Enbridge Inc.
TSX : ENB
NYSE : ENB

Enbridge Inc.

May 07, 2014 07:00 ET

Enbridge Reports First Quarter Adjusted Earnings of $492 Million or $0.60 Per Common Share

CALGARY, ALBERTA--(Marketwired - May 7, 2014) - Enbridge Inc. (TSX:ENB)(NYSE:ENB) -

HIGHLIGHTS

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

  • First quarter earnings were $390 million, including the impact of net unrealized non-cash mark-to-market gains and losses
  • First quarter adjusted earnings were $492 million or $0.60 per common share
  • Enbridge Inc. and Enbridge Energy Partners, L.P. announced the Line 3 Replacement Project, an approximate $7 billion mainline investment program
  • Enbridge Inc. continued to execute its long-term funding plan and raised approximately $2.1 billion since the end of 2013 through debt and preferred equity, as well as increased its enterprise-wide general purpose credit facilities to $18.1 billion

Enbridge Inc. (Enbridge or the Company) - "Enbridge performed well in the first quarter of 2014, reflecting solid operating results across our businesses," said Al Monaco, President and Chief Executive Officer. "Adjusted earnings for the first quarter of 2014 were $492 million, or $0.60 per common share. Backed by the successful execution of our organic growth program, including projects recently placed into service and those expected to be completed over the balance of 2014, we are on track to be within our full year adjusted earnings per share guidance range of $1.84 to $2.04 per share.

"During the quarter, we added to our portfolio of commercially secured growth projects, reflecting continued demand for safe and reliable energy infrastructure," said Mr. Monaco. "In March, we announced the $7 billion Line 3 Replacement Program, the largest project in our Company's history. This is a very important project for us as it represents a major enhancement of our mainline liquids pipeline system and it comes with significant benefits to our customers. The increased reliability of throughput on our system will provide customers with greater certainty of service to key markets, and aligns well with our number one priority of safety and operational reliability."

Investments in the Company's regional oil sands systems and renewable power generation business also added to the Company's growth portfolio in the first quarter. In January, Enbridge announced the $0.2 billion Sunday Creek Terminal expansion which will improve service in the oil sands and contribute to maintaining Enbridge's leading position in the region. Earlier in the same month, Enbridge announced the approximate US$0.2 billion investment in the 110-megawatt (MW) Keechi Wind Project (Keechi), located in Jack County, Texas.

"With a commercially secured portfolio of growth projects totalling a record $36 billion, and an additional $5 billion of projects expected to be secured and placed into service by 2017, there is a high degree of transparency that we will deliver average annual earnings per share growth of 10 to 12% to 2017. The secured slate of organically driven projects also provides confidence in our ability to generate industry leading earnings per share growth well beyond 2017."

Forward-Looking Information and Non-GAAP Measures

This news release contains forward-looking information and references to non-GAAP measures. Significant related assumptions and risk factors, and reconciliations are described under the Forward-Looking Information and Non-GAAP Measures sections of this news release, respectively.

Mr. Monaco commented on the Company's focus on project execution. "In 2014 and 2015, we expect to place into service more than $18 billion of projects to expand capacity and extend market access for our customers," said Mr. Monaco. "Since 2008, we've put over 40 projects into service representing about $18 billion of capital. We continue to build on our proven project management expertise, experience in cost estimation, ability to anticipate challenges and solid on-the-ground execution.

"We're also working to enhance and strengthen our relationships with project stakeholders. The National Energy Board's approval in March of the Line 9B Reversal and Line 9B Expansion Project was supported in large part by the extra lengths taken to engage communities along the right of way and to incorporate stakeholder input, which led to further safety enhancements to the project."

Financing the growth plan also remains a top priority and Enbridge continues to bolster funding and liquidity support. Since the end of 2013, Enbridge has issued $275 million in preference shares, approximately $1.8 billion in medium-term notes and increased its entity-wide general purpose credit facilities by approximately $0.5 billion. Included in the total debt offerings, was a $130 million issuance with a 50-year maturity date, which is a rarity in the Canadian debt capital market. Enbridge also issued a $300 million three-year medium-term note at a coupon rate of 1.9%, the lowest ever by a Canadian corporate issuer.

