day with an open season planned for later this year.
Additional capacity will provide customers with access to low cost integrated value chain that provides operational synergies and the lowest cost to tidewater from the Permian.
Now, let's move on to some of the exciting developments in our gas transmission business.
In the U S. We are excited about next decade announcing a final investment decision on the first three trains to export LNG from their Rio Grande LNG facility at the Port of Brownsville.
Now.
This allows us to advance our Rio Bravo pipeline project, which will supply 100% of the feedstock gas to the terminal as a key part of our U S. Gulf Coast strategy. We are in the process of obtaining necessary construction permits and notice to proceed from FERC further project with commercial operations expected in 2020.
We recently closed our acquisition of the 35 Bcf trade flashes gas storage facility further supporting LNG customers along the Gulf Coast.
We've seen re contracting rates move significantly higher in permitting is underway to expand the facility by up to six five Bcf and we will work with our customers to deliver a more capacity in the next 12 to 24 months.
Currently we provide service for 15% of the export capacity on the Gulf Coast through four LNG facilities operating in the region and we expect to grow that position to about 30% of the market share by 2030.
In the U S northeast, we've identified significant and scalable expansion capability on Texas, Eastern which cuts through the heart of the Appalachian shale.
Our Appalachia to market project Alright, Perfect example of this and we look forward to helping Appalachia gas reached the growing markets for all gas in all directions.
In Canada, the engineering work on wood fiber LNG is progressing on schedule and we expect to set our preferred return early next year.
On our West Coast pipeline system, we're progressing $5 billion of investment on the <unk>, North and <unk> systems to feed West coast LNG terminals and other industrials in the Pacific Northwest.
T North will be looking to relaunch a binding open season for a second expansion of that BC pipeline system by year end.
You'll recall that we were acquiring Aitken Creek gas storage closing is on track to occur later in 2023. This asset is well positioned and will enhance our service offering to our customers and support our LNG export strategy in British Columbia.
So now let's take a look at our gas distribution business. We are expecting another strong year of customer growth. We're on track to achieve more than 42000, new customers with 21000 added year to date.
Ontario's population is expected to grow by over 2 million people over the next 10 years, making natural gas critical to meeting customer energy demand.
On the industrial side, there are a few economic alternatives to natural gas to meet demand and we're seeing tremendous growth opportunities across all sectors.
On the re basing application we have held the settlement hearings for our new incentive rate application for the period of 2024 to 2028, we negotiated a partial settlement on important matters, such as operating rate base and operating costs with recommended approval by the <unk> staff.
There are still some important items that need to be settled including equity thickness and depreciation, but we expect a regulatory decision by year end and plan to enact new rates on January one 2024.
Our focus on cost optimization and reliable service has allowed us to consistently achieve above the base ROE as you can see in the chart on the right.
We have a long track record of working under incentive rate mechanisms providing quality.
Service and predictable rates for our customers, while also allowing us to achieve premium returns within the parameters set by the regulators.
The Ontario government recently announced that I quote natural gas will continue to play a critical role in providing <unk> with a reliable and cost effective fuel supply for space heating industrial growth and economic prosperity.
With developments in energy efficiency, and low carbon fuels, such as R&D and low carbon hydrogen the natural gas distribution system will help contribute to the provinces transition from higher carbon fuels in a cost effective way and credits we agree with the Ontario government and believe renewables will also grow rapidly and be critical.
To meeting global emissions targets.
Renewable growth cannot be sustained without being closely intertwined with the natural gases Intermittency and peak fail safe for consumers speaking of renewables, let's take a look at some of the developments in our renewable business.
We're making good progress on our French offshore wind projects under construction over one gigawatt of new generation is expected to be online by 2025.
Let's say comp the first turbines have been installed and have provost ground large all floaters have been secured.
We are tracking on time and budget with both projects expected to be fully in service by the first quarter of 'twenty four.
<unk> continues to make good progress and is tracking on time and budget.
In North America, we have more than four five gigawatts of onshore projects in development a portion of these projects will come online by 2025 with some expected to reach out to US later this year.
All projects have to pass our strict risk return parameters. So don't expect us to make undisciplined investments just for the sake of growth.
Our behind the meter strategy is continuing to gain traction our first solar power project came online in 2021, and we now have six in service three of which came online in 2023 with more than 30 megawatts of capacity.
With technology improvements rising renewable energy credits prices and tax incentives more of these developments are producing strong returns and help reduce our emissions footprint.
On that note, we published our 20 <unk> annual sustainability report so let's move on to that next.
The report highlights our long standing focus on sustainable practices in our industry, leading performance across environmental social and governance issues. We expanded our methane reporting included more detail on scope three emissions enhanced our climate lobbying reporting and outline progress made on our indigenous reckon.
Filiation plan.
We're making good progress on the targets, we laid out to do.
Date, we have reduced our <unk> emissions intensity by 27% compared to 2030 target of 35% and have achieved 18% of our net zero emissions goal for 2050.
And our workforce diversity inclusion remain a focus with 31% identifying as women and 25% as racial and ethnic groups and we're making good progress on these priorities and remain committed to such improvements on.
