Enbridge Inc. (Enbridge or the Company) reported second quarter 2024 financial results, recast its 2024 financial guidance and provided a quarterly business update.
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.)
Recast 2024 full year financial outlook to include contributions from the U.S. Gas Utilities acquisitions announced on September 5, 2023 (the "Acquisitions") and the associated financing (previously excluded). The full year adjusted earnings before interest, income taxes and depreciation and amortization (EBITDA)* guidance range has increased to $17.7 billion to $18.3 billion and distributable cash flow (DCF)* per share is unchanged at $5.40 to $5.80 despite the impact of our fully funding the Acquisitions prior to closing and benefiting from full year EBITDA contributions
Second quarter GAAP earnings of $1.8 billion or $0.86 per common share, compared with GAAP earnings of $1.8 billion or $0.91 per common share in 2023
Adjusted earnings* of $1.2 billion or $0.58 per common share*, compared with $1.4 billion or $0.68 per common share in 2023
Adjusted EBITDA of $4.3 billion, an increase of 8%, compared with $4.0 billion in 2023
Cash provided by operating activities of $2.8 billion, compared with $3.4 billion in 2023
Distributable cash flow of $2.9 billion, an increase of 3%, compared with $2.8 billion in 2023
Re-affirmed the Company's growth outlook announced at Enbridge Day on March 6, 2024
Closed the acquisition of Questar Gas Company and Wexpro (together "Questar" and conducting business as "Enbridge Gas Utah") from Dominion Energy Inc. on May 31, 2024 for a purchase price of US$4.3 billion (including US$1.3 billion of assumed debt)
Completed the Acquisitions funding and terminated the Company's at-the-market (ATM) equity issuance program; returning to an equity self-funded model
Announced Final Investment Decision (FID) of Blackcomb Pipeline, an up to 2.5 Bcf/d natural gas pipeline which will provide transportation service from Rankin, Texas to the Agua Dulce area in South Texas providing much needed export capacity for Permian shippers
Reached a negotiated settlement with customers on Texas Eastern Transmission to ensure appropriate cost recovery by increasing rates effective October 1, 2024
Sanctioned Orange Grove solar farm (130 MW) northwest of Corpus Christi, Texas, for ~US$250 million, backed by a long-term power purchase agreement with AT&T for 100% of capacity
Sanctioned a 120 kbpd expansion of Gray Oak Pipeline following a successful open season
Exited the quarter with Debt-to-EBITDA of 4.7x; Enbridge expects annualized EBITDA contributions from the US$14 billion of Acquisitions in 2024 to strengthen Enbridge's Debt-to-EBITDA position
CEO COMMENT
Greg Ebel, President and CEO commented the following:
"During the quarter, we made significant progress on our strategic priorities. We completed the acquisition of Questar and filed a settlement with the Public Staff for the North Carolina Utilities Commission giving us a clear path to closing the acquisition of PSNC in Q3. In addition, we completed all the remaining financing for the Acquisitions and discontinued the company's at-the-market equity issuance program. As such, we are recasting our 2024 financial outlook to include contributions from the acquired assets. I'm proud of our team's commitment to execution and look forward to working with our new team members and customers.
"The scale and connectivity of our business is extending growth opportunities across our four business franchises. Enbridge is a one-stop shop for a wide range of customers and partners. Deep relationships, strategic incumbency and proven ability to deliver makes us a first-choice partner. A great example of this is the Seven Stars Energy project, which brought Enbridge and Indigenous communities together to develop a 200 MW wind farm in Saskatchewan. This was the result of our Liquids and Renewable Power teams partnering to strengthen existing relationships and create new opportunities.
"The need for reliable and affordable energy drove high utilization across all of our systems during the quarter. Customer demand and operational reliability of our assets helped generate record second quarter EBITDA.
"In Liquids, Mainline demand remained strong, and the system was in apportionment throughout the second quarter. Volumes averaged 3.1 mmbpd and we are advancing discussions with customers for further egress out of Western Canada. In the Permian, we sanctioned an expansion of the Gray Oak pipeline to accommodate growing demand for crude exports at our Ingleside facility. The terminal remains highly utilized, setting new daily and quarterly delivery records as global demand for North American energy products continues to grow.
