CALGARY, AB - Enbridge Inc. (Enbridge or the Company) (TSX: ENB) (NYSE: ENB) reported second quarter 2022 financial results, reaffirmed its 2022 financial outlook and announced $3.6 billion of newly secured growth projects this quarter.
Highlights
(All financial figures are unaudited and in Canadian dollars unless otherwise noted. * identifies non-GAAP financial measures. Please refer to Non-GAAP Reconciliations Appendices.)
Second quarter GAAP earnings of $0.5 billion or $0.22 per common share, compared with GAAP earnings of $1.4 billion or $0.69 per common share in 2021
Adjusted earnings* of $1.4 billion or $0.67 per common share*, compared with $1.4 billion or $0.67 per common share* in 2021
Adjusted earnings before interest, income taxes and depreciation and amortization (EBITDA)* of $3.7 billion, compared with $3.3 billion in 2021
Cash provided by operating activities of $2.5 billion, compared with $2.5 billion in 2021
Distributable cash flow (DCF)* of $2.7 billion or $1.36 per common share*, compared with $2.5 billion or $1.24 per common share* in 2021
Reaffirmed 2022 full year guidance range for EBITDA of $15.0 billion to $15.6 billion and DCF per share of $5.20 to $5.50
Executing the Company's diversified secured capital program with approximately $4 billion on track to enter service in 2022, providing visible EBITDA growth in the years ahead
Reached a settlement in principle with participants on Texas Eastern ensuring the system continues to earn an appropriate return on invested capital
Sanctioned two projects totaling US$0.4 billion to deliver 1.5 billion cubic feet per day (bcf/d) of natural gas to Venture Global's Plaquemines LNG facility
Secured estimated $1.2 billion expansion of B.C. Pipeline's T-North section to serve growing regional demand and west coast LNG exports
Launched a binding open season for a $2.5+ billion expansion of B.C. Pipeline's T-South section adding approximately 300 million cubic feet per day of new capacity
Announced an investment in the 2.1 million tonnes per annum (mtpa) Woodfibre LNG facility, representing a 30% interest, further advancing Enbridge's LNG export strategy
Concluded three successful open seasons for capacity on the Alliance Pipeline highlighting the unique value of its liquids-rich transportation capability
Issued 21st Sustainability Report, demonstrating the Company's ongoing progress towards the goals set in November 2020
The Company remains committed to its equity self-funding model and is on track to achieve Debt to EBITDA of 4.7x or lower by year end, providing significant financial flexibility
CEO COMMENT
Al Monaco, President and CEO commented on the following:
'Rising global energy shortages and high commodity prices are highlighting the importance of secure, affordable, and reliable energy supply. Energy markets are at a pivotal point, requiring renewed investment in both conventional and low-carbon energy supply to meet growing energy demand, while achieving society's emissions reductions goals. North America is ideally positioned to play a critical role in meeting future energy demand with its massive, low-cost and sustainable resources.
'The current energy outlook validates our dual-pronged strategy to expand our existing conventional pipeline and export businesses, while ramping up investment in low-carbon opportunities to drive future growth platforms. As we execute our strategy, we're committed to maintaining our low-risk business model which provides predictable and resilient cash flows in all market cycles.
'In the second quarter, we continued to progress well on our strategic priorities.
'Operational performance remained strong, translating into good second quarter financial results. Through the first six months, we're tracking to plan and are on target to achieve our full-year EBITDA and DCF per share guidance.
'Our recently published 21st annual Sustainability Report provides an update on our performance versus the targets we set in 2020. Emissions continue to trend positively towards our 2030 interim target, employee diversity is growing, and our safety results remain industry leading.
'We're progressing discussions with shippers on a new mainline tolling agreement, with two attractive commercial paths under evaluation, an incentive tolling or cost-of-service model. Both options keep us aligned with our customers and provide predictable cash flows at an appropriate return. We aim to make a decision by the end of the summer on the best path forward.