"Our consistent access to debt and equity markets demonstrates the confidence investors have in Enbridge, our ability to execute on our record growth capital program and the reliability of our business model," Mr. Monaco said.

Results of Operations

Enbridge delivered a strong first quarter in 2014 and the Company is on track to achieve its full year adjusted earnings per share guidance range. Liquids Pipelines performance was slightly below last year as throughput growth on Canadian Mainline, primarily owing to strong supply from western Canada, was offset by lower tolls and the absence of revenues from Line 9B. As part of the Company's Eastern Access program, Line 9B is currently in the process of being reversed and expanded and is expected to return to service later in the year. Higher volumes on the Athabasca mainline and contributions from growth projects, including the Suncor Bitumen Blending facilities completed in 2013, provided a small earnings growth within Regional Oil Sands System.

Enbridge's sponsored vehicles, Enbridge Energy Partners, L.P. (EEP) and Enbridge Income Fund (the Fund), both had strong starts to 2014. EEP's adjusted earnings reflected higher volumes and tolls across the majority of its liquids business. Also contributing to the increase in adjusted earnings were new assets recently placed into service by EEP, in particular the Bakken Expansion and Access programs which enhanced crude oil gathering capabilities on the North Dakota system. Similarly, the Fund also experienced positive contributions from its portion of the Bakken Expansion Program and benefitted from higher wind and solar resources across its renewable energy portfolio.

Enbridge Gas Distribution Inc. (EGD) continued to contribute to Enbridge's reliable business model in the first quarter, with a slight increase in customer base offset by an increase in expenses. EGD is currently operating under interim rates pending review by the Ontario Energy Board of a new five-year Customized Incentive Regulation mechanism.

Adjusted earnings from Energy Services for the first quarter of 2014 were not as favourable as in the exceptionally strong first quarter of 2013. Adjusted earnings were unfavourably affected by narrowing location spreads and less favourable market conditions in certain physical markets, along with realized losses on certain financial contracts intended to hedge physical transportation capacity but which were not effective in doing so. Partially offsetting the decrease were favourable natural gas location differentials which arose due to abnormal winter weather conditions.

The adjusted earnings discussed above excludes the impact of unusual, non-recurring or non-operating factors, the most significant of which are changes in unrealized derivative fair value gains and losses from the Company's long-term hedging program, gains on the disposal of non-core assets and investments, as well as certain costs and related insurance recoveries arising from crude oil releases. See Non-GAAP Measures.

FIRST QUARTER 2014 OVERVIEW

For more information on Enbridge's growth projects and operating results, please see the Management's Discussion and Analysis (MD&A) which is filed on SEDAR and EDGAR and also available on the Company's website at www.enbridge.com/InvestorRelations.aspx.