On governance, our board is more diverse than ever our chairs Pamela Carter and accomplished black women, who brings extensive experience and sound business judgment.
Across the company, we have integrated emission reductions considerations into our day to day operations capital allocation processes and aligned executive compensation to performance against our ESG strategies are.
Our low risk business model continues to deliver predictable results in all market cycles. So let's walk through our first choice value proposition.
Enbridge has an industry, leading cash flow profile, which supports our resilient business model.
Cash flow is diversified across four large businesses and approximately 98% of our expected 2023, EBITDA is underpinned by regulated assets or long term take or pay contracts.
51% of that is what we call take or pay plus many of the assets are underpinned by long term agreements with inflation protection and cost sharing provisions.
Including the new mainline tolling settlement, which will now have a call. It floor hourly about 40% to 7% of our EBITDA is low risk and utility like with limited variability.
Earnings from these regulated assets have a prescribed rate of return on deemed equity thickness.
Quality cash flow profile has little to no commodity exposure and volume risk, while having a high degree of assets, earning regulated returns with cost pass throughs.
This underpins our low risk business model, which is very similar to a utility, allowing us to carry somewhat higher leverage than our peer midstream peers, 95% of our customer base is investment grade and 80% of our EBITDA comes from assets with built in inflation protection against rising cost.
This cash flow predictability supports our strong access to capital and allows us to maintain our strong investment grade credit rating.
Financial conservatism remains a key priority and is a hallmark of how we've delivered consistent returns for shareholders.
We've actually delivered attractive total shareholder returns of approximately 12% per year for more than 20 years, driven by capital appreciation and consistent dividend growth and as we just highlighted our diversified low risk pipeline utility model produces reliable cash flows to support these returns and maintain a strong balance.
She'd and extend our dividend growth track record.
Over the medium term, we expect to grow EBITDA by about 5% per year by incorporating conventional infrastructure investments as well as finding lower carbon opportunities throughout the business.
Sustainably returning capital to shareholders is also a key part of our value proposition and we expect that to continue in the future.
So now let me turn things over to Pat to walk you through our quarterly financial results, our capital allocation priorities and our growth.
Thanks, Greg and good morning, everyone I'm excited to walk you through our second quarter results.
Strong operational performance resulted in an 8% increase in EBITDA year over year.
The liquids mainline performed well again, we hit a new record for Q2 throughput with ex Gretna volumes, averaging almost 3 million barrels per day up over 200000 from the same quarter in 2022.
The mainline also benefited from the recognition of a lower provision against the in term Cts IGT tool this quarter as compared to the same period last year.
After we came to agreement in principle on the mainline tolling and knew the exact impact on the interim poll we.
We didn't need to accrue as much of a provision in the second quarter as we had previously.
Finally in liquids contributions from higher ownership and the Gray oak and Cactus II pipeline increased U S Gulf Coast and mid continent results.
At G T M. Our lower ownership interest in DCP midstream as a result of the transaction with Phillips 66 impacted our results year over year. This was partially offset by the acquisition of the Tres Palacios storage facility and favorable re contracting on our U S gas transmission and storage assets.
Our utility business was down in the quarter, but this was primarily due to the timing of storage and transportation margin.
As noted in Q1. This is reversing some favorability from earlier in the year and will continue into the back half of this year.
Our renewable business benefited from Saint Nazaire coming into service at the end of last year.
But that was partially offset by slightly lower wind resources and lower European power pricing.
At energy services, a number of our transportation commitments expired during Q1 and Mark with Backwardation has improved compared to the same period in 2022.
Below the line higher interest rates on floating rate debt and timing of maintenance capital as well as higher controlling interest distributions from our strategic new partnership with the Athabasca and business investment group, partially offsets the stronger operational performance of the business.
Our results are driven by the diversity and scale of our assets and highlights the low risk nature and predictability of our financial and operational performance.
So with a great first half of the year, let's talk about how we're tracking to our guidance.
I'm pleased to be reaffirming our 2023 financial guidance again this quarter.
We expect strong utilization and operating performance across all of our businesses to continue.
However, as we expected the lower mainline tool coming and effective July one and higher financing costs due to increased interest rates will be minor headwinds and we expect these to play out primarily in the third quarter.
How do we think about the rest of the year, let me remind everybody about the seasonality in our business Q1, and Q4 are typically our strongest financial quarters due to higher gas flows during winter on both our gas transmission and distribution systems.
As well, we experienced higher deliveries on our liquid system outside of turnaround season.
In terms of risk management, we've had almost all of our U S. Dollar DCF exposure at around 137, and our floating rate debt exposure, it's much less than 5% now.
It increases our confidence in our financial projections for the balance of the year.
Now, let's look beyond this year to our medium term outlook.
We're also happy to reaffirm our medium term outlook and there is no change to what we laid out at our Investor day.
The first bucket of growth will be a big focus of our company over the next little while we've recently settled on new tolling frameworks for BC pipeline and Texas Eastern we're in the process of finalizing the main tolling agreement and the utility rate base and is expected to be in place for January 2024.
