Enbridge : ENB Q2 2022 Earnings Call

Corrected Transcript

29-Jul-2022

Enbridge, Inc. (ENB)

Q2 2022 Earnings Call

	Total Pages: 24
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Enbridge, Inc. (ENB)	Corrected Transcript
Q2 2022 Earnings Call	29-Jul-2022

CORPORATE PARTICIPANTS

Jonathan Morgan	Colin K. Gruending
Senior Vice-President, Capital Markets, Enbridge, Inc.	Executive Vice President & President-Liquids Pipelines, Enbridge, Inc.
Albert Monaco	Cynthia L. Hansen
President, Chief Executive Officer & Director, Enbridge, Inc.	Executive Vice President & President-Gas Transmission and Midstream,
Vern D. Yu	Enbridge, Inc.
Matthew A. Akman
Executive Vice President-Corporate Development & Chief Financial
Officer, Enbridge, Inc.	Senior Vice President-Strategy, Power & New Energy Technologies,
	Enbridge, Inc.

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OTHER PARTICIPANTS

Robert Hope	Linda Ezergailis
Analyst, Scotia Capital, Inc.	Analyst, TD Securities, Inc.
Jeremy Tonet	Robert A. Catellier
Analyst, JPMorgan Securities LLC	Analyst, CIBC World Markets, Inc.
Ben Pham	Andrew M. Kuske
Analyst, BMO Capital Markets Corp. (Canada)	Analyst, Credit Suisse Securities (Canada), Inc
Matthew Taylor	Patrick Kenny
Director of Midstream Research, Tudor Pickering Holt & Co. Securities-	Analyst, National Bank Financial, Inc.
Canada ULC
Robert Kwan
Analyst, RBC Dominion Securities, Inc.

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Enbridge, Inc. (ENB)	Corrected Transcript
Q2 2022 Earnings Call	29-Jul-2022

MANAGEMENT DISCUSSION SECTION

Operator: Welcome to the Enbridge, Inc. Second Quarter 2022 Financial Results Conference Call. My name is Sylvie, and I will be your conference operator for today's call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session for the investment community. [Operator Instructions] Please note that this conference is being recorded.

And I would like to turn the call over to Jonathan Morgan, Senior Vice President, Capital Markets. Jonathan, you may begin.

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Jonathan Morgan

Senior Vice-President, Capital Markets, Enbridge, Inc.

Thank you. Good morning, and welcome to the Enbridge, Inc. second quarter 2022 earnings call. Joining me this morning are Al Monaco, President and CEO; Vern Yu, Chief Financial Officer, and the heads of each of our business units, Colin Gruending, Liquids Pipelines; Cynthia Hansen, Gas Transmission and Midstream; Michele Harradence, Gas Distribution and Storage; and Matthew Akman, Renewable Power and New Energy Technologies.

As per usual, this call is being webcast, and I encourage those listening on the phone to follow along the supporting slides. We'll try to keep the call to roughly one hour. And in order to answer as many questions as possible, we'd appreciate you limiting your questions to one plus a single follow-up, as necessary. We'll be prioritizing questions from the investment community. So if you are a member of the media, please direct your inquiries to our Communications team who will be happy to respond. As always, our Investor Relations team will be available following the call for any additional questions.

On to slide 2, where I will remind you that we'll be referring to forward-looking information on today's presentation and in the 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 fully in our public disclosure filings.

We'll also be referring to non-GAAP measures as summarized below.

With that, I'll turn it over to Al Monaco.

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Albert Monaco

President, Chief Executive Officer & Director, Enbridge, Inc.

Thanks, Jonathan. Hello, everyone. I'll start off this morning with how we're doing on our key priorities midyear. I'll then cover our business update including the new investments announced today that further accelerate our natural gas strategy. Vern will recap our capital allocation framework and review our financial results, the future outlook, and ESG performance.

Before we do that, let me begin with the bigger picture and the two-pronged strategy we laid out at Enbridge Day. It's pretty clear we're in a global energy crisis and that we'll need all sources and supply to meet demand with affordable, sustainable, and secure energy. And as we've said before, North America is extremely well-positioned with globally competitive, reliable, and sustainable supply. Given the inflection point in energy markets we've

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Enbridge, Inc. (ENB)	Corrected Transcript
Q2 2022 Earnings Call	29-Jul-2022

experienced, our two-pronged strategy is proving to be the right one. That is, to continue investing in the best conventional opportunities while ramping up in franchise low-carbon infrastructure over time.

Our focus in the last few years is to build out our export infrastructure, and that's even more relevant today. Acquiring the Ingleside export facility filled out our Gulf Coast liquids strategy and is already opening up low- carbon export opportunities. And with our natural gas systems along the Gulf Coast and in B.C., we're capitalizing on global LNG demand growth. We've got a plethora of low-carbon development opportunities in flight that nicely leverage our existing assets and fit our low-risk model. And we see renewables, RNG, hydrogen and carbon capture picking up steam and bolstering growth.

With that context, here's the mid-year check against our priorities. Our number one priority will always be safety and we're tracking well this year. Operationally, we performed well in Q2, strong utilization, record Gas Transmission delivery days and good wind resources. Results-wise, we had a solid quarter and we're on track to achieve our full year EBIDTA and DCF per share guidance. And that puts us in good shape on our three-year, 5% to 7% DCF per share CAGR target through 2024 off of 2021.

