Enbridge Reports First Quarter Adjusted Earnings of $468 Million or $0.56 Per Common Share
CALGARY, ALBERTA–( May 6, 2015) –
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)
- First quarter loss was $383 million, including the impact of net unrealized non-cash mark-to-market losses
- First quarter adjusted earnings were $468 million or $0.56 per common share
- Expansion of the Canadian Mainline system between Edmonton and Hardisty placed into service in April
- Enbridge delivered a formal proposal to transfer the majority of its Canadian Liquids Pipelines business and certain renewable energy assets to Enbridge Income Fund
- Enbridge announced a plan to optimize previously announced expansions of its Regional Oil Sands System
- Enbridge announced it will build, own and operate the Stampede Oil Pipeline to the planned Stampede development in the Gulf of Mexico
- Effective March 1, 2015, Enbridge quarterly common share dividend increased by 33% over the last year to an annual rate of $1.86 per share
Enbridge Inc. (Enbridge or the Company) (TSX:ENB)(NYSE:ENB) – “Enbridge delivered a solid first quarter of 2015, reflecting a combination of strong asset performance and the ongoing successful execution of our growth capital program,” said Al Monaco, President and Chief Executive Officer. “Adjusted earnings for the first quarter of 2015 were $468 million or $0.56 per common share.
“Our results were in line with our expectations, and we remain on track to deliver full year adjusted earnings per share within our guidance range of $2.05 to $2.35,” Mr. Monaco said. “Our resilient business model continues in the current business environment to deliver reliable and predictable earnings and cash flows to our investors.
“Throughput on Enbridge’s liquids mainline remained strong. Over the first quarter our systems were very highly utilized, shipping an average 2.2 million barrels per day across the Canada/United States border,” Mr. Monaco added. “We are now seeing the benefit of our system optimization through record volumes on our mainline. The full benefits of those efforts will be seen over the course of 2015.
“Enbridge continues to deliver solid earnings and strong returns to our shareholders. However, low commodity prices are challenging for our customers, so we are keenly focused on providing low cost, reliable transportation to the best markets for them,” Mr. Monaco said. “We are pleased that stable tolls and our capacity optimization and market access initiatives that took place through 2014 are helping producers to maximize their netbacks and provide reliable feedstock for refiners.”
Enbridge achieved key milestones on two of its liquids pipelines growth projects since reporting its year end results in February. During April, the Company brought into service – on schedule and under budget – a new 36-inch, 181-kilometre (112-mile) pipeline connecting its Edmonton and Hardisty Terminals. The $1.8 billion pipeline is a significant addition to the Company’s mainline system and will initially have capacity to transport up to 570,000 barrels per day (bpd), but can be readily expanded to 800,000 bpd.
On April 13, 2015, a Minnesota Administrative Law Judge (ALJ) recommended that the Minnesota Public Utility Commission grant a Certificate of Need permit for the Company’s proposed Sandpiper Pipeline Project (Sandpiper). The 965-kilometre (600-mile), US$2.6 billion project will transport Bakken crude from Enbridge’s Beaver Lodge Station, south of Tioga, North Dakota, to Clearbrook, Minnesota through a 24-inch diameter pipeline. A 30-inch diameter pipeline will connect Clearbrook to Superior, Wisconsin. Subject to regulatory approval, the pipeline is expected to begin service in 2017. A review of the proposed pipeline route will follow a decision on the Certificate of Need.
“As we have said, our primary goal with this project is to ensure public safety and environmental protection. The ALJ recommendation is a positive step forward, and a reflection of the hard work our team did engaging communities, listening to people and addressing their concerns. We also thank the numerous stakeholders for their support of the project and helping us to make this an even better project,” said Mr. Monaco. “Sandpiper is an important project for Bakken shippers and will add much needed pipeline capacity to enable them to reach key markets and improve netbacks.
“Looking ahead, our commercially secured portfolio of growth projects remains secure and is on track for execution,” Mr. Monaco said. “We are positive on the longer-term fundamentals supporting our businesses and the development of infrastructure that our customers require and believe we are well positioned to continue to deliver industry leading earnings and dividend growth through 2018 and beyond. Our growth will continue to be supported by a disciplined approach to investment and project execution and attention to our number one priority – the safety and reliability of our systems.”
In February, the National Energy Board (NEB) approved Conditions 16 and 18 of Enbridge’s application for the reversal and expansion of Line 9B. The Company subsequently applied to the NEB for a Leave to Open to commence operation of the project. The pipeline is mechanically complete and awaiting the NEB’s final approval.
“Line 9B is critical to ensuring that eastern Canadian refiners have access to reliable and cost effective feedstock and assuring the competitiveness of eastern Canada’s petrochemical industry,” said Mr. Monaco.
