Q3 2023 Enbridge Inc Earnings Call
<unk> and CEO, Pat Murray Executive Vice President and Chief Financial Officer, and the heads of each of our business units, calling grunting liquids pipelines that'd be a half syn gas transmission and midstream Michel inheritance gas distribution and storage Matthew Ackman renewable power.
At this time all participants are in a listen only mode. Following the presentation, we'll conduct a question and answer session for the investment community.
Usual this call is being recorded and webcast and I encourage those listening on the phone to follow along with the supporting slides will try to keep the call to roughly one hour and in order to answer as many questions as possible, we will be limiting questions to one plus a single follow up if necessary.
We will be prioritizing questions from the investment community. If you remember of the media. Please direct your inquiries to our communications team, who will be happy to assist you.
As always our Investor relations team will be available following the call for any follow up questions.
On slide two where I'll 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 will also be referring to non-GAAP measures summarized below.
I'll turn it over to Greg evil, Thanks, very much Rebecca and good morning, everyone. Thanks for joining us.
Pleased to be here today to review another strong quarter. We're also excited to share a number of new announcements that further enhance our long term value proposition and of course provide an update on our businesses.
Will then walk you through the financial performance, our capital allocation priorities Edgar outlook.
Lastly, I'll close with a few takeaways and as always the Enbridge team is here to address any questions you may have.
Q3 was another solid quarter for Enbridge strong operational performance across the business drove strong financial results that were consistent with our expectations as such we're pleased to reaffirm our EBITDA and DCF per share guidance.
As part of the pre funding for the gas utilities acquisition, we successfully raised over $8 billion in September and when combined with the assumed debt we have over $14 billion of required funding in place, which significantly de risks our financing plan associated with the utility acquisition, which we expect to.
Close on a staggered schedule through 2024.
Adjusted for pre funding of the acquisitions, our debt to EBITDA for the quarter is right at the bottom of our stated four and a half to five times range on an unadjusted basis, you'll know debt to EBITDA at four one times.
System utilization across the business was really strong in our liquids business. We are relaunching, an upsizing an open season on Flanagan, South pipeline, which should further strengthen our mainline passive.
We are also set to initiate an open season for the Gray oak pipeline in the fourth quarter and will offer full path Permian service by exports through Enbridge Ingleside Energy Center.
In gas transmission, we initiated an open season on the Algonquin gas pipeline system to provide additional service to new England, where reliable and affordable gas is desperately needed.
And our teams continue to demonstrate their ability to execute we're on track to successfully place approximately $3 billion of secured capital into service by year end and our phase.
Prevalent ascribe a large French offshore wind projects remain on budget and are still expected to come into service in Q1 2024.
From a regulatory perspective, we expect to file the mainline tolling agreement with CER before year end, and our Ontario gas utility Rebating process is well underway and we expect <unk> will issue a decision on 24 rates by year end.
Together with Dominion, we have filed applications for all key U S federal and state required regulatory approvals to complete the pending U S gas utility acquisitions and all are still expected to close in 2024 last but not least on the execution front, we continue to make progress on our emissions social and.
D and inclusion goals and remain committed to global ESG leadership.
As Youre aware in the third quarter, we added visibility to our growth outlook through the aforementioned gas utilities acquisitions. The assets have an embedded rate base CAGR of 8% and cost recovery mechanisms that result in improved capital efficiencies.
And in our renewable business, we're excited to announce our European offshore wind acquisition, which we will discuss in greater detail in a few minutes.
We are continuing to execute on our tuck in M&A strategy and are excited to welcome Tomorrow RMG operations team to Enbridge. These fully contracted landfill gas to RMG facilities further establish enbridge in the R&D space.
All in all 2023 has been a great year, so far operationally and financially as mentioned earlier, we remain on track to achieve our guidance and deliver on our growth commitments.
Before we dig into the details of the quarter I'd like to revisit our investor value proposition that we laid out earlier this year.
Our business is stable and we remain committed to delivering predictable cash flows.
Our balance sheet is strong and remains a key priority.
We have a long track record of sustainably returning capital to shareholders and we will continue to grow our dividend.
We have visibility to our near term and medium term growth outlooks with conventional and lower carbon opportunities embedded throughout the business.
All of our project announcements during and subsequent to the quarter, our individually and collectively aligned with that value proposition.
Each will generate an attractive risk adjusted return that is regulated or backed by long term offtake agreements.
Looking forward, our 5% EBITDA medium term growth outlook that we set at Investor day is significantly de risked and today's announcements enhanced enbridge is lower carbon footprint across multiple business units, while increasing DCF per share.
Together these value drivers have under picked and 20 years of dividend growth and average annual shareholder returns of approximately 11% and we expect this to continue with.
We're confident that our recent acquisitions enhance each component of our value proposition.
So, let's take a minute to review the quality of our cash flow profile.
Post closings of the gas utility acquisition.
And bridges EBITDA mix will be approximately 50% natural gas and renewables and 50% liquids.
During the quarter, we've seen continued volatility in interest rates and foreign exchange markets, but our longstanding active risk management strategy is designed to allow us to continue to deliver results in all market cycles.
98% of Enbridge is earnings are currently generated from either cost of service as noted our take or pay contracted assets and that will only improve as we close the gas utilities transactions, we actively manage our forward interest rate exposure through risk mitigation policies, which leave us with just 10% of our.
Portfolio exposed to floating rates through the end of 2024.
<unk>, 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 enables our business to deliver consistent high quality cash flows, which drive predictability in all economic cycles, and we take tremendous pride in our 17 year track record of achieving our guidance and we look forward to continuing that trend this year.