  • Earnings attributable to common shareholders increased from $250 million in the first quarter of 2013 to $390 million in the first quarter of 2014. The Company's earnings increased quarter-over-quarter; however, the comparability of the Company's earnings is impacted by a number of unusual, non-recurring or non-operating factors, the most significant of which is changes in unrealized derivative fair value gains and losses. The Company has a comprehensive long-term economic hedging program to mitigate interest rate, foreign exchange and commodity price exposures. The changes in unrealized mark-to-market accounting impacts from this program create volatility in short-term earnings, but the Company believes over the long-term it supports reliable cash flows and dividend growth. Other non-recurring factors which impacted the first quarter of 2014 included a $43 million after-tax gain recognized on the disposal of non-core assets within Enbridge Offshore Pipelines (Offshore) and a $14 million after-tax gain on the sale of an Alternative and Emerging Technologies investment within the Corporate segment. Finally, in the first quarter of 2013, the Company recognized an accrual of US$175 million ($24 million after-tax attributable to Enbridge) associated with a United States Environmental Protection Agency order relating to the Line 6B crude oil release.
  • Enbridge's adjusted earnings for the first quarter of 2014 and 2013 were $492 million and $488 million, respectively. Liquids Pipelines adjusted earnings were down slightly as lower quarter-over-quarter earnings from Canadian Mainline and Seaway Crude Pipeline System were offset by higher earnings from Regional Oil Sands System. A lower Canadian Mainline International Joint Tariff Residual Benchmark Toll and the absence of revenues from Line 9B were partially offset by higher throughput. In Gas Distribution, EGD adjusted earnings decreased primarily due to timing of a gas transportation cost adjustment related to the first quarter of 2013 which was recorded in the second half of 2013. Excluding the impact of the gas transportation adjustment, EGD adjusted earnings were comparable between quarters. Energy Services results declined in the first quarter of 2014 relative to the exceptionally strong first quarter of 2013 due to narrowing location spreads and less favourable conditions in certain markets accessed by committed transportation capacity, and losses realized in the first quarter of 2014 on certain financial contracts intended to hedge the value of committed transportation capacity, but which were not effective in doing so. This was partially offset by an increase in adjusted earnings due to more favourable natural gas location differentials caused by abnormal winter weather conditions. The Company's sponsored vehicles, EEP and the Fund, both realized strong operating results from their core assets in the first three months of 2014. EEP adjusted earnings reflected higher throughput and tolls on EEP's major liquids pipelines, contributions from assets recently placed into service and the impact of Enbridge's May 2013 investment in preferred units of EEP. Adjusted earnings for the Fund reflected primarily stronger wind and solar resources on the majority of the Fund's renewable energy assets, higher earnings from new assets placed into service and the absence of a write-off of a regulatory deferral balance which occurred in the first quarter of 2013.
  • On March 3, 2014, Enbridge and EEP announced that shipper support was received for an approximate $7 billion investment in their Canadian and United States mainline system running from Edmonton, Alberta to Superior, Wisconsin (collectively, the L3R Program). The Canadian portion of the Line 3 Replacement Program (Canadian L3R Program) will complement existing integrity programs by replacing approximately 1,084-kilometres (673-miles) of the remaining line segments of the existing Line 3 pipeline between Hardisty, Alberta and Gretna, Manitoba. EEP will undertake the United States portion of the Line 3 Replacement Program (U.S. L3R Program) which will replace approximately 576-kilometres (358-miles) of pipeline between Neche, North Dakota and Superior. While the L3R Program will not provide an increase in the overall capacity of the mainline system, it will support the safety and operational reliability of the system, enhance flexibility and allow the Company to optimize throughput. The L3R Program is expected to achieve an equivalent 34-inch diameter pipeline capacity of approximately 760,000 barrels per day. Subject to finalization of a definitive cost estimate, regulatory and other approvals, the Canadian L3R Program and the U.S. L3R Program are targeted to be completed in the second half of 2017 at estimated capital costs of approximately $4.2 billion and US$2.6 billion, respectively. Costs of the Canadian L3R Program will be recovered through a 15-year toll surcharge mechanism under the Competitive Toll Settlement, while EEP will recover the costs based on its existing Facilities Surcharge Mechanism with the initial term of the agreement being 15 years. For the purpose of the toll surcharge, the agreement specifies a 30-year recovery of the capital based on a cost of service methodology. The U.S. L3R Program will be jointly funded by Enbridge and EEP at participation levels that are subject to finalization.
  • On January 29, 2014, Enbridge announced it will construct additional facilities at its Sunday Creek Terminal, located in the Christina Lake area of northern Alberta, to support production growth from the Christina Lake oil sands project operated by Cenovus Energy Inc. and jointly owned with ConocoPhillips Canada Resources Corp. The expansion includes development of a new site adjacent to the existing terminal, construction of a new 350,000 barrel tank with associated piping, pumps and measurement equipment, as well as civil construction work for a future tank. The estimated cost for the expansion is approximately $0.2 billion with a targeted in-service date of 2015.
  • On January, 6, 2014, Enbridge announced it had entered into an agreement with Renewable Energy Systems Americas Inc. (RES Americas) to own and operate the 110-MW Keechi project, located in Jack County, Texas, at an investment of approximately US$0.2 billion. RES Americas is constructing the wind project under a fixed price, engineering, procurement and construction agreement. Construction on the project commenced in December 2013, with expected completion in 2015. Keechi will deliver 100% of the electricity generated into the Electric Reliability Council of Texas, Inc. market under a 20-year power purchase agreement with Microsoft Corporation.
  • Since the end of 2013, the Company completed the following financing transactions:
    • On April 22, 2014, Enbridge issued medium-term notes of $300 million with a three-year maturity through its subsidiary EGD.
    • On March 28, 2014, Enbridge issued medium-term notes of $130 million with a 50-year maturity.
    • On March 13, 2014, Enbridge completed an offering of 11 million Cumulative Redeemable Preference Shares, Series 9, for gross proceeds of $275 million.
    • On March 11, 2014 Enbridge issued medium term notes of $500 million with a three-year maturity, $400 million with a seven-year maturity and $500 million with a 30-year maturity.
    • In the first quarter of 2014, Enbridge increased its enterprise wide-general purpose credit facilities to approximately $18.1 billion.