On March 31, 2015, Enbridge delivered a formal proposal (the Canadian Restructuring Plan) to a committee of independent members of the boards of Enbridge Commercial Trust (ECT) and Enbridge Income Fund Holdings Inc. (ENF) to transfer Enbridge’s Canadian Liquids Pipelines business and certain renewable energy assets to Enbridge Income Fund (the Fund). The transaction is anticipated to provide Enbridge with low-cost funding to support the enterprise-wide $44 billion growth capital program and is expected to be accretive to adjusted earnings per share by approximately 10% per year on average from 2015 to 2018.
The transaction is also expected to transform the Fund and ENF through the acquisition of high quality assets that come with embedded growth. ENF’s dividend is expected to increase by approximately 10% on closing, and by a further 10% at the beginning of 2016 and each year thereafter through to 2019. In conjunction with the Canadian Restructuring Plan, the Company also increased its quarterly common share dividend by 33% effective March 1, 2015 and introduced a new dividend payout policy range of 75% to 85% of adjusted earnings.
“This transaction is expected to deliver significant value to investors of both Enbridge and Enbridge Income Fund Holdings and it will even better position us to extend our industry-leading growth beyond 2018,” added Mr. Monaco. “We expect the transaction to close mid-2015.”
Adjusted earnings for the first quarter of 2015 were $468 million, or $0.56 per common share, compared with adjusted earnings of $492 million, or $0.60 per common share, for the first quarter of 2014.
In Liquids Pipelines, the throughput trends experienced in 2014 continued into the first quarter of 2015 and resulted in record throughput on Canadian Mainline. Furthermore, the impact of a strong United States dollar, which had a hedged and an unhedged component, compared with the Canadian dollar had a positive impact on Canadian Mainline earnings as the International Joint Tariff Benchmark (IJT) Toll and its components are set in United States dollars. However, these factors were more than offset by a lower quarter-over-quarter Canadian Mainline IJT Residual Benchmark Toll. Changes in the Canadian Mainline IJT Residual Benchmark Toll are inversely related to the Lakehead System Toll, which was higher due to the recovery of incremental costs associated with EEP’s growth projects. Growing volumes on the system, together with the impact of an increase to the Canadian Mainline IJT Residual Benchmark Toll and applicable surcharges for system expansions are expected to drive strong revenue and earnings growth over the balance of 2015.
Within Sponsored Investments, Enbridge Energy Partners, L.P. (EEP) and the Fund both had strong first quarters of 2015, with each reflecting the favourable impact of drop downs from Enbridge. EEP adjusted earnings reflected higher volumes and tolls in its liquids business, as well as new assets placed into service. EEP earnings also reflected the incremental earnings from the acquisition of the 66.7% interest in Alberta Clipper previously held by Enbridge. The earnings increase from the Fund was attributable to the transfer of natural gas and diluent pipeline interests from Enbridge and higher preferred unit distributions received from the Fund.
Enbridge Gas Distribution Inc. (EGD) continued to deliver reliable results in the first quarter, although earnings were lower than the comparative period in 2014 due to the application of lower interim distribution rates in the first quarter of 2015. Any shortfall in revenues arising from the difference between interim and final 2015 rates will be recovered during 2015 and will not have an impact on full year results which are expected to be higher than the prior year.
Adjusted earnings were also impacted by higher preference share dividends in the Corporate segment, as well as higher interest expense across various business segments reflecting incremental preference share and debt issued to fund the Company’s growth capital program.
The adjusted earnings discussed above exclude 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. See Non-GAAP Measures.
FIRST QUARTER 2015 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.
- Loss attributable to common shareholders were $383 million in the first quarter of 2015 compared with earnings of $390 million in the first quarter of 2014. The Company delivered solid results from operations in the first quarter of 2015; however, the visibility and comparability of the operating results are 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 that over the long-term it supports the reliable cash flows and dividend growth upon which the Company’s investor value proposition is based. Other factors impacting the comparability of period-over-period earnings included an out-of-period adjustment of $71 million recognized in the first quarter of 2015 in respect of an overstatement of deferred income tax expense in 2013 and 2014, as well as insurance recoveries of $9 million after-tax related to the Line 37 crude oil release which occurred in June 2013.
