Enbridge Inc. (Enbridge or the Company) (TSX:ENB)(NYSE:ENB) today reported first quarter 2017 adjusted EBIT of $1,515 million. First quarter ACFFO was $1,215 million, or $1.03 per common share. These results reflect approximately one month of financial contribution from the assets acquired in the Spectra Energy merger transaction which closed on February 27, 2017.
ACFFO per share for the first quarter of 2017 was lower than the first quarter of 2016 due to a number of factors including the timing of the closing of the Spectra Energy combination, the impact of warmer than normal weather on the Company's gas distribution franchises and transactions undertaken in 2016 to strengthen the balance sheet. The impact of the shares issued at closing of the merger transaction is amplified by the fact that the legacy Spectra Energy assets typically contribute a disproportionate share (25% to 30%) of their annual ACFFO in the first two months of the year. The impact of liquids mainline apportionment on the performance of downstream pipelines and changes in the effective foreign exchange rate also impacted the quarter-over-quarter results. The ACFFO contribution from Liquids Pipelines is expected to improve in future quarters as a result of planned capacity optimizations, an improved foreign exchange hedge rate and the impact of incremental cash flow from new projects being placed into service.
Looking forward, the Company expects to generate consolidated ACFFO per share of between $3.60 and $3.90 for the full 2017 year. This guidance range reflects, among other factors, the positive impact of ongoing strength in Mainline crude oil volumes, the full year contributions of $2 billion of new growth projects coming into service during 2016 and partial year contributions from over $13 billion of new growth projects in 2017, as well as additional utility rate base growth, offset primarily by the seasonal impact of the timing of close of the Spectra Energy acquisition described above, the previously announced shipper-requested deferral of the Wood Buffalo Extension Project in-service date to December 1, 2017 and mild first quarter weather.
"We were very pleased to complete the closing of the Spectra Energy combination in the first quarter and we are now in good position to capitalize on the strategic and financial merits of the transaction," said Al Monaco, President and Chief Executive Officer of Enbridge Inc. "After adjusting for the timing of the deal-close and other factors noted above, our 2017 full year run-rate and future outlook remains in line with our original assumptions and expectations for the post-Spectra Enbridge. Integration of the businesses is going well and we've made very good early progress in capturing the synergies from the transaction."
Growth Project Execution
Enbridge continued to progress the execution of its $27 billion secured growth capital program, and has brought $2.4 billion of projects into service thus far in 2017, including the Athabasca Twin pipeline, the Norlite diluent pipeline and the Jackfish Lake natural gas pipeline expansion. These projects all are supported by low-risk take-or-pay contracts or similar commercial arrangements that will generate highly predictable earnings and cash flow. Over the remainder of the year the Company expects to bring a further $11 billion of growth projects into service in 2017, primarily in the third and fourth quarters of the year, followed by another $4 billion of projects in 2018. Given the timing and return profiles of these projects, the full earnings and cash flow impacts will be seen in 2018 and beyond.
In February 2017, Enbridge added to its secured project inventory with the announcement of the Hohe See Offshore Wind Project in Germany. As co-developer, Enbridge will participate in the construction and operation of the project. Once in service in late 2019, Enbridge's total investment in the project will be $1.7 billion (EUR1.07 billion).
Also in February 2017, Enbridge closed the acquisition of a 27.6% interest in the Bakken Pipeline System. The System consists of the Dakota Access Pipeline and the Energy Transfer Crude Oil Pipeline projects and connects the prolific Bakken formation in North Dakota to eastern PADD II and the United States Gulf Coast. The pipelines are expected to go into service in the second quarter of 2017.