'We're executing on our $10 billion diversified secured growth program with almost $4 billion on track to enter service in 2022. And, we've added over $3.6 billion of new projects to our secured backlog, including an expansion of our B.C. Pipeline System, an extension of Texas Eastern and an investment in the Woodfibre LNG facility. This brings the total newly sanctioned growth projects in 2022 to $4.5 billion. These commercially secured investments demonstrate the value of our continental natural gas transmission system's connectivity and cost competitiveness.
'In May, we sanctioned an extension of our Texas Eastern system to serve Venture Global's Plaquemines LNG facility in the U.S. Gulf Coast. Once complete, this will bring the number of directly connected export facilities to five, and we've secured two additional projects that will supply Rio Grande and Texas LNG, once they reach a final investment decision.
'To compliment the great progress we've made on building our Gulf Coast infrastructure position, we're now executing a significant component of our natural gas strategy in B.C., which illustrates the value of our existing position in western Canada.
'Strong natural gas demand fundamentals and growing exports are driving a significant opportunity on our B.C. Pipeline System. We're moving forward with a 535 mmcf/d expansion of the T-North system stemming from a recent binding open season that garnered strong commercial support from our customers and is expected to be in service in 2026. This project will ensure growing regional supply gets to local and global demand centers.
'We also announced an exciting investment in the 2.1 mtpa Woodfibre LNG facility, which fits our low-risk pipeline-utility commercial model and will generate an attractive return. This investment is a natural extension of our B.C. Pipeline System, which will supply gas to the facility under a long-term transportation agreement, and supports further expansion of the B.C. Pipeline System. Export fundamentals for western Canadian LNG to Asian markets are strong and the Woodfibre facility provides a cost-competitive source of supply.
'This investment also aligns very well with our ESG criteria on two fronts. First, the project has strong local community and Indigenous support, with the potential for future Indigenous equity participation. Second, Woodfibre will be among the leaders globally in emissions per mtpa produced thanks to the use of hydroelectricity to power the facility.
'With Woodfibre moving forward, we've also announced we're kicking off an open season on the T-South section of our B.C. Pipeline to ensure Pacific Northwest demand has access to affordable, reliable energy. This could result in a $2.5B+ expansion of T-South.
'Our secured growth backlog is now $13 billion with capital to be deployed between now and 2026. Funding requirements fit well within our $5-6 billion of annual investable capacity, and we remain committed to our equity self-funding model. Our disciplined approach to capital investment and low-risk commercial model support a transparent growth outlook through 2024, and we are growing the secured backlog supporting growth beyond 2024. We will continue to prioritize a strong balance sheet, sustainable dividend growth, attractive organic growth, and share repurchases.
'Through the first half of 2022, we've made excellent progress advancing our strategic priorities and we believe our strategy will generate long-term value and an attractive return of capital to shareholders while supporting growing global demand for secure and affordable energy needed to bridge to a cleaner energy future.
GAAP earnings attributable to common shareholders for the second quarter of 2022 decreased by $944 million or $0.47 per share compared with the same period in 2021, primarily due to the impact of the mark-to-market value of derivative financial instruments used to manage foreign exchange risk. In the second quarter of 2022, GAAP earnings attributable to common shareholders were negatively impacted by non-cash, net unrealized derivative fair value losses of $850 million compared with unrealized gains of $242 million in the second quarter of 2021.
The period-over-period comparability of GAAP earnings attributable to common shareholders is impacted by certain unusual, infrequent factors or other non-operating factors which are noted in the reconciliation schedule included in Appendix A of this news release. Refer to the Management's Discussion & Analysis for the second quarter of 2022 filed in conjunction with the second quarter financial statements for a detailed discussion of GAAP financial results.
Adjusted EBITDA in the second quarter of 2022 increased by $413 million compared with the same period in 2021. This was primarily driven by contributions from new assets placed into service including the U.S. portion of the Line 3 Replacement Project and the acquisition of the Enbridge Ingleside Energy Center.
Adjusted earnings in the second quarter of 2022 decreased by $7 million, or less than $0.01 per share, primarily due to higher Adjusted EBITDA contributions, offset by higher financing costs due to lower capitalized interest with the completion of the U.S. portion of the Line 3 Replacement Project along with the impacts of rising interest rates on floating-rate debt, increased depreciation expense on new assets placed into service in 2021 and higher income taxes on higher earnings.