Turning to the acquisition of the three Premier U S gas utilities that we announced during the quarter. This transaction represents a generational opportunity for the company.
Upon closing Enbridge will be north America's largest natural gas utility platform delivering approximately nine three bcf of natural gas per day to approximately 7 million customers.
Enbridge was able to secure a historically attractive acquisition multiples on the assets, creating long term value for our shareholders and as a reminder, we agreed to pay approximately one three times. The estimated 2020 for rate base and approximately $16 five times price to earnings based on 2023 estimates.
Both of which are significantly below recent precedent and subsequent transactions.
Pro forma these gas utilities further enhanced the stability of our already industry, leading risk profile by adding incremental regulated earnings and those earnings will grow alongside $1 7 billion.
Of annual low risk quick cycle rate base investment.
Each of the utilities is located in gas supportive jurisdiction.
It has an attractive capital structure, allowing us to earn constructive returns with favorable equity thickness.
Since the announcement of the deal we have made significant progress on the financing of these acquisitions. So lets move on to that now.
The all in purchase price of the transactions is $19 billion.
Inclusive of $6 billion of assumed debt, which initially left approximately $13 billion left finance.
Immediately following the announcement, we issued $4 6 billion of common shares and issued an additional $3 7 billion of hybrid notes, which received partial equity treatment from rating agencies.
In combination with the assumption of debt, we have approximately 75% of the required financing in place significantly derisking the funding plan.
The remaining financing needs are very manageable and can be satisfied through the various tools available to us, including the issuance of senior unsecured notes asset recycling. The reinstatement of Enbridge is drip program or initiating at the market common share issuances will make use of that flexibility and the stagger.
<unk> closing timelines to optimize the financing plan and factor in changes to the macroeconomic environment.
Now, let's jump into the business unit updates starting with liquids.
In liquids pipelines are highly competitive system remains heavily utilized with record third quarter volumes on the mainline and significant apportionment levels in the month of November.
In May we reached a settlement for the mainline tolling framework and those tools took effect on July one.
We expect to finalize that settlement with industry and submit a joint application to the Canadian energy regulator before the end of the year with.
With the expectation that the new tolling settlement will be approved and implemented in the first quarter of 2024.
We relaunched and Upsized, our previously announced FSP open season. In addition to contracting throughput on Flanagan South the open season volumes also secure long haul throughput on the Enbridge network from Western Canada to the Gulf Coast.
In the Permian region, we saw a new record for export volumes through Ingleside again, this quarter, giving us further verification of and confidence in our Gulf Coast strategy.
In order to support further growth in the Permian and meet our customer needs. We expect to initiate an open season on our growth Gray oak pipeline by the end of this year and will add 2 million barrels of storage at our Ingleside terminal in 2024.
Now, let's take a look at our gas transmission business.
In Canada, the engineering work on wood fiber LNG is progressing and we expect to hit our 60% engineering milestones and to set a preferred return in the second half of 2024.
We also closed the previously announced acquisition of <unk> Creek gas storage on November one.
This asset is well positioned and will enhance our service offering to our customers and support our LNG export strategy in BC.
And then the U S northeast, we've initiated an open season on the Algonquin pipeline, which will provide much needed supply to new England and it will help stabilize energy prices in the area. All told we're continuing to progress on over $11 billion of high quality investments in the gas transmission business and capitalize on star.
<unk>, North American gas supply and demand fundamentals.
Moving to our gas distribution business in Ontario, we continue to see growth in our distribution business, which is supported by population growth and customer additions.
We're on track to exceed our customer additions forecast of 42000 for this year.
Ontario population is expected to grow by approximately $2 5 million people over the next decade.
All of those people will need access to cost effective reliable energy and enbridge will be there to provide it.
And as we mentioned on the previous call. The Ontario government has publicly promoted that natural gas will play a critical role in supplying the province's energy mix.
Need for natural gas and customer growth at Enbridge gas will continue to underpin our estimated $1 billion of annual capital investment, Ontario for the foreseeable future.
On the regulatory front, the Ontario Energy Board approved our partial settlement to support the establishment of our 24 rates and we expect them to issue a final decision on the remaining items by the end of the year.
We look forward to providing a comprehensive update alongside our year end results.
Next let's take a closer look at some of the developments in our renewable business.
I am pleased to announce that the acquisition of additional ownership in <unk>, an albatross offshore wind farms, which are located approximately 100 kilometers off the northern coast of Germany. These.
These are assets, we know well and where we have been at a strong relationship and partnership with BW.
The acquisition will almost double our ownership of the assets and is expected to be immediately accretive to DCF.
The step up in ownership of <unk>, an albatross will materially grow the size of our renewable power business and continue our track record of investing in assets that generate utility like cash flows while working towards our net zero commitments.
In France, we are on track to bring a gigawatt of new generation online by 2025.
Comp will install about half of the turbines at Ed Provost Grand large alternatives have been installed and all floaters have been secured.
All three projects are on budget.
<unk> and <unk> are expected to be in service during the first quarter of 2024, and Calvados continues to make good progress towards its 2025 in service date.
Now, let's take a deeper look at the equally attractive investment in renewable natural gas we announced today.
Enbridge has entered into an agreement with moral renewables to acquire seven high quality operating and fully contracted landfill gas to R&D assets located in Texas and Arkansas.
Facilities, we are acquiring currently collect compressed treat and sell approximately four five bcf pipeline quality renewable natural gas each year and as the land sales continue to grow that production number will continue to grow at approximately 3% annually with minimal required capital investment.