On April 25, 2017, Enbridge launched a binding Open Season on its British Columbia Pipeline T-South system for delivery of an incremental 190 mmcf/d of natural gas into the Huntington/Sumas market at the Canadian/United States border. The system is currently fully contracted and an expansion is necessary to meet increasing customer demand as a result of rapidly growing production in the prolific Montney and Duvernay regions. The project would include looping of T-South and upgrades at compressor stations along the pipeline system at a cost of approximately $1 billion. Subject to the outcome of the Open Season, the project could be brought into service by late 2020.
"These recent opportunities demonstrated the magnitude and diversity of our development pipeline," noted Mr. Monaco.
"The Bakken Pipeline System enhances our presence in the Bakken and the United States Gulf Coast and will be accretive to ACFFO immediately in 2017. The Hohe See Offshore Wind Project illustrates the growth opportunities available to us in European Offshore wind. And through our early Open Season process on our western Canadian system we are expecting strong demand for the expansion of our T-South gas pipeline given the attractive fundamentals supporting natural gas production growth from the Montney and the Duvernay."
During the first quarter of 2017, Enbridge further strengthened its liquidity and financial flexibility raising an additional $0.2 billion in committed term credit and close to $0.3 billion of new equity through its dividend reinvestment, "paid-in-kind" and "at the market" offering programs, across the Enbridge group. In March of 2017, the Company raised additional funds through sale of the Ozark pipeline for net proceeds of approximately $0.3 billion.
In addition, Enbridge raised approximately $0.6 billion of equity with the sale of a portion of its interest in the Fund Group through a secondary offering of shares of ENF. The sale was in keeping with the Company's previously communicated objective to gradually increase the public's economic interest in the Fund Group to approximately 20% over time and increase ENF's public market capitalization and trading liquidity. Enbridge currently holds an 84.6% interest in the Fund Group and expects to retain a significant interest going forward.
At the time of the announcement of the Spectra Energy merger in 2016, Enbridge also announced its intention to divest $2 billion of assets to strengthen the balance sheet and create further financing flexibility for the combined Company going forward. With the sale of the Ozark pipeline, completion of the ENF secondary offering and other asset sales completed in the fourth quarter of 2016, the Company has divested approximately $2.3 billion of assets, exceeding its previously announced target.
Sponsored Vehicle Restructuring & Simplification
The Company believes that well-structured sponsored vehicles will continue be an attractive alternative source of funding and an effective means through which to enhance value and returns on energy infrastructure assets held within the broader Enbridge group. In recent months, the Company has taken several actions to strengthen and streamline its sponsored vehicles including the simplification of DCP Midstream Partners, L.P. and the privatization of Midcoast Energy Partners, L.P.
Most recently, on April 28, 2017, the Company announced the outcome of a strategic review of EEP, which resulted in the implementation of a number of restructuring actions to enhance the commercial and financial positon of EEP and restore its effectiveness as a Sponsored Vehicle. Through these actions, EEP will become a self-funding pure-play liquids pipeline Master Limited Partnership with a low-risk business model, highly visible embedded organic growth and a strong investment grade credit profile.
Commenting on the conclusion of the EEP strategic review, Mr. Monaco noted, "EEP holds some of our most strategic and high-quality long-life critical infrastructure assets in North America. The restructuring actions will position EEP to create long term value for both its unitholders and Enbridge."
In January 2017, Enbridge announced an increase in its quarterly common share dividend by 10% to $0.583 per share, marking the twenty-second consecutive year in which the Company has raised its dividend. On May 4, 2017, as previously contemplated, Enbridge further increased its quarterly common share dividend by approximately 5% to $0.61 per share, which in combination with the January dividend increase, provides a total increase of 15% above the prevailing quarterly rate in 2016.
"Our confidence in providing a 15% dividend per share increase this year reflects the strength and stability of our base assets and a very positive longer term outlook for the combined business," noted Mr. Monaco. "Over the longer term, we expect that the strength and diversity of our existing asset base together with six strong growth platforms will enable Enbridge to deliver dividend growth in the range of 10% to 12% per annum through 2024."