"In Gas Transmission, we closed the 19% acquisition in an integrated Permian natural gas pipeline and storage JV (the "Whistler Parent JV"), which is immediately accretive and directly connected to our existing infrastructure at Agua Dulce. This investment is already yielding additional growth opportunities through the announced FID of Blackcomb Pipeline which is expected to provide much needed egress for Permian natural gas shippers in 2026. On Texas Eastern, we've reached a negotiated settlement with shippers ensuring we earn a reasonable return on our rate base investments as we continue delivering safe and reliable energy.
"In Gas Distribution, integration is well underway with Enbridge Gas Ohio and Enbridge Gas Utah. The new utilities have been fully funded and will provide long-term, rate-regulated, low risk, capital investment opportunities. We are seeing this play out In Utah where we are in negotiations to connect up to 200 MW of power to serve data center customers and have had numerous inbounds to connect up to an additional 1.5 GW over the long-term.
"In Renewable Power, we sanctioned the Orange Grove solar farm in Texas backed by a long-term PPA with AT&T. We also placed into service our Fécamp offshore wind project which is designed to provide power for nearly 770,000 French residents.
"Looking forward, disciplined capital allocation remains a key area of focus. Positive credit rating agency actions during the quarter reinforces our long-held view that our balance sheet is strong. Our leverage is well within our target range and provides flexibility to fully fund our $24 billion secured capital backlog. A well supported dividend and visible growth is expected to deliver low double digit annual shareholder returns for many years to come, which positions us as a first-choice investment opportunity."
GAAP earnings attributable to common shareholders is the same for the second quarter of 2024 and 2023, primarily due to a gain on sale of $1.1 billion ($765 million after-tax) from the disposition of interests in Alliance Pipeline and Aux Sable to Pembina Pipeline Corporation ("Pembina"). This was offset by a non-cash, net unrealized derivative fair value loss of $208 million ($160 million after-tax) in 2024, compared with a net unrealized gain of $595 million ($456 million after-tax) in 2023, reflecting changes in the mark-to-market value of derivative financial instruments used to manage foreign exchange, interest rate and commodity price risks as well as quarterly operating performance factors.
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 Company's Management's Discussion & Analysis for the second quarter of 2024 filed in conjunction with the second quarter financial statements for a detailed discussion of GAAP financial results.
Adjusted EBITDA in the second quarter of 2024 increased by $327 million compared with the same period in 2023. This was due to higher throughput on Flanagan South Pipeline driven by recent open season commitments, higher volumes on Express-Platte, contributions from recently acquired assets including EOG, Questar, additional Hohe See and Albatros interests, Aitken Creek and Tomorrow RNG. These impacts were partially offset by the absence of contributions from Alliance Pipeline and Aux Sable due to the sale of our interests in these investments in April 2024 and warmer weather in Ontario affecting Gas Distribution and Storage.
Adjusted earnings in the second quarter of 2024 decreased by $132 million, or $0.10 per share, compared with the same period in 2023, primarily from higher financing costs due to higher interest rates and long-term debt principal, higher income taxes driven by higher earnings and higher depreciation expense from assets acquired and placed into service since last year, partially offset by higher Adjusted EBITDA contributions discussed above.
DCF for the second quarter of 2024 increased by $75 million compared with the same period in 2023, primarily due to the higher Adjusted EBITDA contributions discussed above, partially offset by higher financing costs from higher interest rates and long-term debt principal, and higher U.S. Corporate Alternative Minimum taxes.
Per share metrics in 2024 are impacted by the bought deal equity issuance in the third quarter of 2023 and ATM issuances in the second quarter of 2024 as part of the financing plan for the Acquisitions.
Detailed financial information and analysis can be found below under Second Quarter 2024 Financial Results.
FINANCIAL OUTLOOK
The Company has recast its 2024 financial guidance. Adjusted EBITDA is expected to be between $17.7 billion to $18.3 billion (previously $16.6 billion to $17.2 billion). The DCF per share guidance range of $5.40 to $5.80 is maintained.