Although these agreements are similar to their predecessors were incentivized through all of them optimize under each agreement, which will help us to achieve our low capital growth rate.
And the second bucket, we are advancing opportunities to build out our secured organic growth projects with.
With next decade, reaching up idea on Rio Grande LNG, we added the Rio Bravo pipeline to our secured backlog on.
The open season front, we advanced our FSP and Texas Eastern open season, and are still planning a T north one by year end.
Finally, we continuously look at opportunities for both organic growth and opportunistic tuck in M&A.
We continue to execute the strategy put forward at Enbridge day, and will effectively allocate capital to deliver growth.
So let's talk about both our capital allocation priorities.
As I step into the CFO role I want to reiterate that our capital allocation strategy is unchanged our.
Our number one priority is maintaining a strong flexible balance sheet Q2 debt to EBITDA was four five times and we expect to exit 2023 within the lower half of our target range, leaving us room to execute on our secured capital program.
We continue to return capital to shareholders through a sustainable and growing dividend and opportunistic share repurchases.
Our financial flexibility and predictable cash flow provides us with approximately 6 billion a year of investment capacity and we'll allocate capital only to the best opportunities in front of us.
Let's turn to that secured growth program.
Today, our secured growth program sits at $19 billion. It is diversified across our businesses and the regions that we operate and is expected to be deployed over about the next five years, which helps to mitigate against inflationary cost pressures.
New to our backlog. This quarter is the addition of the Rio Bravo pipeline with construction expected to begin in 2025.
Next decades.
On the first three liquefaction trains of Rio Grande LNG was the trigger for us to continue construction planning on this project when.
When we announced this project our original cost estimate of $1 2 billion was for a two train built are currently refining our three train engineering estimate and expect to update our capital costs by year end.
We expect to place approximately $3 billion of capital into service for 2023, and have already announced $1 $1 billion of tuck in M&A year to date with a final one closing being a concrete later this year.
Now I will turn it back to Greg to wrap up.
Thanks, Pat and as we wrap up here for questions I want to leave you with a few key takeaways Enbridge is resilient low risk business model is supported by our scale diversification and high quality cash flows which positions us to withstand market volatility and deliver predictable results.
Returning capital to shareholders remains a key focus through sustainable dividend growth and opportunistic share repurchases.
We're confident in our ability to achieve our growth outlook by optimizing the business, adding to our visible growth backlog and executing additional tuck in M&A are.
Our premium growth profile, incorporating conventional infrastructure investments and lower carbon opportunities supports dividend growth long term shareholder returns and positions us as a first choice investment opportunity. Thank you and now let's open the lines for your questions.
Thank you.
We will now begin the question and answer session. As a reminder, if you would like to ask a question press star one on your telephone keypad. If you would like to withdraw your question and remove yourself from the queue Press Star one a second time.
And we will pause for just a moment to compile the Q&A roster.
And we will take our first question from Jeremy Tonet with J P. Morgan Chase Your line is open.
Hi, good morning, good morning, Jeremy.
Just wanted to track I guess result, this year it seems like a strong first half.
Where there was about just almost $8 5 billion of EBITDA and want to square that versus the guide of.
15, 9% to $16 six do you see yourselves tracking the high end of the guidance or above or should we be thinking about.
Items in the second half that would make the second half lower than the first half anything to think about there.
Yes, maybe I'll start there Jeremy good question, Yes. It was a very strong first half of the year I think as Pat laid out we've got a few little headwinds for the last half of the year. So I think being right in the middle of that range is right place for US remember in the fourth quarter is a big quarter for us so whether it's weather volumes those will impair.
<unk>, where we are where we finally land so don't want to get ahead of the fourth quarter of mother nature.
But feeling good about the quarter, where we are for the year. These projects coming in so I think sticky in the middle of that range is probably the right place to be today, but again, let's see how the fourth quarter goes.
That can be a benefit sometimes.
Got it that's helpful. There.
I apologize go ahead.
Just one more question if I could we've seen some big moves in the kind of the midstream landscape strategic action by competitors consolidation among others.
Just wondering if you have any updated.
Strategic views for Enbridge moving forward.
To call out there.
Well Jeremy.
Jeremy I think we're in a great spot I think what Youre seeing is there is that.
Breadth matters size mattered the portfolio matters I think increasingly.
You're starting to see that.
Your valuation should go to companies that can play all parts of the energy evolution. So we've got the liquids business, we've got the gas transmission business and the distribution business and renewables and increasingly some new energy technologies those are increasingly both vertically and horizontally.
<unk>.
And we think that's going to matter more and more so you think about the renewal of the business as we said it doesn't survive without a good strong gas business of which as you know we serve 2025% of the volumes the liquids business increasingly connected not only on the export side, but things like.
<unk> blue ammonia at Ccs, that's important to have that altogether.
LNG export business, you need trance transmission on that front and then on the distribution side of things things like hydrogen renewable natural gas not only a benefit on the transmission side, but also for GDS. So I think there may be some companies. There are definitely some companies that do not have that type of portfolio breadth.