DCF for the second quarter of 2022 increased by $244 million, or $0.12 per share, primarily due to higher Adjusted EBITDA contributions partially offset by higher cash taxes on higher taxable earnings and higher financing costs noted above.
Detailed financial information and analysis can be found below under Second Quarter 2022 Financial Results.
FINANCIAL OUTLOOK
The Company reaffirms its 2022 financial guidance announced at its December Investor Day, which included adjusted EBITDA between $15.0 and $15.6 billion and DCF per share between $5.20 to $5.50. Results for the first half of 2022 are in line with expectations and the Company anticipates that its businesses will continue to experience strong utilization and good operating results through the balance of the year with normal course seasonality. Forward financial guidance reflects a provision in recognition of the uncertainty of future Mainline tolls associated with the ongoing commercial framework discussions with shippers.
Strong operational performance is expected to be offset by challenging market conditions which continue to impact Energy Services, along with higher financing costs, due to rising interest rates, relative to 2022 financial guidance.
FINANCING UPDATE
In May of 2022, Enbridge secured a 1-year US$1.5 billion term loan and replaced a maturing 52.5 billion yen term loan (approximately C$500 million) with a 3-year 84.8 billion yen term loan (approximately C$800 million) at attractive rates, with proceeds used to pay existing indebtedness and for other general corporate purposes.
On June 1, 2022, Enbridge closed the previously announced redemption of US$200 million outstanding Cumulative Redeemable Preference Shares, Series J.
The Company expects to continue to fund its secured capital growth program within its equity self-funding model utilizing internally generated cash flows and future debt financings while maintaining its debt-to-EBITDA ratio within the Company's target range of 4.5 to 5.0x.
SECURED GROWTH PROJECT EXECUTION UPDATE
During the second quarter, the Company added $3.6 billion of growth capital to its secured capital program, including a US$0.4 billion extension of the Texas Eastern System associated with Venture Global's Plaquemines LNG project, an estimated $1.2 billion expansion of B.C. Pipeline System's T-North section (T-North Expansion), and a US$1.5 billion investment in the Woodfibre LNG facility. The commercial terms of these projects, discussed in more detail below, are consistent with Enbridge's low-risk business model and demonstrate the value of Enbridge's existing infrastructure to meet growing demand for energy.
The Company's current secured growth program is now approximately $13 billion and in addition to the newly secured projects announced today, includes ratable capital requirements for both Gas Transmission's modernization and Gas Distribution's utility growth programs, as well as four offshore wind projects in France that are expected to provide a combined 1.5 GW (0.3 GW net) of generation capacity, and a number of other smaller projects across the business.
Funding of the secured growth program will be provided for entirely through the Company's $5-6 billion of annual investable capacity, comprised of internally generated free cash flow and balance sheet capacity.
Venice Extension and Gator Express Meter Projects
The Company has sanctioned the Venice Extension Project and the Gator Express Meter Project to deliver a combined 1.5 bcf/d of natural gas to Venture Global's Plaquemines LNG facility located in Plaquemines Parish, Louisiana.
These projects will involve 36-inch diameter pipe, metering, and compressor station additions and improvements on the Texas Eastern System, with a combined estimated capital cost of US$0.4 billion underpinned by long-term take-or-pay contracts. The Gator Express Meter Project is expected to be in service in 2023 and the Venice Extension Project is expected to be in service in 2024.
T-North Expansion
During the second quarter, Enbridge successfully completed a binding open season for a 535 MMcf/d T-North Expansion project with an estimated capital cost of $1.2 billion.
The T-North Expansion will consist of compressor unit additions, pipeline looping and other ancillary station modifications. Enbridge has now begun the regulatory and permitting process and plans to file with the Canada Energy Regulator (CER) in 2024.
The project is expected to be placed in service in 2026 and will be underpinned by a cost-of-service commercial model.
Woodfibre LNG Investment
Today, Enbridge announced it has signed an agreement to invest in the 2.1 Mtpa (~300 MMcf/d) Woodfibre LNG facility located in Squamish, B.C. developed by Pacific Energy Corporation Limited. Enbridge's non-operating interest will be 30% and will receive a preferred equity distribution that is consistent with the Company's low-risk pipeline-utility model. The preferred equity distribution to be based on capital costs for the investment in the LNG plant and related facilities to be determined in the first half of 2023.