Relative to Enbridge's previous guidance, announced November 28, 2023, the Company's recast guidance for 2024 adds incremental contributions from the two U.S. gas Acquisitions that have closed and assumes a Q3 closing for PSNC. It also now includes the impact of the pre-funding of the Acquisitions, which was completed in Q2.
The company also reaffirmed it's 2023 to 2026, near-term growth outlook of 7-9% for adjusted EBITDA growth, 4-6% for adjusted EPS growth and approximately 3% for DCF per share growth.
FINANCING UPDATE
Financing the Acquisitions
Enbridge has now fully financed the $12.8 billion (US$9.4 billion) cash consideration for the Acquisitions. The funding plan was completed through the issuance of common shares through the $4.6 billion offering in the third quarter of 2023 and $2.5 billion of at-the-market equity issuances in the second quarter of 2024, issuances of hybrid subordinated notes, and a portion of the proceeds from the sale of the Alliance Pipeline and Aux Sable which closed in the second quarter of 2024.
Enbridge terminated its ATM equity issuance program, without having issued any additional shares in Q3, and intends to return to an equity-self funding model.
The Company expects annualized EBITDA contributions from the US$14 billion of Acquisitions in 2024 to strengthen Enbridge's Debt-to-EBITDA position throughout 2025.
Other Financing
On June 24th, 2024, Enbridge issued US$1.2 billion of 30-year junior subordinated hybrid notes, consisting of US$700 million callable after 5 years and US$500 million callable after 10 years. These notes receive partial equity treatment from rating agencies. A portion of the proceeds from these offerings will be allocated to fund the acquisition of PSNC, with the remainder used to reduce existing indebtedness, fund capital expenditures, and for general corporate purposes.
SECURED GROWTH PROJECT EXECUTION UPDATE
During the quarter the Fécamp offshore wind facility was placed into service and that project has been removed from the secured growth backlog. In addition, the newly sanctioned Orange Grove solar farm has been added to the secured backlog. Since closing the acquisition of an interest in the Whistler JV, and contributing ownership of Rio Bravo to the joint venture, the Company has removed this project from its secured backlog due to commercial sensitivity.
The Company's secured growth backlog now sits at $24 billion and is underpinned by commercial frameworks consistent with Enbridge's low-risk model. Financing of the secured growth program is expected to be provided entirely through the Company's anticipated $8-9 billion of annual growth capital investable capacity.
BUSINESS UPDATES
Liquids Pipelines: Sanctioned Gray Oak Expansion Following Successful Open Season
Enbridge has sanctioned a 120 kbpd expansion of the Gray Oak pipeline following a successful open season. The incremental volumes will serve growing demand at the Company's Enbridge Ingleside Energy Center. This expansion will add capacity from Crane, Texas to Corpus Christi, Texas, is expected to require minimal capital and come fully online in 2026.
Gas Transmission: Reached a Negotiated Settlement with Shippers on Texas Eastern
In May 2024, Texas Eastern Transmission, LP (Texas Eastern) reached a negotiated settlement with customers to increase rates and filed a Stipulation and Agreement with the FERC on June 3, 2024. Base rates will increase by 6% effective October 1, 2024 and by another 2.75% effective January 2026. The Settlement was approved by the Federal Energy Regulatory Commission on July 31 and helps ensure Texas Eastern will continue to earn an appropriate risk-adjusted return and that its customers receive rate certainty through October 2027.
Gas Transmission: Closed Acquisition of Permian Basin Natural Gas Joint Venture Interest
On May 29, 2024, Enbridge closed the previously announced agreement with WhiteWater/I Squared and MPLX to form the Whistler Parent JV that will develop, construct, own, and operate natural gas pipeline and storage assets connecting Permian Basin natural gas supply to growing LNG and other U.S. Gulf Coast demand. The transaction is immediately accretive to both per share metrics and the debt-to-EBITDA metric. Longer term, this joint venture is expected to unlock future growth opportunities for Enbridge, similar to the one noted below, by connecting natural gas production to export markets.
The joint venture is owned by WhiteWater/I Squared (50.6%), MPLX (30.4%), and Enbridge (19.0%).