But when you do I think you are in a sweet spot there. So I wouldn't read too much into some people selling assets instead of such I don't think people have the same type of portfolio setup that we have and I think the market is coming to us from that valuation perspective.
Got it so just to be clear no no split in the outlook going forward here.
Look we're always looking at that but I do not see again I'd go back that doesn't seem that seem to be a dis synergy for a company like enbridge, which actually again has that complementary aspects of multiple.
Parts of the business. So again the liquids business has held <unk>. So they are actually connected to things like ammonia in Ccs in the gas business and the distribution businesses has connections to new energy technologies.
Do not see that of course, we're always looking at making sure that we've got things structure to get premium valuation, but I think the market has recognized we deserve a premium valuation because of that vertical and horizontal.
Integration that goes on today does that change we'd look at it but I just don't see that today for a company our of our breath size and diversity and frankly low risk diversification as well.
Got it thank you very much.
Sure.
And we will take our next question from Robert <unk> from CIBC capital markets. Your line is open.
Hi, good morning, and thanks for the presentation I just wanted to focus on the liquid side, a little bit here and specifically how.
Single site terminals being leveraged to.
Effectively the pull through from the rest of the system and maybe you could just.
Touch on the competitive situation for the export terminals. Please.
Collins right here, so I'm, just going to turn it over to call sure. Thanks, Greg Thanks Robert.
Yeah, you're exactly right. So the ingleside terminal as our kind of our flagship anchor asset for our Permian strategy.
Yet to be differentiated highly competitive.
From a number of reasons as you know dredge depths.
Distance to blue water.
Floating rate.
We're now stretched and we can load VLCC up to one 6 million barrels per day. So it all just.
Drops nickels and dimes off.
The marginal barrel.
Competitive netback for our customers and then so we've got capacity as we've talked about too.
Expand the storage and the docks there.
That's all.
And then the vertical integration, which Greg just kind of spoke about more broadly we've got that going on in the Permian as well with with Gray Oak now we've taken operation with great. We've expanded a little bit we've got.
We're going to have offerings in the market here in Q3 at both Ingleside and Gray oak for expansions.
Watch for those.
And we've got our eye out for further tuck ins along the value chain. So.
I think during the quarter ingleside exported a quarter of U S.
Oil and record volumes. So it's it's all trending favorably Robert.
So just to clarify.
I'm curious the extent to which the.
Possible.
Offerings in the market for Ingalls side in the second half are contingent on a successful one again self open season.
No there are disconnected.
Okay. Thank you think ingleside, largely being driven by the Permian right and alright fine again.
The Canadian crude so you might be thinking about ehealth, Robert which where we have sanctioned we're going to build that determinants of seaway, which.
Interact with Flanagan, South and Seaway.
Okay.
Alright, thank you.
Thanks Robert.
And we will take our next question from Linda <unk> with TD Securities. Your line is open.
Okay.
Thank you just looking forward to the second half of the year and thinking about your investment capacity.
You've announced about $1 $1 billion of M&A and then now the Rio Bravo pipeline do you expect to announce.
<unk> 6 billion of new secured capital opportunities this year.
And if not might that inform what level of opportunistic share buybacks or do you expect those <unk>.
Capital commitments to be a little bit lumpy year over year, some years more over $6 billion versus less.
Yes, I think the way to think about the blend and Pat can chime in here too as you're right. We've got the $6 billion.
Of capacity.
On the balance sheet it each year half of that is going to already the secured projects. So thinking about that in future years that go to Rio that doesn't go against the $3 billion of capacity, we have to do things like opportunistic share back buybacks, which we did a little bit of that in the second quarter or acquisitions like the 1 billion.
We've done year to date, but inevitably the first $3 billion unsecured projects, there's going to be a little bit lumpy, but I'd separate today more in that sense. So think about $6 billion three for secured projects and three for other opportunistic pieces, Pat I don't know if you'd add anything.
To that yes, I think I'd add to that is it.
In that kind of a second bucket of $3 billion.
Those will be a little bit lumpy opportunistic as we go through them and we're not going to do anything just to fill that bucket. We are going to make sure. We pick the best projects do you think the Rio Bravo, which we just added that spend will be a couple of years out primarily so it's not really impacting our capacity in the current year.
So we'll continue to look at various capital allocation purposes to see where we can spend some of that some of those dollars, but it can be a little lumpy Linda just what are the opportunities out there and what's the timing of spend as we go forward.
Okay. Thank you just as a follow up quickly what are you seeing in terms of opportunistic tuck in acquisitions in terms of.
<unk> quality pricing.
Nature.
They are on the value chain and geography, any any observations in terms of how things are trending on that front would be appreciated.
Well, Fortunately, given our size and breadth and I also talked about this balanced portfolio, we get to see everything.
People come to us and show US assets, all the time, which allows us to be really picky and make sure that anything we do actually fits right down that fairway of low risk pipeline utility like cash flows.
Solid returns and accretion so we're seeing everything that you know.
In the first half of the year picking up pieces from joint venture partnerships things like Gray Oak and Cactus II, we picked up pieces and then the two storage assets are very complementary as well some of those are being sold by corporate some of them are being sold by <unk>.