DIVIDEND DECLARATION

On April 23, 2014, the Enbridge Board of Directors declared the following quarterly dividends. All dividends are payable on June 1, 2014 to shareholders of record on May 15, 2014.

Common Shares $0.35000
Preference Shares, Series A $0.34375
Preference Shares, Series B $0.25000
Preference Shares, Series D $0.25000
Preference Shares, Series F $0.25000
Preference Shares, Series H $0.25000
Preference Shares, Series J US$0.25000
Preference Shares, Series L US$0.25000
Preference Shares, Series N $0.25000
Preference Shares, Series P $0.25000
Preference Shares, Series R $0.25000
Preference Shares, Series 1 US$0.25000
Preference Shares, Series 3 $0.25000
Preference Shares, Series 5 US$0.27500
Preference Shares, Series 7 $0.27500
Preference Shares, Series 91 $0.24110
(1) This first dividend declared for the Preference Shares, Series 9 includes accrued dividends from March 13, 2014, the date the shares were issued. The regular quarterly dividend of $0.275 per share will take effect on September 1, 2014.

CONFERENCE CALL

Enbridge will hold a conference call on Wednesday, May 7, 2014 at 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) to discuss the first quarter 2014 results. Analysts, members of the media and other interested parties can access the call toll-free at 1-800-708-4540 from within North America and outside North America at 1-847-619-6397, using the access code of 36975702#. The call will be audio webcast live at http://www.media-server.com/m/p/8cn6j46m. A webcast replay and podcast will be available approximately two hours after the conclusion of the event and a transcript will be posted to the website within 24 hours. The replay will be available toll-free at 1-888-843-7419 within North America and outside North America at 1-630-652-3042 (access code 36975702#) until May 14, 2014.

The conference call will begin with presentations by the Company's President and Chief Executive Officer and the Chief Financial Officer, followed by a question and answer period for investment analysts. A question and answer period for members of the media will then immediately follow.

Enbridge Inc., a Canadian Company, is a North American leader in delivering energy and has been included on the Global 100 Most Sustainable Corporations in the World ranking for the past six years. As a transporter of energy, Enbridge operates, in Canada and the U.S., the world's longest crude oil and liquids transportation system. The Company also has a significant and growing involvement in the natural gas gathering transmission and midstream businesses, and an increasing involvement in power transmission. As a distributor of energy, Enbridge owns and operates Canada's largest natural gas distribution company, and provides distribution services in Ontario, Quebec, New Brunswick and New York State. As a generator of energy, Enbridge has interests in over 1,800 megawatts of renewable and alternative energy generating capacity and is expanding its interests in wind, solar and geothermal energy. Enbridge employs more than 10,000 people, primarily in Canada and the U.S., and is ranked as one of Canada's Greenest Employers, and one of Canada's Top 100 Employers for 2013. Enbridge's common shares trade on the Toronto and New York stock exchanges under the symbol ENB. For more information, visit www.enbridge.com. None of the information contained in, or connected to, Enbridge's website is incorporated in or otherwise part of this news release.