The total project cost of the Woodfibre LNG facility is approximately US$5.1 billion and consists of the liquefaction and floating storage facilities at the site, as well as an expansion of Fortis BC's' Eagle Gas Pipeline to transport feedstock from Enbridge's B.C. Pipeline to Woodfibre LNG. Enbridge will contribute its pro-rata share of construction costs during project execution, which is expected to be funded through equity injections of US$0.7 billion and project level non-recourse debt, the later of which Enbridge's proportionate share is expected to be approximately US$0.6 billion. Enbridge's investment is expected to include $0.2 billion of capitalized interest.
The project holds a 40-year export license and has received all major environmental permits, including the Squamish Nation Environmental Agreement. Woodfibre LNG has strong Indigenous support gained through extensive and meaningful consultation with local Indigenous Peoples and has signed a benefits agreement with the Squamish Nation.
The facility is expected to be placed into service in 2027.
BUSINESS UPDATES
Mainline Commercial Framework
The Company is currently advancing two potential commercial frameworks for the Mainline in parallel: i) a new incentive rate-making agreement that may be similar to the Competitive Toll Settlement (CTS) agreement that expired on June 30, 2021, and ii) a Canadian Mainline cost-of-service application. Either framework is anticipated to provide attractive risk-adjusted returns for operating the Canadian Mainline and the range of financial outcomes is not expected to materially impact Enbridge's financial outlook.
Enbridge has consulted with industry participants and accordingly shared incentive rate making proposals, supported by detailed cost information, with an industry negotiation group comprised of a cross-section of industry participants, including producers, integrated producers and refiners.
The Company anticipates that it will decide at the end of the third quarter whether to file either a negotiated incentive tolling settlement or a cost-of-service application with the Canada Energy Regulator.
Texas Eastern Transmission, LP (Texas Eastern) Rate Case
On July 11, 2022, Texas Eastern requested the chief Administrative Law Judge to suspend the procedural schedule on its consolidated rate case, as an unopposed settlement in principle was reached between the participants. Texas Eastern will be working with the participants to finalize the Stipulation and Agreement over the next couple of months.
T-South Expansion Open Season
The Company has announced a binding open season to secure the proposed expansion of the T-South section of its B.C. Pipeline System for up to 300 MMcf/d with an estimated capital cost of $2.5+ billion. The expansion project is designed to serve demand in the U.S. Pacific Northwest region. If successful, the Company anticipates the project would be placed into service in 2028 and be subject to cost-of-service rates.
Alliance Pipeline (Alliance) Recontracting
During the second quarter of 2022, Alliance successfully concluded three open seasons for capacity on its system. The largest of the open seasons resulted in approximately 270 MMcf/d of incremental long-term firm service, with a volume weighted average term of 15 years, commencing in November 2022. Recent open seasons have resulted in Alliance being contracted over 90 percent for both the current and next gas year, highlighting the value of Alliance's competitive access to mid-western U.S. gas markets, and as a conduit to the U.S. Gulf Coast and its LNG market.
Normal Course Issuer Bid (NCIB) Execution
In the second quarter of 2022, Enbridge repurchased and cancelled approximately 2 million of its common shares for approximately $100 million as part of its NCIB.
Enbridge's NCIB commenced on January 5, 2022 and expires on the earlier of January 4, 2023 or when the Company reaches the approved share repurchase limit of 31,062,331 common shares to an aggregate amount of up to $1.5 billion. Since inception of the NCIB, the Company has repurchased approximately 3 million shares.
Enbridge will continue to evaluate opportunities to repurchase shares pursuant to the Company's NCIB predicated upon maintaining a strong balance sheet, strong business performance, and evaluated against the availability and attractiveness of alternative capital investment opportunities.
Contact:
Enbridge Inc.
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Email: media@enbridge.com
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Jonathan Morgan
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Email: investor.relations@enbridge.com
ENBRIDGE INC. 