Gas Transmission: Announced FID of Blackcomb Natural Gas Pipeline
Whitewater, MPLX LP, and Enbridge, through the Whistler Parent JV, partnered with Targa Resources, LLC to reach the final investment decision to move forward with the Blackcomb Pipeline. The Blackcomb Pipeline is a joint venture owned 70% by the Whistler Parent JV, 17.5% by Targa Resources, and 12.5% by MPLX. This pipeline is designed to transport up to 2.5 Bcf/d of natural gas providing additional egress for Permian shippers including direct connections to processing facilities in the Midland Basin.
The pipeline is backed by firm transportation agreements with predominantly investment grade counterparties and is expected to enter service in the second half of 2026 pending the receipt of customary regulatory and other approvals.
Gas Distribution and Storage: Enbridge's Acquisition of Gas Utilities from Dominion
On May 31, 2024 Enbridge closed its acquisition of Questar from Dominion for a purchase price of US$4.3 billion inclusive of US$1.3 billion of assumed debt. The Questar Gas utility in Utah will do business as Enbridge Gas Utah, in Wyoming as Enbridge Gas Wyoming, and in Idaho as Enbridge Gas Idaho. Questar serves as a multi-state utility distributing gas in Utah, Southern Wyoming, and Southeastern Idaho to approximately 1.2 million customers via 21,000 miles of transmission and distribution pipelines. Questar also has a cost-of-service regulated supply agreement with Wexpro, which provides source gas directly to the utility.
Together, EOG (conducting business as Enbridge Gas Ohio) and Questar are expected to contribute approximately 80% of the total annualized EBITDA from the Acquisitions. The closing of the purchase of the PSNC is expected to occur following the receipt of required regulatory approvals, which Enbridge expects to occur in the third quarter of 2024.
Renewable Power: Sanctioned Orange Grove Solar in Texas
Enbridge sanctioned the Orange Grove Solar development, a 130 MW solar project strategically located approximately 30 miles from Corpus Christi in the ERCOT South region in Texas. The project benefits from nearby industrial power demand growth and is supported by a long- term power purchase agreement with AT&T. Total project costs are expected to be approximately US$250 million and the project is expected to be in-service in 2025.
For purposes of evaluating performance, the Company makes adjustments to GAAP reported earnings, segment EBITDA and cash flow provided by operating activities for unusual, infrequent or other non-operating factors, which allow Management and investors to more accurately compare the Company's performance across periods, normalizing for factors that are not indicative of underlying business performance. Tables incorporating these adjustments follow below. Schedules reconciling EBITDA, adjusted EBITDA, adjusted EBITDA by segment, adjusted earnings, adjusted earnings per share and DCF to their closest GAAP equivalent are provided in the Appendices to this news release.
Adjusted EBITDA By Segment
Adjusted EBITDA generated from U.S. dollar denominated businesses was translated to Canadian dollars at a higher average exchange rates (C$1.37/US$) in the second quarter of 2024 when compared with the same quarter in 2023 (C$1.34/US$). A significant portion of U.S. dollar earnings are hedged under the Company's enterprise-wide financial risk management program. The hedge settlements are reported within Eliminations and Other.
Liquids Pipelines
Liquids Pipelines adjusted EBITDA increased $27 million compared with the second quarter of 2023, primarily related to:
higher Mainline system throughput of 3.1 million barrels per day (mmbpd) in 2024 as compared to 3.0 mmbpd in 2023;
higher contributions from the Gulf Coast and Mid-Continent System due primarily to higher volumes on the Flanagan South Pipeline driven by the open season commitments that commenced in the first quarter of 2024;
higher contributions from Express-Platte System due primarily to greater long-haul deliveries and certain Feeder pipelines due to higher volumes on Southern Access Extension and Toledo pipelines;
the favorable effect of translating US dollar earnings at a higher average exchange rate in 2024, as compared to 2023;
higher contributions from Southern Lights Pipeline due primarily to the discontinuation of rate-regulated accounting in the fourth quarter of 2023; partially offset by
lower Mainline System tolls as a result of new tolls effective July 1, 2023 and a lower L3R surcharge.