Need a monetization or our liquidity events.
And we've got that as you mentioned that $3 billion of capacity to be able to execute on those so I'd say, they're right across the board.
If there is any part of the energy value chain, where people aren't trying to think through how to hedge.
I had a trade out of assets, sometimes they need to do that.
That's opportunistic for us as well from a pricing perspective, and then of course as long as it fits into that that value proposition that we have low risk utility pipeline side we.
We feel that we've got the ability to go out and execute.
Thank you.
Thanks Linda.
We will take our next question from Robert Kwan with RBC capital markets. Your line is open.
Good morning.
Good morning, where I can start on cash.
Good morning, So just wanted to start with capital allocation. So you pushed back previously on the need for and desire for large scale deals.
On the tuck in M&A and you have executed on that this year do you see the tuck in acquisitions solely being linked to that $3 billion of discretionary annual capital allocation or could you see that.
Those tuck ins in aggregate being at a level that would require external equity.
Yeah, well I guess I'd say.
I I don't think that's been our focus to date look we've got that $6 billion in investment capital a year.
And some of which can be used for acquisition and that gives us a lot of flexibility to do the transactions that we've seen to date.
That made that low risk accretive pipeline utility like deals I don't see us doing big corporate to corporate deals but.
I guess, we're always open to things, but that's I think the tuck in route to date has been the right one for us.
Okay.
Got it.
I can turn to guidance and you're highlighting that the lowering mainline toll.
Headwind, but then you also noted in the results that you took a lower provision against the main mine.
In the second quarter can you just talk about.
The dynamic there and if the lower tall as a headwind for Q3.
Why is it not for Q4 and for that matter into 2024.
So I think maybe I can take that Robert has passed.
So on the provision side of things if you think about the timing of when the agreement in principle. It kind of came to be and that April end of April timeframe, we got more clarity on kind of what the in term toll amount would be and as a result of that we were pretty well provided by the end of Q1. So it didn't have to book is bigger provision for Q2 here before the toll.
Paul.
It was down a little bit.
On July one so that was really just giving us kind of true up to what that difference would be in relation to the interim tool.
And then as you talk about go forward have you stepped back to when we announced the actual transaction.
It was well within where we were looking for this year, we kind of laid out.
A waterfall to help understand how we get how we got to a level, we have it'll be a little bit lumpy. This year like you are noting that the total go down a bit for Q3 Q4 really you probably all were noting in Q3, specifically as at Q3 tends to be a little bit of a lower volume period, as well, but Q4, it'll usually pops back up.
And then the agreement was right in line with what our views were up 24 and 25, when we guided back in I guess it was early December last year.
Okay, that's great maybe I'll take some of that offline. Thank you.
And we will take our next question from Theresa Chen with Barclays. Your line is open.
Good morning, Amit.
Wanted to touch on your trade cross sell expansion and just generally your long term outlook for natural gas storage and especially in the U S. Gulf Coast and how much can you further expand by and how do you see yourself positioning.
Integral portion of the value chain as we go forward and see more tuck in opportunity here.
Yes, we're big storage fans for sure. So good question.
Cynthia you want to take that sure.
Alright, Thanks Theresa.
We of course.
We're excited about the opportunities we have the ability and are currently expand traits flashes by six five Bcf.
There is.
And one of the cabins thats coming into service. This also that positions us well as you mentioned in that.
Southern Texas area these assets.
The southern us.
Yes.
Average down in that area.
Really liked about the tree Plaza assets was the header system that ties in in the H D D.
That gives us into that market.
When it comes to our ability to continue to expand we are looking at that we're also looking at how we can optimize with the rest of our assets and how we will operate the tree splashes ISR.
How can we do really how can we do loans that kind of thing as we look to optimize the operations there and we'll continue to look at whether we can do some small.
Great.
Existing infrastructure there to increase our storage capacity is wow. So.
The other thing that as we've noted before we have seen is that the pricing has.
It can.
Yeah, a little bit more positive in storage. So we're continuing to monitor that and we think in the long term there will be incremental opportunities too.
Invest in incremental storage in Texas in particular.
I think that big ambient temperature swing.
Got it.
That the LNG players have to manage is really starting to show the value of storage there to say if you talk to the sneers and folks like that.
I think they'd verify just the thesis that that Cynthia just laid out so good time to have.
But those assets in good to have the flexibility to do that.
It's going to match up really nice with.
With a lot of Synthes assets. The other thing I think you should think about storage assets.
As we move to forward with carbon caption and sequestration thats going to put premium valuation on storage as well too. So like the assets that we have in the several hundred Bcf of storage that we've got right across North America.
Okay.
Thank you and then turning to the liquid side and can.
Can you talk about the timeframe for the Grand expansion. So youre running open season in the fall and the latest primarily pump work how quickly can the 200000 barrels per day come online and are you still contemplating further extension from the sweeny to Houston area.
Yes, so you should call them, yes. So.
I think youre right.
We've been sounding to market on quantum and destination recall Gray oak is a bit unique is straightforward and it goes both core percent.