R&D fundamentals are strong in the United States and indicate continued growth in demand over the long term as gas utilities increasingly continue to set RMG blending targets.
This was the perfect opportunity to meaningfully add to our LNG portfolio with an accretive enbridge like tuck in which has long term full volume off take agreements with shell energy North America and BP.
Unique to this deal and in keeping with our commitment to protect our balance sheet, we've staggered the purchase price over 24 months.
This transaction represents a uniquely derisk portfolio of operating scalable R&D assets that add immediate accretive DCF to enbridge and accelerate progress towards our energy transition goals. Finally, both this transaction and the increased ownership in the whole <unk>, an albatross operating wind.
Our facilities were fully contemplated when we announced the acquisition of the three gas utilities.
Now, let's turn to Pat to walk through the quarterly financials.
Thanks, Greg and good morning, everyone I'm happy to announce that continued strong operational performance led to record third quarter, EBITDA, which is up 3% year over year and DCF per share, which was also up 2% year over year.
In liquids our systems remain highly utilized the mainline transported just under 3 million barrels per day, a record for third quarter volumes in the Gulf Coast Ingleside also posted record volumes and we realized a full quarter of contributions from the increased economic interest and gray oak and cactus II overall.
Overall strong operating performance and liquids was partially offset by the lower toll on the mainline which took effect on July one.
Gas transmission is down slightly primarily due to lower ownership interest in DCP midstream following our transaction with P 66 five year.
Performance at the utility was down slightly as well due to the reversal of storage and transportation favorability that we noted for investors earlier in the year would occur over Q2 and Q3.
Our renewable business performed in line with expectations, we benefited from development fees earned on new generation projects from our North American renewable onshore development acquisition in 2022.
Partially offset by lower wind resources year over year.
Energy services results improved versus 2020.
The expiry of transportation commitments earlier in this year and lower commodity backwardation.
Below the line and DCF higher interest expense, the timing of maintenance capital and higher NCI distributions to our Athabasca and business investment partner offset some of the EBIT benefit this quarter.
Our results once again underlying the low risk nature of our businesses and the predictability of our financial and operational results that support our capital structure.
With that let's talk about how we're tracking the guidance.
As Greg mentioned, we are reaffirming our 2023 financial guidance again this quarter.
Our business outlook remains unchanged and we continue to expect high utilization across our asset base.
We've executed a number of tuck in acquisitions throughout the year, which will contribute to our fourth quarter EBITDA. While we expect these tailwind to be offset by the impact of the lower mainline toll and the equity pre funding of the U S gas utilities.
All told we expect to finish the year with another quarter of strong operating performance, which alongside our risk management initiatives provides us confidence that we will achieve our full year guidance laid out for you last year.
Even when taking into account the equity issuance in early September.
Let's turn to our medium term outlook, which we're also reaffirming.
As we look forward business optimizations remain a key area of focus for us and we'll continue to look for opportunities to optimize within our upcoming re basing framework and mainline agreements.
And the second bucket the LDC acquisition bolstered our secured organic growth projects by adding an incremental $1 7 billion of low risk annual rate base investments post closing.
And finally, we are judiciously deploying our investment capacity, we've added another $2 billion of tuck ins this quarter with the additional ownership of EC an albatross wind farms and the R&D assets, bringing us to $3 billion for the year.
We continue to execute the strategy, we laid out in Investor day, and allocate capital to deliver the quality growth we committed to.
Prudent capital allegation is core to our value proposition and we will continue to evaluate opportunities for organic growth and opportunistic tuck in M&A that maximizes shareholder returns.
Let's move on to our capital allocation priorities, which continue to follow a deliberate and disciplined approach.
While we've been active in the M&A space, each transaction fits very well into our long term strategy and adds additional low capital utility like growth to our portfolio.
The funding plans, we have laid out highlight our continued commitment to our stated guardrails.
We carefully structured the financing of the U S gas utilities to be flexible and as importantly to maintain our leverage within the four five times to five times range.
Furthermore, the plan articulated in September during the announcement of the LDC acquisition had contemplated additional tuck ins before the end of the year.
The associated incremental low risk cash flows will help to preserve our balance sheet strength and support our growing dividend for years to come while staying within our DCF payout range of 60% to 70%.
And as always we are constantly evaluating opportunities to recycle capital at attractive valuations.
Let's turn to our secured capital.
Today, our secured growth program sits at 24 billion due.
Due to our backlog. This quarter is the addition of $1 7 billion of annual rate based investment and announced U S gas utilities post closing.
We concluded a three year program, keeping with how we present, our Ontario utility growth program, but we expect that level of annual investment to continue through the decade.
By the end of the year, we expect to place approximately $3 billion of organic capital into service, primarily through our Ontario customer additions and GPM modernization program.
Our robust secured growth program is diversified geographically across our business units and is expected to be deployed over the next five years.
This diversity of location timing and business unit helps mitigate against the impact of delays or inflation on any one single large project.
And with that I'll turn it back to Greg to close the call.
Thanks, very much 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 enables us to deliver reliable growth in all market cycles balance sheet strength is always a priority for us.
And we are committed to our debt to EBITDA range of four 5% to five times, while continuing to return capital to shareholders through sustainable dividend growth.
As we discussed today to the U F gas utility acquisitions will enhance each of these takeaways by adding regulated earnings that enhance our cash flow quality increased creditworthiness and underpin our dividend growth for years to come.
Our visible growth backlog, incorporating conventional infrastructure investments and lower carbon opportunities supports long term shareholder returns and positions us as a first choice investment opportunity. Finally, let me, let you know that we'll be releasing our guidance at the end of November for next year, and we will be hosting our <unk>.