Gas Transmission
Gas Transmission adjusted EBITDA increased $49 million compared with the second quarter of 2023, primarily related to:
lower US Gas Transmission and Storage operating costs;
contributions from the acquisitions of Aitken Creek in the fourth quarter of 2023 and Tomorrow RNG in the first quarter of 2024, and
the favorable effect of translating US dollar earnings at a higher average exchange rate in 2024, compared to the same period in 2023; partially offset by
the absence of contributions from Alliance Pipeline and Aux Sable due to the sale of ownership interests to Pembina in April 2024.
Gas Distribution and Storage
Enbridge Gas Ontario and Questar adjusted EBITDA will typically follow a seasonal profile. It is generally highest in the first and fourth quarters of the year. Enbridge Gas Ontario's seasonal profile reflects greater volumetric demand during the heating season and the magnitude of the seasonal EBITDA fluctuations will vary from year-to-year reflecting the impact of colder or warmer than normal weather on distribution volumes. EOG's earnings are decoupled from volumes and less impacted by weather fluctuations.
Adjusted EBITDA for the second quarter increased $200 million compared with the second quarter of 2023 primarily related to:
contributions from the acquisition of EOG and Questar in 2024; and
higher distribution charges resulting from increases in rates and customer base; partially offset by
the negative impact of warmer weather than for the same period of 2023.
The negative impact of weather was approximately $23 million in the second quarter of 2024 compared to a negligible impact for the same period of 2023.
Renewable Power Generation
Renewable Power Generation adjusted EBITDA increased $15 million compared with the second quarter of 2023 primarily related to:
higher contributions from the Hohe See and Albatros Offshore Wind Facilities as a result of the November 2023 acquisition of an additional 24.45% interest in these facilities.
Eliminations and Other
Operating and administrative recoveries captured in this segment reflect the cost of centrally delivered services (including depreciation of corporate assets) inclusive of amounts recovered from business units for the provision of those services. U.S. dollar denominated earnings within operating segment results are translated at average foreign exchange rates during the quarter, and the impact of settlements made under the Company's enterprise foreign exchange hedging program are captured in this corporate segment.
Eliminations and Other adjusted EBITDA increased $36 million compared with the second quarter of 2023 due to higher investment income on cash balances from pre-funding the Acquisitions.
Distributable Cash Flow
Second quarter 2024 DCF increased $75 million compared with the same period of 2023 primarily due to operational factors discussed above contributing to higher Adjusted EBITDA, partially offset by:
higher interest rates impacting floating-rate debt and new issuances;
higher U.S. Corporate Alternative Minimum taxes; and
higher maintenance capital from the Questar and EOG Acquisitions in 2024.
Weighted average common shares increased due to the bought deal equity issuance in the third quarter of 2023 and ATM issuances in the second quarter of 2024 as part of the funding for the Acquisitions.
Adjusted Earnings
Adjusted earnings decreased $132 million and adjusted earnings per share decreased by $0.10 when compared with the second quarter in 2023 primarily due to operational factors discussed above contributing to higher Adjusted EBITDA, partially offset by:<
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higher depreciation from assets acquired or placed into service in 2023;
higher interest expense due to higher interest rates impacting floating-rate debt and new issuances; and
higher income tax expense driven by higher earnings.
Per share metrics were negatively impacted by the bought deal equity issuance in the third quarter of 2023 and ATM issuances in the second quarter of 2024, as part the funding for the Acquisitions.
CONFERENCE CALL
Enbridge will host a conference call and webcast on August 2, 2024 at 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) to provide a business update and review 2024 second quarter results. Analysts, members of the media and other interested parties can access the call toll free at 1-800-606-3040. The call will be audio webcast live at https://app.webinar.net/nQm7DAoRZ2N. It is recommended that participants dial in or join the audio webcast fifteen minutes prior to the scheduled start time. A webcast replay will be available soon after the conclusion of the event and a transcript will be posted to the website. The replay will be available for seven days after the call toll-free 1-(800)-606-3040 (conference ID: 9581867).
The conference call format will include prepared remarks from the executive team followed by a question and answer session for the analyst and investor community only. Enbridge's media and investor relations teams will be available after the call for any additional questions.
DIVIDEND DECLARATION
On July 29, 2024, our Board of Directors declared the following quarterly dividends. All dividends are payable on September 1, 2024 to shareholders of record on August 15, 2024.