And the Houston Sweeney area, so it's kind of in that way.
We plan to launch that officially here in Q3, so thats still on track and.
Up to I think 200000 barrel a day expansion and we're looking at in service dates in early 2025.
Thank you.
Thank you.
We will take our next question from Patrick Kenny with National Bank Financial Your line is open.
Yes. Good morning, I'm wondering if you could provide any comments on Alberta as announcement here to pump the brakes on improving renewable power projects.
Whether or not you're seeing a growing trend of political and regulatory pushback across some of the other jurisdictions in which you operate.
And if this heightened focus on affordability and grid reliability might cause any slowdown in reaching <unk> on your renewable backlog.
Or on the flip side increase your desire to own natural gas fired generation assets going forward.
Yeah, definitely and Matthew was on the phone so I'll get him to respond, but I think you've kind of just made that thesis yourself or why do you want to have all aspects of this energy value chain and also why governments are really given us a thoughtful approach.
How are they going to be able to manage this transition so.
I believe Matthew.
You are right here, so why don't you take that one.
Hey, Pat Thanks for the question, Yes, we don't have anything in Alberta under late development that gets held back by.
By this.
And so it doesn't affect the <unk> those would be.
In the U S, where we have a very robust late development program.
The next step there would be an <unk>.
Aircard area.
But bigger picture I think for the renewable business Youre right I think.
Some of the reclamation and timelines issues.
Not just in Alberta, and other places so I think theres going to be a real advantage for larger companies with scale and financial strength, which is what we've got.
So I think that positions us well I think reliability.
Another theme and yes, I mean, we're going to need more battery storage, but also gas fired power, we don't have any intentions to invest in that but.
You can't you can't take gas fired power out of the equation you need it for backup and reliability for a long time and I think just more generally.
This just shows the pace of transition is does not unconstrained. So that's why we love our renewable business, but obviously like Greg said, it's great to be diversified across.
Conventional which has a very long life and and the renewable stuff.
Greg.
The thing I'd add is and Collins business as one of the largest power users in just about any jurisdiction. We operate in so this focus on an affordability is really important to us and makes our liquids lines increasingly competitive.
Where theres elements, which things like the mainline theres elements of pass through on our we want to make sure that whatever that power is however, it comes that its cost competitive crest jurisdiction in North America. So I.
I think this balanced approach of governments and starting to focus on affordability security and reliability makes sense and again I just want to reiterate that's exactly how we've structured the company for a long time to be able to react to those pieces and create value read across that value chain.
Pat is Colombia.
A couple of examples so liquids pipelines interacts with 75 utilities across provinces and states and we see this tension.
Everywhere right affordability competitiveness, but we also want to green the grid.
So, yes, we get a front row seat to that.
Everywhere.
Okay. That's great. Thanks for all those comments and then just a quick one for Pat Youre just on the.
The rising financing costs curious, how you're thinking about your rate reset press shares within your capital stack, if there might be any.
<unk> financing opportunities coming up or perhaps other levers you might be able to pull to help.
Mitigate the headwinds on distributable cash flow.
Yeah, I mean, it's a fair question with rates continuing to go up.
Something we've looked at the optimization of our overall capital structure overall.
Interest costs.
We have a pretty.
Disciplined hedging program that we used to make sure that we're risk managing what the out years of our plan with vehicle continued to do that we will look for opportunistic times to hedge like we saw a bit in Q1, when there was a bit of a upset in the banking market in the US is a great time to put some hedges on it would probably has a lower rate than we had expected.
We will look at the cohorts up.
Pat just to see what the most opportunistic and most.
<unk> way of managing our capital is in the press will play into that are the hybrids and patent just to remind you that read across most of our businesses.
Definitely.
Things like the gas pipelines.
The west coast gas transmission or gas distributions.
Collins business many places we have.
Interest pass throughs right. So yeah, there's always a little bit on that front, but we've got a lot of coverage there may be a little timing lag, but ultimately it goes into that regulated rate of return on that so prominent across the portfolio.
Thanks, everybody Hollywood there.
Thanks.
Sure.
We will take our next question from Rob Hope with Scotiabank. Your line is open.
Yeah.
Good morning, everyone just one for me.
In the prepared remarks, you mentioned expansion of Texas, Eastern and through Appalachia to meet demand in all regions as you take a look at the increasing LNG demand off the Gulf coast as well as increasingly congested pipelines.
How do you view your pipelines ability to continue to draw.
Volumes.
Kind of the northeast all the way down to the Gulf Coast and kind of what expansions are you looking for.
Yeah. Thanks for that question Ross.
But there.
There are many great location, and we are supporting both <unk> as well.
The Gulf Coast.
We continue to look at how we can optimize that infrastructure.
Greg pointed out the Appalachia to market too.
Two that we're currently doing.
In Pennsylvania, we.
<unk> had and hopefully season, we're still working with customers on Appalachian market three so the whole idea of continuing to look at these.
<unk> opportunities, where you can optimize the system with you know a little bit.
And changing of the compression that kind of opportunity.
We're always working with our customers.