Annual Investor Day in New York in March of next year as well, we look forward to seeing you there but until then thank you very much and we look forward to taking your questions. I think we're ready now to open up the lines for those questions.
Thank you please standby for a moment, while we prepared for the Q&A session.
Okay.
Okay.
Okay.
Okay, and if you would like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from Robert Kwan with RBC capital markets. Your line is open.
Great. Good morning, if I can just start with.
Capital allocation.
Specifically just the thought process around how you are looking at my bridge and the tuck in deals.
You've announced in light of the acquisition and financing are still outstanding and just given the current market environment.
I guess, just one thing specifically you mentioned the tuck ins were contemplated as part of the utility disclosures. So you can just confirm.
That's the chart you had that had leverage.
Kind of around that midpoint at the high end $4 75.
That.
These deals would not be hedging leveraged into the high end of the range.
Yes, sure Thanks, Robert and yes, definitively that's exactly what we contemplated so these.
Both are for.
During the utility acquisitions and now that is still where we are I think is equally important.
We.
C run by those those possible transactions with rating agencies et cetera, as well so.
And then from a capital allocation perspective, I think maybe just going back and thinking about we've been very deliberate over the last couple of years to swiftly Episodically move the corporation to a much less risky.
Set up in a very utility lake setup right. So recall that we first sold the Canadian G&P assets.
We then went down the route of lowering our position in DCP and swapping those positions for very utility Lake.
Pipelines.
Lowering both any volume exposure and commodity exposure and then went on to achieve this year what is really a utility like mainline toll settlement and then next the utilities as well and then these transactions that we announced today fit very much in that same vein longterm com.
<unk> great optics.
And the same on the German power projects and the same on the R&D facility, which is little bit unique not everybody would do that with <unk>.
That's really important and that's because.
That supports that four five to five times debt to EBITDA structure and continues to allow us to pay out dividends in that 60% to 70% payout range.
Yes.
I'll leave it there Pat do you want to add anything to that no. One thing I might add is that as you mentioned in that 60 to 77 payout range, we brought that down over the last few years too. So it's at the midpoint.
Should allow us to continue to grow dividends up to the level that we grow cash flows over the next little while.
That's great.
If I can just finish excuse me west.
The R&D strategy.
Where do you see this business going for you did you see this acquisition as being more after two nest Edgar is something that you want to build upon and similar sizes and I guess just generally can you just talk about these facilities are they general landfills and how do you think about <unk>.
The increase in separation of organics away from general landfills, but the risks there might be.
For sure and Cynthia is here, so maybe I'll, let cynthia start with that.
Sure Robert Thanks.
As you know we're excited about this R&D effort.
Because as Greg noted this is an opportunity for us to highlight utility like returns. So these are unique.
And the market.
It's fairly large and growing so overall R&D I think last year.
75 Bcf in North America around 95 lots.
Lots of growth, but again, we'll be very disciplined with how we look at those.
The opportunity what we like about narrow is that it positions us as a law.
Leader in the space and that will understand.
To be able to evaluate future growth opportunities.
It is a unique asset there will be.
Other opportunities like that but again I'm required to make sure.
Yes.
Hyphen detail like.
Sure.
The agreements will be critically important as we go forward.
Okay.
Your thoughts on general landfill versus.
Targeting something that is specifically organic.
Yes.
Remember that we had invested in earlier this year, which specifically addresses that seed weight components.
This opportunity.
This latter bill are these seven landfills are located there is a lot.
Gross opportunities, Jeff there and as Greg said, there is an embedded 3% growth with very little capital outlay.
<unk> to be looking at where the landfills.
And.
Fortunately these assets our.
Geographic area.
And are.
Are we going to see that growth.
We're not concerned that there is going to be any kind of light.
Lately.
That kind of other problems.
Okay, great. Thank you.
Thanks Robert.
The next question is from Theresa Chen with Barclays. Your line is open.
Good morning.
Great.
Ask.
Out of the remaining funds.
Options for that $4 5 billion related to that.
Gas utility acquisitions.
Can you talk about your order prioritization and four there's really four tools in the toolkit.
Specifically related to the asset sales.
Can you just help us think about valuation execution in this market as well.
We'll take capital and optimize our portfolio keeping that there are other hedge funds with your competitor with our R&D market as well.
Yeah for sure so let's start there.
Cycling is obese.
And an important part of the.
<unk> financial complex methodology here at Enbridge so.
And I would just think about it as a sale of assets thinking about things like some of our partnerships that we've done with indigenous communities. We did that last year. Those continued to create really great opportunities for us to recycle capital.
And still frankly be involved in the projects and maintain operational strategic control. So thats an element and you look across the size of the company, we've got various pipe assets.
You can look at wind assets renewables.
We are restricted in any way shape or form.
In terms of what we'll look at it and Youre right Theres a market out there for selling assets, but we think the way that we've structured virtually all of our assets now that they are low risk utility like and will be very attractive.
As opposed to say selling G&P assets in this type of market. So that's one and then to us.
We still got some hybrid mode.
And that's something obviously, we will look at in unsecured notes and then we do have the possibility of using the drip and ATM. So that's probably the route I would go down but again <unk> got to judge this based on what you see in the economic environment from a macro perspective, what I'm really happy about is we are.
A long ways down the trail of securing debt financing and it'll be into 'twenty four.
Target say the end of 'twenty four we have all these assets in the house. So I think we've structured as well by getting.
Three quarters of it off the table and setting ourselves up well with multiple.
Avenues to achieve the last 25%.
Got it thank you.
Turning to the liquids.
