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Enbridge Inc. Fourth Quarter, Full Year 2020 Results

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   |    Friday,February 12,2021

Enbridge Inc. reported its Q4 and full year 2020 results.


(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

  • Full year GAAP earnings of $3 billion or $1.48 per common share, compared with GAAP earnings of $5.3 billion or $2.64 per common share in 2019, all of which amounts include non-recurring and unrealized items
  • Adjusted earnings of $4.9 billion or $2.42 per common share, compared with $5.3 billion or $2.65 per common share in 2019
  • Adjusted earnings before interest, income tax and depreciation and amortization (EBITDA) of $13.3 billion, compared with $13.3 billion in 2019
  • Cash Provided by Operating Activities of $9.8 billion, compared with $9.4 billion in 2019
  • Distributable Cash Flow (DCF) of $9.4 billion, compared with $9.2 billion in 2019
  • DCF per share of $4.67, exceeded mid-point of full-year guidance of $4.50 to $4.80; exited 2020 with strong financial position with Debt to EBITDA of 4.6x
  • Reaffirmed 2021 DCF per share guidance range of $4.70 to $5.00 and EBITDA range of $13.9 billion to $14.3 billion.
  • Increased the 2021 quarterly dividend by 3% to $0.835 per share reflecting the 26th consecutive annual increase
  • Progressed $16 billion of secured growth capital supporting 5 to 7% DCF per share growth through 2023; $1.6 billion of growth projects placed into service in 2020 and early 2021
  • Commenced construction on the final leg of the Line 3 Replacement Project in Minnesota following receipt of all permits and regulatory approvals; targeting Q4 2021 in-service
  • Updated Line 3 Replacement capital cost to $9.3 billion from $8.2 billion (source currency), reflecting final costs for the Canadian segment and updated estimates for the U.S. segment
  • Announced a 35% energy intensity reduction target by 2030, net-zero emissions by 2050, and diversity and inclusion goals, furthering nearly two decades of Environmental, Social and Governance (ESG) leadership
  • Secured a 3-year $1 billion Sustainability Linked Credit Facility which incorporates Enbridge’s ESG goals
  • Installed first solar self-powered facility on Texas Eastern gas transmission pipeline; two additional facilities in gas transmission and liquids pipelines businesses under construction
  • Announced purchase of 6.6 million barrels of storage assets located in Cushing, further advancing U.S. Gulf Coast (USGC) strategy

Al Monaco, President and CEO of Enbridge noted the following: “Operationally, we performed well in the fourth quarter, completing a strong 2020 in the face of a very challenging energy and economic backdrop. Our four rock-solid franchises once again delivered solid results and provided essential service and reliable energy supply that is absolutely critical to the everyday lives of North Americans and the global economy.

“Despite positive indicators early in 2021, the pace of recovery is still unknown as COVID-19 cases remain high in many parts of the world. We will continue to be focused on our critical role in delivering reliable energy, as well as on the safety of our employees and our stakeholders.

“2020 utilization rates in the Gas Transmission, Gas Distribution and Renewable Power businesses remained high and delivered highly predictable financial results this year. On our Liquids Mainline, volumes were impacted by reduced refinery demand, but they’ve steadily recovered in-line with our expectations reaching 2.65 mmbpd in the fourth quarter. Heavy capacity has been apportioned since July on strong Midwest and USGC market demand and light volumes are returning to normal. Our team also optimized a portion of unutilized light capacity by moving medium crude blends for customers on our light pipelines.

“Full-year DCF per share of $4.67 exceeded the budget we struck prior to COVID and the mid-point of our guidance range –  a great outcome that reflects the strong demand pull from the markets we serve, our low-risk commercial model and the early and decisive actions we took to mitigate the impacts of the pandemic. This was made possible by the exceptional efforts of our people across our entire organization in the face of unprecedented challenges from the pandemic and reduced energy demand. And, although we were eligible for government support, we didn’t avail ourselves of these options.

“In addition to strong operational and financial performance in 2020, we’ve moved the ball forward on our strategic priorities.

“That starts with how we’ve taken steps to further our ESG leadership and we’re pleased to see that the rating firms continue to recognize our work in this area with a top ranking in Midstream. ESG has long been integrated into our business and strategies, and in 2020, we raised the bar again by committing to a 35% reduction in energy intensity by 2030, net-zero emissions by 2050 and setting new diversity and inclusion goals all tied to management compensation. And, in February, we launched the first Sustainability Linked credit facility in our sector, aligning our ESG performance with funding costs.

“In Liquids Pipelines, Line 3 construction is underway in Minnesota after a comprehensive and thorough regulatory process over the last 6 years, and we’re proud of the broad community support for the project. We’re focused on executing world class construction and environmental practices and we’ve implemented the most up-to-date health and safety protocols to protect communities and our crews. Construction is progressing to our targeted Q4 in-service date.