When it comes to how.
Do we make sure the infrastructure that we have is optimized.
There will be opportunities to.
Look at how we can put those incremental volumes and at some point we will see.
Both with the increased demand for LNG export.
Our need for new pipe infrastructure Fortunately.
Area in Louisiana, and Texas, there will be opportunities that you can that type items restructuring and the U S. Northeast will continue to look at how we can.
Optimize the overall capacity when it comes to providing that flexibility, particularly through <unk>. So there are opportunities.
Winter storage yet.
Ah projects there so a lot of work to look at how we can optimize their infrastructure and add more capacity.
Thank you.
And we will take our next question from <unk> Satish with Wells Fargo. Your line is open.
Thanks, Good morning, if I, if I look at the Capex backlog I mean, clearly the focus here.
On natural gas and renewables Capex, there is kind of less spending earmarked for mainline. So I guess, just how do you think about conceptually the desire to maintain rate base that mainline versus letting it decline in spending that capital elsewhere. I know you have the ROE color that protects you, but just just curious how you think.
That.
Yes, pretty that's calling me and so I think.
There is ongoing.
Rate base investments, we probably haven't built the mill on this this chart per se, but I mean, a good example would be.
The the line five reroutes that we've talked about earlier in Wisconsin, and Michigan also be included in rate base.
And I think we disclosed that as part of the mainline tolling agreements that's a pretty.
Pretty good example, so there'll be continued investment along the way it maintenance capital.
Okay.
Gross capital in that regard.
I think there's also some opportunity to.
Expand the mainline here.
Again.
We.
Withdrew those from the mainline negotiation.
We'll bring those back to the fore here once we have.
Approved.
The regulators approve the mainline deal I think.
Whether you think about it as an insurance seagrass or just actual egress.
Other systems should go down and we've seen what happens to net backs in debate in the basin when that happens so that's still very much.
Our strategy, we have and our customers are just not as well.
We still strong believers that through the end of the decade youre going to see.
500000 barrels a day call it in that growth out of Western Canada, our pipeline is column points out.
Travels by 75% of other refinery as we can get people to the Gulf Coast, I think theres going to be plenty of opportunity and.
Obviously, we're going to do those in the most capital efficient way that serves the customer.
But.
I have no debt, we're going to continue to see that growth, particularly when the alternatives.
Don't have as competitive a toll structure and we have a lot more difficulty in adding incremental incremental volumes versus what we can do with that system.
That's helpful.
And then as my follow up when you look at your Permian strategy, you mentioned couple of times the potential for tuck ins.
What gaps do you see in your strategy at this point, where you feel like you need to do additional M&A and what would acquiring an asset do for you versus contracting for space on third party lines and saving on that Capex I guess, maybe if you could just talk through the benefits of acquiring versus leasing capacity at this point.
Yes, I think.
Both can work I think we generally like operator ship I'll tell you.
Obviously, you see that in things like picking up pieces of Gray oak and taking on the operator ship I think that allows us to optimize across the value chain, both for our investors, but even equally important if not more important for our customers. So I think we'd prefer to do that you could see I mean generally we like large loss.
<unk> diameter pipe and I guess, you could get back we don't have as much gathering, but you know we're pretty careful on that type of.
Type of investment on the.
On the Permian side.
You can also look at <unk> can you do more out of Ingleside Kids you do some on the NGL side or are there.
Alex from an export perspective, again, making sure we don't get caught up in any.
Any commodity risk and we can structured as pipeline, but and that would be my initial take Colin I think you got it.
And the lease options very much on the table, we could lease our way into the Houston market.
Currently still thinking about.
Connecting gray oak over too hot, but yeah, I think I think I think youre right.
Not hell bent to spend capital where interested in returns on.
Capital, so they're going to get there any gaps per se.
But we're going to optimize the system.
Growing.
The franchise.
Thank you okay.
Thank you we'll take our next.
Pardon me, we will take our next question from Ben Pham with BMO. Your line is open.
Hi, Thanks, good morning.
Alright, let me start off on <unk>.
Maybe to start off on <unk>.
<unk>.
Maybe if you can potentially rank order the sources.
On top of it all it can do hypothetically exceed that it takes.
And Thats an opportunity.
Sure I'll start well.
First obviously organic grows along our system is probably.
Our best return if we can add.
Ways to increase the volume, but that putting a ton of capital to work right across our entire system, whether it's on the liquid side, the gas transmission side or even on distribution.
Yes.
<unk> Repower, Joseph and I would say that's the first call.
Because that's got the greatest return.
Then a few that are major projects that you've got the large secure projects that they take a longer time to go from investments to cash flow. So we want to balance those and then you look at the type of M&A. We've done to date stuff that is complementary and additive and that we can do at a value enhancing price and mix.
It into our system.
And the way that we've been able to do with a lot of assets and I would point to everything going back to Ingalls side too.
The Permian pipelines to trace and they can creek, we've got a long history of being able to do that and then if we can't find those who where the values are compelling.
We look at things like buying back stock.