And related to the Flanagan South open season really interesting to see the upside thank given that I'm sharing your shippers like everyone else is evaluating the in service of TNX sometime next year, but not only a thorough enough for the previous open season, but it's been upside now can you talk about what's driving that demand.
Crane barrels all the way to the Gulf Coast in your conversations with the shippers assets open season progresses.
Yes.
Hey, Jason its call here thanks for the question.
We're less surprised I think.
The fundamental and play here is a.
Demand Paul for Canadian heavy.
To the pad two and past remarks, but you've seen for many many years, it's been growing and growing drawing.
So we see some demand pull I think youll see some jumps supply push.
Basically represents contracted egress in the sense that you have.
Verification ability through the mainline to get onto FSP.
And as you see.
The pricing basis is very wide.
Now and I think as expected too.
B wide through through the decade.
As the grass will become constrained again, so I think it's.
I think it's less surprising maybe then youre observing but rather a question of building E Hot determinants of that in Houston.
And it's a.
It's a very competitive paths I think bottom line underscores.
The resilience of the mainline system.
Okay.
Makes sense. Thank you.
Thank you Sir.
The next question is from Robert <unk> with CIBC capital markets. Your line is open.
Hey, good morning, I wondered if you could.
Given let's say.
A description of how you think the.
The recent Supreme Court opinion on the impact Assessment Act.
So it will impact your appetite for ASP at the moment and Kevin.
Yes, Robert I think it's a little bit early.
Obviously, you can read a lot of tea leaves and as you know the federal government says, they're going to make some adjustments and fix that.
Not sure exactly what that means.
And.
So we will have to consider that over the coming months and years. So thats. One I think you also have to think about it from the clean electricity standards.
And none of that's really immediately solves the just the overall getting certificate certificates to move forward with.
With major pipelines from my perspective so.
So I think it's status quo at this point in time I don't see it impacting any of the projects that we have in a big way and in Canada. As you know most of those are inter entrapped Prudential so whether it's.
Things going on in Ontario are major projects in British Columbia, there within the province, and so I don't see a major issue from that perspective, but I just think it's early days, Robert we will have to see.
It's not easy to build anything anywhere.
So are we kind of like having that.
Portfolio of businesses, where we can.
Pick and choose with the best returns.
Most accretive projects across multiple jurisdictions, but yes.
Yes, I think time is going to tell I wish I would get a better answer for you Robyn I just don't think it's clear yet where is it going to go.
Alright, Okay, and then similar question in the U S. Since you look at U S offshore wind projects, having some difficulty.
With supply chain and everything else.
How does this play into your gas transmission assets, including the Algonquin open season then.
What do you think is possible with respect to that open season in terms of.
The scale of what you might accomplish.
Yes, I'll, let Cynthia answer, but I guess just from a macro perspective, I think we've been extremely careful at enbridge, considering pace and I think the pace of the transition I think it served us very well.
By sticking with gas assets with liquid assets with keeping our renewables business going so I really do think.
Curtis pitch for a long time and all of the above strategy and that's going to continue.
But if anything the last 24 months, whether its activities in Europe, The war between Russia, and Ukraine or the war in the Middle East.
Stability Thats out there.
Underlying the need for North America infrastructure, and North America infrastructure looks at exports as well to help them as stable regions and trap lately one of the worst served areas the northeast.
Speak to that.
Thanks, Greg.
Yes.
We have been participating in many technical conferences with FERC and others suggest that drought. This year and these are near term reliability concerns. So yes, there'll be more in the future potentially for those concerns.
When development scale, there, but this is really too.
This open season is to address near term issue as well.
FCC initiatives that are starting.
These problems and dynamics.
So we have two different options that we're very sticky with our customers up north we present traject in April.
Rajiv.
Another perhaps Robert.
Okay.
We see for that opportunity one would be yes.
Doug.
The other Kristine as J D.
So there's been a lot of interests, we're having great conversations.
We that.
Open season closes November 17th so more to come as we work with our customers to find what the best right now.
Yes.
<unk> was built.
Sales out is and will continue to do that.
Jeremy Thanks for these projects is targeted.
129.
Lots of work to go.
Im sure we will continue to have more and more.
As we see more of that energy transition and the.
Robert the only other thing I'd add and Ken.
Ken.
I really don't see North American offshore is something thats attractive to asset with not fit our risk parameters.
From a return perspective, a risk of getting it.
Very different than what we've seen in Europe with really long term contracts with things that actually get that on time I think people often forget theres only one operating offshore wind facility in North America, I think still today and it took a decade and a half to get maybe theres too, but they are small so.
To be clear, that's not something that we find attractive.
No I understand that last point I was just saying.
The dynamic offshore for offshore Warner actually playing into your hands with Euro your gas assets, but thanks for those answers. Thank you.
Okay.
The next question is from Jeremy Tonet with Jpmorgan. Your line is open.
Hi, good morning.
Okay.
Just wanted to come back to the conversation of capital allocation, if I could especially in light of rates moving up sharply here and just wondering how that has impacted your thoughts on the different components of capital allocation.
Particularly as it relates to acquisitions on renewables I think there is a concern in the marketplace at the returns there are bit more or a bit lower and so just wondering how you see that factoring in at the same time. It seems like in midstream there is a preference for return of capital here. So just wondering how that all kind of <unk>.
Ones together in this new environment.
Sure I'll start and then Pat can chime in look.
Obviously, we're not blind to interest rate moves from a direct exposure perspective, we have virtually no floating rate debt. This year and we're around 10% next year. So that's obviously an important factor to consider secondly, most of our.
Virtually all of our regulated assets have some element of inflation and pass through on interest rates.