FORWARD-LOOKING INFORMATION

Forward-looking information, or forward-looking statements, have been included in this news release to provide the Company's shareholders and potential investors with information about the Company and its subsidiaries and affiliates, including management's assessment of Enbridge's and its subsidiaries' future plans and operations. This information may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as "anticipate", "expect", "project", "estimate", "forecast", "plan", "intend", "target", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information or statements included or incorporated by reference in this document include, but are not limited to, statements with respect to: expected earnings/(loss) or adjusted earnings/(loss); expected earnings/(loss) or adjusted earnings/(loss) per share; expected future cash flows; expected costs related to projects under construction; expected in-service dates for projects under construction; expected capital expenditures; estimated future dividends; and expected costs related to leak remediation and potential insurance recoveries.

Although Enbridge believes these forward-looking statements are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Material assumptions include assumptions about: the expected supply and demand for crude oil, natural gas, natural gas liquids (NGL) and renewable energy; prices of crude oil, natural gas, NGL and renewable energy; expected exchange rates; inflation; interest rates; the availability and price of labour and pipeline construction materials; operational reliability; customer and regulatory approvals; maintenance of support and regulatory approvals for the Company's projects; anticipated in-service dates; and weather. Assumptions regarding the expected supply and demand of crude oil, natural gas, NGL and renewable energy, and the prices of these commodities, are material to and underlie all forward-looking statements. These factors are relevant to all forward-looking statements as they may impact current and future levels of demand for the Company's services. Similarly, exchange rates, inflation and interest rates impact the economies and business environments in which the Company operates, may impact levels of demand for the Company's services and cost of inputs, and are therefore inherent in all forward-looking statements. Due to the interdependencies and correlation of these macroeconomic factors, the impact of any one assumption on a forward-looking statement cannot be determined with certainty, particularly with respect to expected earnings/(loss) or adjusted earnings/(loss) and associated per share amounts, or estimated future dividends. The most relevant assumptions associated with forward-looking statements on projects under construction, including estimated in-service date and expected capital expenditures include: the availability and price of labour and construction materials; the effects of inflation and foreign exchange rates on labour and material costs; the effects of interest rates on borrowing costs; and the impact of weather and customer and regulatory approvals on construction schedules.

Enbridge's forward-looking statements are subject to risks and uncertainties pertaining to operating performance, regulatory parameters, project approval and support, weather, economic and competitive conditions, changes in tax law and tax rate increases, exchange rates, interest rates, commodity prices and supply and demand for commodities, including but not limited to those risks and uncertainties discussed in this news release and in the Company's other filings with Canadian and United States securities regulators. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent and Enbridge's future course of action depends on management's assessment of all information available at the relevant time. Except to the extent required by law, Enbridge assumes no obligation to publicly update or revise any forward-looking statements made in this news release or otherwise, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to Enbridge or persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.

NON-GAAP MEASURES

This news release contains references to adjusted earnings/(loss), which represent earnings or loss attributable to common shareholders adjusted for unusual, non-recurring or non-operating factors on both a consolidated and segmented basis. These factors, referred to as adjusting items, are reconciled and discussed in the financial results sections for the affected business segments in the Company's MD&A. Adjusting items referred to as changes in unrealized derivative fair value gains or loss are presented net of amounts realized on the settlement of derivative contracts during the applicable period. Management believes the presentation of adjusted earnings/(loss) provides useful information to investors and shareholders as it provides increased transparency and predictive value. Management uses adjusted earnings/(loss) to set targets, including setting the Company's dividend payout target, and to assess performance of the Company. Adjusted earnings/(loss) and adjusted earnings/(loss) for each of the segments are not measures that have a standardized meaning prescribed by accounting principles generally accepted in the United States of America (U.S. GAAP) and are not considered GAAP measures; therefore, these measures may not be comparable with similar measures presented by other issuers.