So that's kind of the the kind of hierarchy and way I would look at it and it all starts with where do we think we can get the biggest bang for Buck in terms of return on capital and growing the business and extending out and enhancing that low risk utility like pipeline like.
Asset base so.
That's that's the way we look at it Thats the way everything gets filtered through and I think it's been pretty successful in attracting that premium valuation pattern I don't know if you want to add more well I think from a funding perspective.
One thing I mean, then we can think about it.
Would be a little lumpy, a little bit higher than one year, a little lower in another year, we're right at the bottom of our our debt to EBITDA range, which gives us the capacity to do some things so that mix that Greg is talking about helps the funding as.
As well because we've got some that'll be drag out over a few years, maybe back end of our plan. We can do some things earlier in the year through these kind of tuck in acquisitions. So we feel really good about the funding plan, we've got in and.
And the Optionality and we'll be selective in what we do to make sure that we're doing the highest return most strategic projects to us as an organization.
As we move forward.
And can you comment.
Yup.
This capital recycling I know that's not been.
Huge huge focus for you guys I mean, you've got opportunistic ones is that.
So in an effective way to.
It's a fun.
Projects and if there is a year, where maybe exceeding that.
That's $6 billion.
Yeah, We've got a we've got a list we're always looking at Ben.
Since 18, we've done $10 billion of that things like rocket not only provide a funding element, but perhaps first and foremost helped us too.
Sure where that first choice partner for our various stakeholders and in that regard things like rocket four indigenous communities. So that's definitely always something on the list than someone.
Someone else is going to value an asset at a higher.
The valuation that we.
Look at we think nothing about pulling that trigger that's the benefit of being a very large wide breadth wide portfolio entity, you've got multiple levers to pull on and youre not forced to pull on any one and so that's why we're focused on not only growing the earnings of the company and the distributable cash flow keeping them.
Balance sheet in that four five to five range and as Pat says we're at the low end and also making sure that when we need to we can pull the trigger on divestitures.
That's great. Thank you.
Thank you.
We will take our final question from Brian Reynolds with UBS. Your line is open.
Hi, good morning, everyone.
Maybe just a quick follow up on some of the peer strategic announcements now theres a big focus on costs to help remained more competitive on tolling and to bring some value to the bottom line. So I'm curious if you could just talk about how enbridge is looking at its brought our cost base to remain competitive and perhaps of the mainline tolling agreement was done in a way to remain competitive peer pipes. Thanks.
Yes, that's definitely a constant focus here.
It's in the distribution business, even though that cost structure ends up flowing through to rate payers. We think there is you cannot go wrong by being the lowest cost provider and we share in Aero get to think that we're that on every single day, but definitely something that we're looking at right across the business and I think.
We're actually things like the mainline toll actually incentive to make sure that we do that so that we are in a most competitive position from a cost and service offering perspective, GCM as well and as we get these assets and we tuck them in and integrate them they may be coming from.
They are a smaller player that has less ability to get those synergistic benefits, it's not a huge element, but when you think of our.
Four 5% growth focus we often put that chart out that shows.
The first 1% of that growth comes from optimizing our costs and volumes and rate structures and regulatory side of things. So it's a big element for us and we constantly need to.
Look at and make sure that we are.
For the next 75 years to be quite honest.
Next year is the companys, 75th anniversary as Enbridge, and so making sure that we're even better positioned for the next 75 is very much a focus the company right now.
Maybe I'll just offer a double click on a couple of examples within the cost P&L.
Enbridge has a mature supply chain functions had one for many years.
Cross all of our businesses I think that's that's been helpful on quality and price.
Power costs right.
Get our power use down through optimizing flows.
Modernizing pumps through to some rate base growth.
I'm working with we talked about earlier electric utilities to find that right.
Tension.
Around the affordability reliability and upgrading the grid.
Got a mature a major projects organization right that.
Allows us again to optimize quality and prices.
Of our capital program so.
Just a couple of examples there Brian on.
On the details around.
Maintaining and improving our cost structure across all all four businesses I think it's important not just to focus we focus on cost a lot, but also on the revenue side, which is helpful. Not only for our shareholder in bottom line loss of our customers to optimize the amount of volume Collyn can get through the liquids line the availability of the gas system, especially at peak periods and Cynthia.
The availability of our wind assets to make sure that they are up and running when the wind and solar is blowing. So we focus on both the cost and the revenue optimization side. There is an enterprise on a daily basis.
Great I appreciate all that color and then as my follow up just yesterday evening, we saw updated commentary around CMI flying through on August just kind of curious if you could just update us with your view of whether this is included in your current guidance expectations and then just an updated view on timeline of when you expect volumes to migrate from rail back onto your.
Our system. Thanks.
Yes, that's all built into our forecasts we've been respecting.
<unk> public disclosures all the way along if it is delayed.
That's probably a little upside to our.
Our plan in 'twenty, three and maybe 24.
Okay.
And ladies and gentlemen. This concludes the question and answer session I will now turn the call over to Rebecca Morley for final remark.
Yeah.
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.
Thank you ladies and gentlemen, we appreciate your participation. This concludes today's conference and you may now disconnect.
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