Impacting the return on equity increasing yet and then the third point I would guess, obviously higher interest rates mean that.
As we the size of our company get so many opportunities coming at us the business units.
At a higher hurdle rate.
To make sure that those projects are accretive on the wins that specifically, though I think thats why you see that in both the asset the German offshore assets and even on the R&D stuff long term contracts are really important to make sure that.
You know, what you're getting into and the returns before you finance it so Pat do you want to add further today.
I think Thats I think Thats right I think when you think about your comment around certain renewable assets may be getting the returns and yes, I think we do see that in the market and those aren't ones we're interested in.
The one we've just announced today is an asset we're very familiar with from an operating and running it for a number of years.
Got a long contract left on it so it's very specific.
Offshore opportunity for us.
And then in North America, we continue to look for things to do but again, we're going to be very selective theyre going to have to meet the increased hurdle rate as Greg talked about and theyre going to have to really fit into that risk.
The low risk nature with lots of long term contracts.
PC agreements things like that so I think we're very comfortable with the ones that we've announced today.
New projects will have to compete at an even higher clip than they have historically and Jeremy from a return on capital perspective, obviously, the dividend has always been the key component for us.
And I think we are.
Very set up nicely and comfortable with our 60% to 70% payout.
That's allowed us to.
Fund businesses internally, but also make sure that we will reward shareholders and our owners who.
We're talking about decades of steady reliable dividend growth and we expect that to continue.
Got it thank you for that.
And just with offshore wind a little bit more here just wondering if you could confirm whether you are going to consolidate the newly acquired wind farm into EBITDA. It seems like I think on the slide.
Increase in EBITDA in 2024, so I'm wondering on that there and just to confirm I guess on the last part there as far as renewables that hold the most interest view, where there could be future acquisitions, it's really.
European offshore wind in.
U S North American R&D kind of the two focal areas, if theres going to be future.
Renewable purchases.
Well Matthew as you.
Remember this is.
German project.
Excuse me that we have.
Been involved with so yes.
Yes, it will be consolidated in the power business I'm not sure we've got offshore renewables in Europe today that we're building out and we're very comfortable with us on love those and the contracts that they have but obviously youll recall that we bought.
Solar and renewable development.
Business here in the United States.
Last year.
And we're very focused on building out those development projects that they have to so may not be so much from the acquisition side I'm sure. We'll look at picking up step for the reasons you pointed out.
Pat do you want to speak to Europe.
U S.
Sure, maybe just briefly to add or.
Not a lot more to add but I think the key is our strategy here has been really differentiate it.
As you can see we theres a lot of turbulence in this space.
I think our strategy of being disciplined focusing on contracted assets.
Yeah.
<unk> has really has really.
Panned out for US here and this is more of that these assets that we're picking up today. So.
17 years left on the PPA, it's basically government backed.
We have years of operating history double digit returns still on these so they're they're very good returns.
And a great partner, that's the kind of stuff, we'll do we're going to be very very selective, especially in offshore given what youre seeing out there and then with onshore.
We're basically organically driven in the U S. We've got some great projects that are advancing nicely.
So on track to realize projects.
<unk> in the coming months on some of those but again.
They always have to hit.
Our return parameters, we have to derisk them and ensure we have the right commercial construct but we do see more growth, particularly on the organic side in North America as we head into early next year Jeremy.
Jeremy I would just add I think your question around consolidate maybe been how we're gonna reflected in our financials, we will still own just under 50% of all equity account for this going forward. There is as we noted a piece of that that comes with it that will be on our books, but otherwise we will just equity account for this asset.
Got it very helpful. Thank you.
Thanks, Jeremy.
The next question is from Linda <unk> with TD Cowen Your line is open.
Great. Thank you.
Stepping back a little bit trying to understand are there seems to be a growing amount of opportunities given your incumbency in certain regions.
Or do you expect to see the most interesting opportunities over the next years can you just stratify it between utilities renewables R&D carbon hydrogen gen ammonia when might we see that ramping up versus your legacy gas and liquids pipelines because you do have some liquids initiatives going on as well.
Can you just.
Help us understand that and then.
Further to that.
Looking out over the medium term as well.
Tuck isn't going to be.
The tilt in the focus do you think given that you might get some.
Immediate accretion from that versus the longer lead times for building or can you comment on the mix that you expect tuck in versus.
Versus Greenfield brownfield.
Sure, let me try to unpack it a little bit so from an opportunistic perspective.
From a dollar size perspective anything you can look at our backlog the biggest changes in the gas transmission business.
Second biggest pieces.
Utility business now that we bring on the.
The three utilities in the U S. I think there's about three and a $5 billion.
With capital there through 2007, so those are the two big chunks, but as you pointed out there's great opportunities on the liquid side, which are super efficient from a capital perspective, and therefore very high returning and then.
Matthews business has got the development projects. So I think theres a little bit in every area I would say in terms of tuck ins, yes, we look at everything.
The big utilities to bring on side.
But as Pat pointed out a little earlier.
Tuck ins have to meet some high hurdle rates from an accretion perspective, so it's a little bit of everything I don't see us doing any major.
M&A here as we bring in the the three utilities in the United States and make sure that they're fully integrated.
With the system, but we see a lot of stuff and I think thats, a great opportunity for us to really high grade those opportunities for the business units to sharpen their pencil on that front and then ultimately.
Got to make sure that it stays within our four five to five times debt to EBITDA and allows us to continue to grow the dividend. So.
Yes, that's where I would go pattern, obviously would you want to add anything to that Kevin maybe just a comment on kind of the mix of tuck ins versus.