- Enbridge’s adjusted earnings for the first quarter of 2015 and 2014 were $468 million and $492 million, respectively. Liquids Pipelines adjusted earnings decreased as the positive effects of higher throughput, higher terminalling revenues, a favourable United States/Canada foreign exchange rate and lower income taxes on Canadian Mainline were more than offset by a lower quarter-over-quarter Canadian Mainline IJT Residual Benchmark Toll and higher operating and administrative expense. On April 1, 2015, the Canadian Mainline IJT Residual Benchmark Toll increased from US$1.53 per barrel to US$1.63 per barrel. Growing volumes on the system, together with the impact of a higher Canadian Mainline IJT Residual Benchmark Toll and applicable surcharges for system expansions as they come into service, including surcharges for the recently completed Edmonton to Hardisty Expansion, are expected to drive strong revenues and earnings growth over the balance of 2015. In Gas Distribution, EGD adjusted earnings decreased in the first quarter of 2015 due to lower interim distribution rates applicable in the first quarter of 2015 compared with the interim rates applicable in the corresponding 2014 period. EGD expects to collect and record the difference between the interim rates and applicable 2015 rates during 2015. Positively impacting adjusted earnings in Gas Distribution was the absence of a loss that Enbridge Gas New Brunswick Inc. incurred in 2014 under a contract to sell natural gas to the province of New Brunswick. Due to an abnormally cold winter in the first quarter of 2014, costs associated with the fulfilment of the contract were higher than the revenues received. Within Sponsored Investments, EEP adjusted earnings reflected higher throughput and tolls on its liquids business, as well as the impact of new assets placed into service in 2014. EEP adjusted earnings also reflected the incremental earnings from the acquisition of the remaining 66.7% interest of Alberta Clipper previously held by Enbridge. Higher contribution from EEP also reflected distributions from Class D units which were issued to Enbridge in July 2014 under an equity restructuring transaction and from Class E units which were issued in January 2015 in connection with the transfer of Alberta Clipper. The Fund benefitted from the transfer of natural gas and diluent pipeline interests from Enbridge. Higher preferred unit distributions received by Enbridge from the Fund also provided an increase to adjusted earnings. Finally, within the Corporate segment, higher preference share dividends arising from an increase in the number of preference shares in 2014 to fund the Company’s growth capital program negatively impacted adjusted earnings.
- On March 31, 2015, Enbridge announced it had delivered a formal proposal to a committee of independent members of the boards of ECT and ENF to transfer Enbridge’s Canadian Liquids Pipelines business, comprised of Enbridge Pipelines Inc. and Enbridge Pipelines (Athabasca) Inc., along with certain renewable energy assets, with a combined carrying value of approximately $17 billion and an associated secured growth capital program of approximately $15 billion, to the Fund. The formal proposal follows the Company’s December 3, 2014 announcement of the proposed Canadian Restructuring Plan. The general terms and projected financial outcomes of the proposed transfer are substantially consistent with those originally described in that announcement. The transfer also remains subject to approval by the boards of ECT and ENF, following a recommendation by a joint special committee.
- Effective, March 15, 2015, the Enbridge Board of Directors appointed Rebecca B. Roberts as a director. Ms. Roberts is the former President of Chevron Pipe Line Company and Chevron Global Power Generation and is currently a director of MSA Safety Incorporated and Black Hills Corporation. Ms. Roberts was previously also a director of Enbridge Energy Management, L.L.C. and Enbridge Energy Company, Inc., the general partner of EEP.
- On March 5, 2015, the Company announced a plan to optimize previously announced expansions of its Regional Oil Sands System currently in execution. The optimization plan, which has been agreed to with the affected shippers, including Suncor Energy Inc., Total E&P Canada Ltd. and Teck Resources Limited (the Fort Hills Partners), will enable deferral of the southern segment of the Wood Buffalo Extension by connecting it to the Athabasca Pipeline Twin. The optimization involves the upsize of a 100-kilometre (60-mile) segment of the Wood Buffalo Extension between Cheecham, Alberta and Kirby Lake, Alberta from a 30-inch diameter pipeline to a 36-inch diameter pipeline, which will now connect to the origin of the Athabasca Pipeline Twin at Kirby Lake, Alberta. The capacity of the Athabasca Pipeline Twin would be expanded from 450,000 bpd to 800,000 bpd through additional horsepower.
- The definitive cost estimate of the Wood Buffalo Extension was finalized at approximately $1.8 billion before optimization. As a result of the optimization, the cost estimate to complete the integrated Wood Buffalo Extension and Athabasca Pipeline Twin projects is expected to decrease from approximately $3.0 billion to approximately $2.6 billion. Along with the Company’s Norlite Pipeline System, the Wood Buffalo Extension and the Athabasca Pipeline Twin will be the conduit to ship diluent to, and blended bitumen from, the proposed Fort Hills Partners’ oil sands project which has an expected 2017 in-service date.
- On January 12, 2015, Enbridge announced that it will build, own and operate a crude oil pipeline in the Gulf of Mexico to connect the planned Stampede development, which is operated by Hess Corporation, to an existing third-party pipeline system. Stampede Oil Pipeline (Stampede Pipeline), a 26-kilometre (16-mile), 18-inch diameter pipeline with capacity of approximately 100,000 bpd will originate in Green Canyon Block 468, approximately 350 kilometres (220 miles) southwest of New Orleans, Louisiana, at an estimated depth of 1,200 metres (3,500 feet). After finalization of scope and a definitive cost estimate, Stampede Pipeline is expected to be completed at an approximate cost of US$0.2 billion and is expected to be placed into service in 2018.