“We’ve updated our cost estimate for the full Line 3 project to reflect winter construction, further enhancements to our industry-leading environmental protections and construction techniques, regulatory and permitting delays, higher capitalized interest and COVID-19 protocols. The higher project costs will be managed well within our funding plans and strong financial position. Our updated economics for Line 3 remain attractive.

“In Gas Transmission, we completed our U.S. $0.7 billion 2020 modernization program, the U.S. $0.1 billion Sabal Trail Phase II, and the final phase of the U.S. $0.1 billion Atlantic Bridge project. We also came to an agreement with our customers for new rates on Texas Eastern, Algonquin and the BC Pipeline, and we’re advancing rate proceedings on a few other systems.

“In Gas Distribution, we added 43 thousand customers and completed the 2020 $0.5 billion growth capital program, including the Owen Sound Reinforcement project and the Windsor Line Replacement project. We also continue to make progress on synergy capture related to the amalgamation of our utilities.

“In our Renewable Power business, construction of the Saint-Nazaire and Fécamp offshore wind projects are advancing well. Also, in this business, we completed our first self-powering facility on Texas Eastern with another under construction, as well as an additional solar facility on the Liquids Pipelines’ Mainline in Alberta.

“Looking forward, execution on our $16 billion of secured growth capital and further optimization of business performance provide excellent visibility to 5-7% DCF per share growth through 2023. In 2021, we anticipate another year of robust EBITDA and cash flow growth, driven by $10 billion of growth capital to be placed into service and embedded growth within the business, including a further $100 million of cost savings. This investment program is also timely in supporting the reboot of economies in which we operate.

“While we expect the economic recovery will be gradual, North American energy fundamentals are steadily improving with recovering energy prices, increasing exports and long-term global demand growth drivers still intact. This outlook reinforces our strategic priorities and view of organic growth potential.

“Post completion of Line 3, we expect to generate $5-6 billion of annual investment capacity. We’ll remain disciplined and deploy capital towards the best uses, prioritizing balance sheet strength, investment in low capital intensity growth and regulated utility or utility-like projects. We will carefully utilize our remaining investable capacity on the most value enhancing opportunities including further organic growth, and potential for share buybacks.

“Our dividend remains central to our value proposition and we expect to ratably grow it up to the level of average annual DCF per share growth, while maintaining a payout of 60-70% of DCF. In 2021, we’re very pleased to have increased the dividend again for our shareholders, for the 26th consecutive year.

“Finally, our long-lived, demand-pull assets and low risk pipeline-utility model have demonstrated resiliency and predictable cash flow generation in the most difficult economic conditions we’ve seen in decades, and we’re positioned to continue to generate strong long-term cash flow growth.”

Financial Results

GAAP earnings attributable to common shareholders for the fourth quarter of 2020 increased by $1.0 billion or $0.51 per share compared with the same period in 2019 and decreased by $2.3 billion or $1.16 per share for the full-year 2020 compared with 2019.

On a full-year basis, GAAP earnings attributable to common shareholders for 2020 were negatively impacted by $2.4 billion ($1.8 billion after-tax) impairments to the carrying value of certain equity investments, as well as $0.8 billion ($0.5 billion after-tax) lower non-cash, unrealized derivative fair value gains on the mark-to-market value of derivative financial instruments used to manage foreign exchange risks. In addition, the period-over-period and year-over-year comparability of GAAP earnings attributable to common shareholders was impacted by other certain unusual, infrequent factors or other non-operating factors, which are noted in the reconciliation schedule included in Appendix A of this news release.

Adjusted EBITDA in the fourth quarter of 2020 increased by $15 million compared with the same period in 2019. The business benefited from incremental earnings in Liquids Pipelines from the Canadian Line 3 Replacement Program, rate settlements on Texas Eastern and Algonquin, contributions from new assets that were placed into service in late 2019 and the first half of 2020, as well as customer growth and synergy capture in Gas Distribution and Storage. Strong business performance was partially offset by lower contributions from Energy Services due to a significant compression of certain key regional differentials, lower Mainline throughput related to COVID-19 and the absence of contributions from the federally regulated Canadian natural gas gathering and processing business sold on Dec. 31, 2019.

Full-year Adjusted EBITDA for 2020 was $13.3 billion, compared with $13.3 billion in 2019, and impacted by the annualized impacts of the quarterly items discussed above. In addition, the Company received approximately $0.2 billion in cash receipts on certain contracted Liquids pipelines, which are not recognized in revenues until the related make-up rights are utilized or expire. This is primarily related to the effects of COVID-19 on system utilization during 2020, and is not anticipated to be recurring in nature.