Longer build actually I think we kind of like the mix that we have.
Think about the longer.
Lower multiple build projects we have in the BC.
We've got it takes a little bit longer but it's good returning very low risk part of the cost of service type asset then supplement that a little bit with some of these tuck ins that have immediate cash flow that comes in the door and then add to that <unk> got these new utilities in the U S that have really quick capital.
Got kind of the benefit of both of them, which is it's got a low multiple when it comes in quick can you get a return on it. So I think we'd like the actual complementary way that these all operate together and it's why I think we like that we have that optionality. So.
I think that's all I'd add to that Greg.
Yes.
Just a quick follow up just trying to understand when we might start to see.
Your.
<unk> on any sort of carbon capture or hydrogen or ammonia related projects.
Might we see something significant on that front over the next 12 to 24 months.
Yes, maybe I'll, let Colin jump I think 12 months might be might be kind of tough base has been an important one but defense at least from the Ccs here in Canada and the Gulf do you want to speak to those and then maybe chat a little bit of a nitrogen.
Yes, no that's a great question and we're working on.
A number of options I think as Pat just laid out so.
In Canada.
Canada, while women.
I think everybody's kind of ready for it we need some policy.
<unk>.
From our federal government here, but.
I think everyone's.
In position to take investment decisions, if if those come through later in 2024 for example.
<unk>.
Once or twice in the board in Canada.
A timely plus.
At Ingleside, our ammonia project in carbon hub there.
Late 'twenty early 'twenty five.
There.
Yes, anybody one else anything well I think we get we get hydrogen opportunities and Charlie two that's pretty new but that's that's kind of a late decade there'll be real careful on that front.
Things like the renewable things like.
The RMG in the Ccs I think those are more near term opportunities and I think the hydrogen balloon ammonia project is different.
Given the players that we're working with therapy.
Sequestration partner, there with oxy and the assets, we already have there from a pipeline perspective, and then of course.
Great export facility, we have there and a fabulous partner and Urs.
This is their business that they are the largest user of ammonia in the world. So that may be a little bit unique, but we're going to be careful on that front.
It goes back to the space issue you want to you don't want to be on the bleeding edge do you want to be on the leading edge.
<unk> got $25 billion of organic projects.
Today, so delivering on those is our first and foremost priority.
Thank you.
The next question is from Robert Hope with Scotiabank. Your line is open.
Okay.
Good morning, everyone.
Two quick ones from me I want to go back to the discussion on the tuck ins.
Given the Choppiness that we're seeing in the market is currently with the rising rates as well as we'll call it less.
Lessening availability of capital for some participants have you seen the valuations for potential tuck ins come down subsets.
You may want to accelerate investment in them.
Well, we've definitely seen some valuation come down I wouldn't say, we'd want to accelerate and we've been very disciplined on that as we said historically.
You've got two and a half of $3 billion.
Of capacity available to be strategic tuck in so that's going to be a good regulator for us.
Well.
But yes, you're seeing some multiples to come down, but it depends on the assets right. It depends on the contracting of those assets. So it depends on the seller do they need to sell stuff. So I don't think you can universally look at look at that and say, yes, maybe not tuck ins, but obviously not a tuck in is buying the three utilities, but the price we get there.
There was really fabulous, but you then follow on transactions from other folks selling gas utilities, which were more typical 192 times.
Rate base. So I think it just depends on the seller and the location, but I would say, it's definitely theres lots of there's lots of opportunity out there and that lets us be very choosy, while still staying within our four 5% to five times debt to EBITDA targets.
Thanks for that and then just moving over to Dominion, while early days kind of any incremental feedback you can give on your discussions with stakeholders. There it looks like HSR is good.
Yes.
Michelle has been waiting for your questions.
Thanks, very much and thanks Robert.
Things are going really well.
For any of the utilities.
Certainly we filed all the key required applications that early and in the states of the jurisdictions for regulated utilities.
We've got a dedicated integration team that setup with senior leader on it that really has a lot of experience.
Utility and the integration side of things brought together the spectrum and very quickly union gas and Enbridge gas side of things and we're really happy with the relationship we've got working with Dominion.
Actually I had the pleasure of probably 30 or more town halls across the three utilities following the announcements and.
The church commissioners and customer advocates of the public utility commissions in each state and I have to say the reaction has been universally positive commitment that enbridge has to local communities.
Importantly, all natural gas has to play in the energy evolution, and really importantly to best in class safety and reliability.
Super well received by employees.
All stakeholders. So we're feeling pretty good that we should be able to meet the timelines we set out for ourselves I mean, it's early yet to see anything from.
Intervenors.
Really don't expect to see any significant barriers to our expectation that we close on all of them by the end of 2024.
Maybe a little more detail, we'd probably expect Ohio first followed shortly after by Utah, and Wyoming, and then North Carolina, We express closed glass and that's not really data any concerns or just the order is really a function of the regulatory processes in each jurisdiction.
Things are going great.
I would also say that Dominion has been awesome.
Coordination perspective, obviously, they want to get the transactions close, but some through good times through the heat and negotiations not everybody's on the same page.
They've just been a class act and they want to make sure. These are done well both for the people most of the business and obviously the customers we serve and obviously great alignment on making sure we do the right thing for our investors as well.
Thank you.
Thank you.
The next question is from Ben Pham with BMO. Your line is open.
Well.
Hi, Thanks. Good morning can you comment on what was driving the strong mainline volumes during the quarter and then the flow through to ROE exports.
Yes.
Hey, Ben it's Paul Yeah. Thanks for the question.