The balance sheet is strong and we're on track to exit 2022 at the low-end of our leverage range. So far this year, we've secured CAD 4.5 billion of new investments that are right down the middle of the Enbridge fairway. That includes expansion of our B.C. system and a 30% stake in Woodfibre LNG. So our post 2024 secured growth hopper is filling up nicely.

On capital allocation, we'll continue to be disciplined by optimally deploying growing free cash flow. Part of that is returning capital to a steadily growing dividend and we've initiated share buybacks as you've seen.

On to the business update beginning with liquids. After an extended upstream and downstream turnaround season, Mainline volumes are ramping up and we expect to get to the full year average [ph] volume (00:05:39) of 2.95 million barrels per day.

In Gas Transmission, we had four of the top five power plant peak delivery days in the last five years, and we had record LNG and Mexico export deliveries at 3 Bcf a day in April. A couple of weeks ago, we also reached an agreement in principle on a Texas Eastern rate case, so very good news there. And we're moving along well on CAD 7 billion capital in execution. In utility, there's another CAD 3 billion underway, including 40,000 customer ads this year, and three more RNG projects. And finally, in renewables, we're in heavy construction mode with 4 offshore wind projects and 10 solar self-power projects totaling almost CAD 3 billion. And again, part of that is offshore France, Saint-Nazaire is going well and on schedule to start generating cash flow later this year.

Now, a brief update on liquids fundamentals and Mainline toll. The global energy inflection point I referenced earlier is driving improving North American oil fundamentals. And this is Colin's John Madden-type graphic that explains why. First, the historically long turnaround season has wind down. WCSB production is ramping back up as the Mainline was apportioned for August delivery, so basically, we're at capacity. And Permian supply is strong with growth this year expected around 500,000 barrels a day.

Given OPEC constraints, embargoed barrels and a return of Asian economic growth, the natural outlet for light barrels is exports to Europe. Over time, we'll see inventories building back up, including the US Strategic Petroleum Reserves. And you recall inventories are extremely low levels right now. These shifting fundamentals are positive as we're well-positioned on both light and heavy barrels. [indiscernible] (00:07:44) discussions with our customers continue. We've spent quality time exchanging information upfront and we're now in negotiations. So overall, the process, I would say, and our discussions with our customers have been construct.

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Enbridge, Inc. (ENB)	Corrected Transcript
Q2 2022 Earnings Call	29-Jul-2022

As you know, there's a preference for an incentive based model which has worked well for our customers and us over the last 25 years. We're pursuing that option, but we're prepared to shift the cost of service if needed, and either option is acceptable to us as we've said in the past. And to keep that latter part moving loan, you'll likely see some required pre-filing CER notices in the next month or so. We're motivated to land something that works for our customers and a reasonable risk return profile for us. Timing wise, we'll likely decide which of the two paths we'll be on by the end of the summer.

Let's shift now to our LNG strategy, starting with the fundamentals and how we're positioned. And right off the bat, it's clear that natural gas is an increasingly exciting story and will be a growth driver for us in the long term. First, North American LNG exports are expected to increase to 30 Bcf per day, and everyone knows the reasons behind that. Our assets are critical to making that happen with last mile connectivity.

You can think of our US Gulf Coast and B.C. Mainline systems as headers, connecting growing low-cost supplies in Appalachia, the Permian, the Haynesville, the Montney with export market demand pull. We supply four operating LNG plants in the Gulf, soon to be five actually. And today, we make up roughly 20% of North American exports, and those connections are supported by long-termtake-or-pay contracts.

But as you can see here with the bar chart, the precedent agreements we signed on two more LNG facilities that are pending FID, we could see our market share increase to 30% of exports. While our focus is on pipeline connections, we've been open to the liquefaction investments, which we talked about before, providing they meet our investment criteria. Namely, it needs to be a value chain extension of our existing pipelines that anchor expansions or new lines. So that means pretty much directly connected to liquefaction. It needs to be aligned with our low-risk commercial model, so highly predictable cash flows and accretive to future growth, so with expansion potential.

So here's how our LNG strategy is unfolding beginning with the Gulf Coast. With Venture Global sanctioning of Plaquemines, we're now underway with the Venice Extension, that's a solid US$400 million investment with a 20- year contract. We've secured now another US$1.6 billion with the Rio Bravo [indiscernible] (00:10:44) and the Valley Crossing expansion. Both of the associated LNG plants there are pending FID by next decade and Texas LNG. And of course, we're now also in discussion with LNG proponents other than those to see what other opportunities are there.

Related to the LNG connections themselves, a recent open season revealed very strong customer interest in upstream access to our headers to connect growing Haynesville supply to LNG. So we're now designing potential options to expand Texas Eastern and Valley Crossing, so stay tuned on that over the next few months.

Moving north to B.C. and our T-North system. The fundamentals here point to strong WCSB supply growth over the next several years. We've seen a lot of positivity from our customers recently which also came through on alliances' contract extensions. This is all being driven by very low cost in the liquids-rich resource base that rivals US [ph] share. (00:11:52) And the basin presents a great opportunity to feed growing regional and global demand with natural gas.

Our B.C. Mainline would be a critical part of getting gas to market, particularly to support LNG pulp. To that point, we've completed a very successful open season and now sanctioned a 535 million cubic feet a day expansion at T-North, and that's larger than we originally thought. This CAD 1.2 billion expansion is mostly compression and commercially, it's under cost of service. The next step is to engage stakeholders and file the regulatory application and the targeted ISD here is late 2026.

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