Adjusted earnings in the fourth quarter of 2020 decreased by $96 million, or $0.05 per share and for the full-year 2020 decreased by $447 million, or $0.23 per share. The decrease was primarily driven by a reduction in capitalized interest and higher depreciation from new assets placed into service throughout 2019, primarily on the Canadian Line 3 Replacement Program. DCF for the fourth quarter was $2.2 billion, an increase of $158 million over the fourth quarter of 2019 driven largely by the net impact of the operating factors noted above and higher cash distributions in excess of equity earnings due to new assets placed into service.

DCF for the year ended December 31, 2020 was $9.4 billion, an increase of $216 million over 2019, due to the same factors discussed above, as well as higher cash receipts not recognized in EBITDA or earnings for contracts with make-up rights on certain assets within Liquids Pipelines. This impact was partially offset due to higher interest expense as a result of additional debt incurred to fund capital expenditures along with a reduction in capitalized interest on the Canadian Line 3 Replacement Program placed into service in December 2019.

These factors are discussed in detail under Distributable Cash Flow. Detailed segmented financial information and analysis can be found below under Adjusted EBITDA by Segments.

Financial Position & Outlook

Enbridge has exited 2020 in a strong financial position with Debt to EBITDA of 4.6x and expects to remain within the Company’s target range of 4.5 to 5.0x throughout 2021, inclusive of spending on its secured growth capital program.

Enbridge ended the fourth quarter with over $13 billion of available liquidity, which is more than sufficient to meet all of its funding requirements through the end of 2021 without further access to capital markets. In February of 2021, Enbridge entered into a three-year, syndicated Sustainability Linked Credit Facility for $1.0 billion. The facility includes terms that allow Enbridge to reduce borrowing costs if the Company achieves an interim threshold on its ESG goals. As a result of the sustainability linked credit facility and other financing activities completed in 2020, our resilient cash flows and our current liquidity position, we concurrently cancelled a one year, revolving, syndicated credit facility for $3.0 billion, ahead of its scheduled March 2021 maturity.

At the Company’s December 2020 investor conference, Enbridge released its 3-Year Outlook, reaffirming its growth expectation of 5-7% annualized DCF per share through 2023. Enbridge also provided 2021 financial guidance which included EBITDA between $13.9 and $14.3 billion with a projected range of 2021 DCF of $4.70 to $5.00 per share.

Included within the Company’s 2021 guidance is a Mainline volume forecast of 2.7 mmbpd or more in the first quarter of 2021, with continued improvement in volumes through the remainder of the year. This outlook also assumes the U.S. portion of Line 3 comes into service in the fourth quarter of 2021 and contributes approximately $200 million of EBITDA this year.

The Company increased the 2021 dividend by 3% to $0.835 per share quarterly, commencing with the dividend payable on March 1, 2021 to shareholders of record on February 12, 2021.

Project Update

The Company continues to advance its approximately $16 billion secured growth capital program. This diversified organic growth program is entirely consistent with our low-risk commercial model and will generate approximately $2 billion of additional EBITDA between 2020 and 2023. This includes $1.6 billion of growth projects which were placed into service in 2020 and early 2021, including:

  • Gas Transmission’s US$0.7 billion 2020 Modernization Program;
  • the U.S. $0.1 billion Sabal Trail Phase II project;
  • Gas Distribution’s $0.5 billion 2020 Utility Growth, including the Owen Sound Reinforcement and the Windsor Line Replacement projects; and
  • the Atlantic Bridge Project, which fully commenced service in January 2021 with the US$0.1 billion Weymouth Compressor station being brought online.

After considering the $1.1 billion (in source currency) update to the Line 3 Replacement Program and the $1.6 billion of capital already placed into service, the Company’s secured growth capital program through 2023 remains at approximately $16 billion, of which $5 billion has already been spent.

The Company anticipates placing approximately $10 billion of its secured growth capital into service in 2021, including the U.S segment of Line 3 and the associated Southern Access Expansion, the T-South Expansion and Spruce Ridge, along with the 2021 Gas Transmission Modernization Program and the 2021 Gas Utility capital program.

Line 3 Replacement

The Line 3 Replacement Project is a critical integrity project that will enhance the continued safe and reliable operations of our Mainline System well into the future, reflecting Enbridge’s long-standing commitment to protecting the environment.

The project will restore capacity on the line to its original design specifications of 760 kbpd and bring the total Mainline System capacity to approximately 3.2 mmbpd.