The mainline is super resilient, I think we've proven that over and over and over for decades sticking to the quarter.
So surprising building.
Maybe that's been quietly lost.
Equation here, so we've seen supply quietly grow.
Whereas significantly apportioned here in the last couple of.
The months two to prove that point out.
Keep in mind, we are doing everything we can to move every barrel. We can we're incentivized to do so so England for Enbridge and customers.
And therefore, some of that spilled over into rail exports.
Right to clear the market markets backward dated so.
Producers monetize your product quickly.
And inventories are or kind of.
Average.
Historically speaking so.
There's still a lot of demand pull utilizations are high at refineries.
From activity and also.
The demand pull there from a dearth of.
Foreign imports.
I think most of the stars are aligned.
To support mainline volumes here and I think.
You'll see this in our late November guidance, when we put.
Segment guidance out.
Thank you are going to see strong liquids.
EBITDA forecasted for 'twenty four.
On the back of what we were just talking about <unk>. So.
Don't see a lot of.
<unk> offload.
That concepts being.
Oversimplify generally and I think we're going to see pretty robust.
Volumes in 'twenty four as well.
Okay. Thanks, guys.
And maybe on the balance sheet.
Could you update us.
Remaining hybrid capacity room.
And.
And then reinvestment program.
Are you able to share what the.
The key driver of initiating that in.
Now early how late could you have to make that decision.
So I think on the hybrid I think originally we said we are in the range of.
$4 billion to $6 billion of hybrid capacity, we saw US do about 353 6 billion of that right. After the announcement. So we've got some capacity there.
As we go through it.
And sorry, the last comment was on the drip, yes, I mean, I think we will consider as we talked about all the options that we have whether that be asset sales more hybrids. As you just talked about the fact that.
ATM or drip and we'll assess that.
We haven't activated as we speak yes, it's something we'll consider as we move through the year on our capital needs.
Okay.
Can I, maybe follow up on that but let's say <unk>.
The drip.
<unk> 24.
And you.
<unk> seen a quick calculation that doesn't meet the 25% that may be pushed into 2025.
It can meet it.
Is there opportunity for that in your discussions with agencies and our funding plan that could work or do you need to talk about everything by the end of 2024 and if that question makes sense yes.
Yes, I mean, I think we've got really good conversations around the fact that.
We are committed as we have to the equity markets and to our fixed income investors that will finance. This appropriately we will get the projects in by the end of 2024, and we will do what we have to from a balance sheet perspective to make sure that we're in good shape entering 25, I think 25 is really a year that theyre most interested.
Then because that's when we'll have all of the EBITDA and so we've got some time to do this then remember also that.
There's lots of different options, we have as we move through this and we'll see which is most beneficial to our shareholders and our bondholders as we move through that.
Let's let's say of the other pieces go pretty highly confident in our ability as we've talked about given the historic.
Recycling and then.
As Pat said, you've got the other capabilities and then you look at whether you need to drill for the AGM.
Okay got it thank you.
Yes.
Our final question is from Brian Reynolds with UBS. Your line is open.
Hi, maybe to follow up on some of the capital allocation questions, perhaps through the lens of how transformational M&A is going to impact some return of capital opportunities over the near term can you just update us on the dividend per share outlook of 3% to 5% as we think about 2024.
Is that maintained or could we effectively see enbridge optimize long term shareholder value by supporting the balance sheet as it execute some of these.
Funding needs over the near term thanks.
Yeah, absolutely look I think we can do more than one thing at one point in time.
I think we've proven that historically.
Staying in that four five to five times.
On the on the debt to EBITDA on the balance sheet structure as well as return cash.
Capital to shareholders and the best way to do that is through dividend growth and as we've said, we expect to grow the dividend consistent with our with our DCF you've seen us do that over time and I think you can expect to continue to see that but I guess I would hedge a little bit from yes, we'll lay all that out for you.
Our guidance for next year, but.
We're very comfortable with where we are on dividend payout and where we are on the balance sheet and that is all driven by the fact, we have deeply reduced any risk of the business by setting up utility type structures in all of our businesses. So we think thats the right structure, it's a bit unique.
Then other folks but.
See that even this quarter some companies have GNP and have moved around and they've seen valuations changed from a G&P perspective, because you've got volume risk and commodity risks directly or indirectly we don't have that.
Virtually none of it we got a little slug of DCP.
But it's that you've got a very risk.
Resilience and reduced entity over the last several years and again, we think that allows us to both.
We have been able to do on the balance sheet very comfortably and returning shareholders capital through through dividend growth.
Great. Thanks, appreciate that and as a quick follow up.
<unk> seem to be much higher than the posted 12 for the quarter. So can you just help us understand the drivers there and as we think about the mainline settlement settlement pushed from Q to Q4 for October two from October anything to read into that and just to confirm is there anything that can effectively change between what was announced in what will be final. Thanks.
Yes.
Yes call it maybe the latter 0.1st yes no.
Working with industry to fully paper.
The settlement agreement from May.
It's unchanged.
Read much into it.
Takes time and there is also other things.
That's been working on other applications and filings from others.
But it's trending well.
And we should have that.
<unk> filed the short before year end.
I think on the on the performance.
During the quarter I think.
The above volumes all costs.
So.
We're managing.
That asset is industry and advised us to do so and I think you should expect more of the same.
Thanks, I'll leave it there enjoy the rest of the morning.
Thanks very much.
Sure.
I'll now turn it over to Rebecca Morley for any closing remarks.
Okay, great. Thank you and we appreciate your ongoing interest in Enbridge as always our Investor Relations team is available following the call for any questions that you may have once again, thank you and have a great day.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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