NON-GAAP RECONCILIATIONS
Three months ended
March 31,
2014 2013
(millions of Canadian dollars)
Earnings attributable to common shareholders 390 250
Adjusting items:
Liquids Pipelines
Canadian Mainline - changes in unrealized derivative fair value loss 172 72
Regional Oil Sands System - make-up rights adjustment 2 -
Gas Distribution
EGD - warmer/(colder) than normal weather (33 ) 6
Gas Pipelines, Processing and Energy Services
Energy Services - changes in unrealized derivative fair value (gains)/loss (136 ) 30
Offshore - gain on sale of non-core assets (43 ) -
Other - changes in unrealized derivative fair value loss 1 -
Sponsored Investments
EEP - leak remediation costs - 24
EEP - changes in unrealized derivative fair value loss - 1
Corporate
Noverco - changes in unrealized derivative fair value (gains)/loss 4 (1 )
Other Corporate - changes in unrealized derivative fair value loss 149 105
Other Corporate - gain on sale of investment (14 ) -
Other Corporate - foreign tax recovery - (4 )
Other Corporate - impact of tax rate changes - 5
Adjusted earnings 492 488
HIGHLIGHTS
Three months ended
March 31,
2014 2013
(unaudited; millions of Canadian dollars, except per share amounts)
Earnings attributable to common shareholders
Liquids Pipelines 44 147
Gas Distribution 136 107
Gas Pipelines, Processing and Energy Services 191 29
Sponsored Investments 84 42
Corporate (111 ) (75 )
Earnings attributable to common shareholders from continuing operations 344 250
Discontinued operations - Gas Pipelines, Processing and Energy Services 46 -
390 250
Earnings per common share 0.48 0.32
Diluted earnings per common share 0.47 0.31
Adjusted earnings1
Liquids Pipelines 218 219
Gas Distribution 103 113
Gas Pipelines, Processing and Energy Services 59 59
Sponsored Investments 84 67
Corporate 28 30
492 488
Adjusted earnings per common share 0.60 0.62
Cash flow data
Cash provided by operating activities 333 793
Cash used in investing activities (2,743 ) (1,643 )
Cash provided by financing activities 2,465 420
Dividends
Common share dividends declared 291 254
Dividends paid per common share 0.3500 0.3150
Shares outstanding (millions)
Weighted average common shares outstanding 820 789
Diluted weighted average common shares outstanding 830 801
Operating data
Liquids Pipelines - Average deliveries (thousands of barrels per day)
Canadian Mainline2 1,904 1,783
Regional Oil Sands System3 671 462
Spearhead Pipeline 184 165
Gas Distribution - Enbridge Gas Distribution (EGD)
Volumes (billions of cubic feet) 212 181
Number of active customers (thousands)4 2,076 2,042
Heating degree days5
Actual 2,206 1,798
Forecast based on normal weather 1,777 1,871
Gas Pipelines, Processing and Energy Services - Average
throughput volume (millions of cubic feet per day)
Alliance Pipeline US 1,728 1,632
Vector Pipeline 1,783 1,720
Enbridge Offshore Pipelines 1,371 1,452
(1) Adjusted earnings represent earnings attributable to common shareholders adjusted for unusual, non-recurring or non-operating factors. Adjusted earnings and adjusted earnings per common share are non-GAAP measures that do not have any standardized meaning prescribed by GAAP.
(2) Canadian Mainline includes deliveries ex-Gretna, Manitoba which is made up of United States and eastern Canada deliveries originating from western Canada.
(3) Volumes are for the Athabasca mainline and Waupisoo Pipeline and exclude laterals on the Regional Oil Sands System.
(4) Number of active customers is the number of natural gas consuming EGD customers at the end of the period.
(5) Heating degree days is a measure of coldness that is indicative of volumetric requirements for natural gas utilized for heating purposes in EGD's franchise area. It is calculated by accumulating, for the fiscal period, the total number of degrees each day by which the daily mean temperature falls below 18 degrees Celsius. The figures given are those accumulated in the Greater Toronto Area.

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