In the fourth quarter, Enbridge received all necessary permits in Minnesota, including the 401 Water Quality Certificate issued by the Minnesota Pollution Control Agency, all remaining federal permits from the U.S. Army Corps of Engineers, including the Section 404 permit, and the Authorization to Construct from the Minnesota Public Utilities Commission. These permits are in addition to environmental permits received from the Fond du Lac Band in 2019, including its 401 Water Quality Certificate.

Construction of the Minnesota portion of Line 3 is underway, while construction on the North Dakota, Wisconsin and the Canadian portions have already been completed. The U.S. portion of Line 3 is expected to be placed into service in the fourth quarter of 2021.

The Company has worked closely with local health officials to put in place a comprehensive health and safety program to protect communities and our crews from COVID-19.

Estimated capital costs for the Line 3 Replacement Project, including the Canadian segment already in service, have been updated from $8.2 billion to $9.3 billion (in source currency). The increase in costs reflects winter construction, further enhancements to industry-leading environmental protections and construction techniques, the extended regulatory and permitting timeframe, higher capitalized interest and COVID-19 protocols.

Notwithstanding higher estimated capital costs, the project’s cash flows and the expected equity return remain attractive. Upon the Line 3 Replacement Project being placed fully into service a surcharge of US$0.895 per barrel will be applied, inclusive of the current interim US$0.20 surcharge for the Canadian portion of Line 3. In addition, incremental throughput related to the restored Line 3 capacity will receive an international joint toll charge for each barrel.

In 2021, Line 3 is expected to contribute approximately $200 million of EBITDA and supports significant free cash flow growth in 2022 and beyond.

The incremental funding requirements are accommodated within the Company’s 2021 financing plan, and target leverage range of 4.5 to 5.0x Debt to EBITDA and will not significantly impact Enbridge’s strong financial position.

Business Updates

Mainline Contracting

The Company continues to advance its application to contract the Canadian Mainline, which is currently being reviewed by the Canada Energy Regulator (CER). The contract offering reflects two years of negotiations with shippers and has the support of shippers transporting more than 75% of mainline volumes. This support reflects the competitiveness of the offering, which will support the best netbacks for shippers and secure long-term demand for Western Canadian crude oil.

During the fourth quarter, Enbridge continued to respond to multiple rounds of information requests from the CER and intervenors, continuing to demonstrate that the proposed contract tolls are just and reasonable and that Mainline Contracting is in the Canadian public interest. In February, Enbridge requested additional information from intervenors and the written process will conclude in April. Subsequent to April, an oral hearing is anticipated, but a hearing date has not yet been set. If Enbridge’s application has not been approved by the expiry of the Competitive Toll Settlement (CTS) on June 30, 2021, the tolls in effect on that date are expected to continue on an interim basis.

Line 5 – Straits of Mackinac

Line 5 is a critical source of energy for residents, businesses and refineries throughout Michigan, neighboring U.S. states, Ontario and Quebec. It provides 55% of the state of Michigan’s propane demand and serves regional refineries located in Michigan, Ohio, Pennsylvania, Ontario and Quebec. Residents, businesses and refineries throughout the region rely on the safe transportation of oil, propane and other products provided by Line 5.

Enbridge is committed to the safe and reliable operations of Line 5 as it crosses the Straits of Mackinac (the Straits). The crossing is continuously monitored by trained staff and state-of-the-art technologies and this is backed up with visual surveillance.

In the fourth quarter, Enbridge initiated legal filings to request the United States District Court dismiss the State of Michigan’s attempt to terminate the 1953 easement across the Straits and thereby close the Line 5 dual pipelines located within the easement. The revocation of the easement by the State of Michigan is contrary to federal law and the Canada-US Transit Pipeline Treaty. In addition, oversight of pipeline safety resides with the Pipeline and Hazardous Materials Safety Administration (PHMSA) under the federal Pipeline Safety Act.

The dual lines that cross the Straits are safe and in full compliance with the federal pipeline safety standards that govern them and has been deemed fit for service by PHMSA in June and September of 2020. Enbridge has no intention of shutting down the pipelines based on the State’s unspecified allegations and its violation of federal law.

Enbridge continues to advance construction related activities on its state-of-the-art tunnel designed to further protect the Great Lakes and make an already safe pipeline safer. On January 29, 2021 the Michigan Department of Environment, Great Lakes and Energy issued permits relating to wetlands and submerged lands, along with National Pollutant Discharge Elimination System permits. The Company continues to work with the U.S. Army Corps of Engineers and the Michigan Public Service Commission on additional permits and regulatory approvals.

Gas Transmission and Midstream Pressure Restrictions

In 2020, Enbridge undertook a comprehensive integrity program to ensure continued safe and reliable service. During the program, Enbridge reduced operating pressure across the Texas Eastern system to enable necessary integrity work to be completed. In the fourth quarter, the Company lifted the pressure restrictions and returned the system to service.

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