Mr. Monaco concluded, "We firmly believe that the newly combined company, with its low-risk business model and diversified platforms for growth, will create strong value for all of our stakeholders well into the next decade."
FIRST QUARTER 2017 PERFORMANCE OVERVIEW
For more information on Enbridge Inc.'s (Enbridge or the Company) growth projects and operating results, please see 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 BEFORE INTEREST AND INCOME TAXES
For the three months ended March 31, 2017, EBIT was $1,629 million compared with $2,176 million for the three months ended March 31, 2016. As discussed below in Adjusted EBIT, the first quarter of 2017 earnings were positively impacted by the contributions from new assets following the completion of the Merger Transaction on February 27, 2017.
The quarter-over-quarter decrease in EBIT was largely driven by the Liquids Pipelines segment, which delivered lower adjusted EBIT for the three months ended March 31, 2017, mainly attributable to a lower effective foreign exchange rate, the divestiture of certain Liquids Pipelines assets and a change in normalization policy for recording make-up rights. EBIT for the rest of the year is expected to be positively impacted by increased throughput optimization on the mainline system and the effect of new projects coming into service in 2017.
The comparability of the Company's earnings quarter-over-quarter is also impacted by a number of unusual, non-recurring or non-operating factors that are enumerated in the Non-GAAP Reconciliation tables and discussed in the results for each reporting segment, the most significant of which are changes in unrealized derivative fair value gains and losses. For the three months ended March 31, 2017, the Company's EBIT reflected $416 million of unrealized derivative fair value gains compared with gains of $932 million in the corresponding 2016 period.
The Company has a comprehensive long-term economic hedging program to mitigate interest rate, foreign exchange and commodity price risks which create volatility in short-term earnings. Over the long term, Enbridge believes its hedging program supports the reliable cash flows and dividend growth upon which the Company's investor value proposition is based.
EBIT for the first quarter of 2017 also reflected charges of $152 million ($111 million after-tax) with respect to costs incurred in conjunction with the Merger Transaction, as well as $129 million ($92 million after-tax) of employee severance costs in relation to the Company's enterprise-wide reduction of workforce in March 2017 and restructuring costs in connection with the completion of the Merger Transaction.
EARNINGS ATTRIBUTABLE TO COMMON SHAREHOLDERS
Earnings attributable to common shareholders were $638 million for the three months ended March 31, 2017, or earnings of $0.54 per common share, compared with $1,213 million, or earnings of $1.38 per common share, for the three months ended March 31, 2016. As further discussed in Adjusted EBIT, first quarter earnings were positively impacted by contributions from assets acquired following the completion of the Merger Transaction on February 27, 2017.
In addition to the factors discussed in EBIT above and in Adjusted EBIT and Adjusted Earnings below, the quarter-over-quarter comparability of earnings attributable to common shareholders was impacted by a number of unusual, non-recurring and non-operating factors that are summarized under Non-GAAP Reconciliation - EBIT to Adjusted Earnings.
A lower earnings per common share for the three months ended March 31, 2017 compared with the corresponding 2016 period also reflected the issuance of approximately 691 million common shares in February 2017 as part of the consideration for the Merger Transaction, and other issuances of approximately 75 million common shares in 2016, inclusive of 56 million common shares issued in March 2016.
ADJUSTED EARNINGS BEFORE INTEREST AND INCOME TAXES
For the three months ended March 31, 2017, adjusted EBIT was $1,515 million, an increase of $141 million over the comparable period in 2016. The first quarter of 2017 adjusted EBIT reflected 33 days of results of operations from new assets following the completion of the Merger Transaction on February 27, 2017. Contributions from these new assets were the key driver for the quarter-over-quarter growth in consolidated adjusted EBIT.
Growth in consolidated adjusted EBIT was most pronounced in the Gas Pipelines and Processing segment, where a majority of the new assets acquired through the Merger Transaction are reported. Quarter-over-quarter growth for this segment also reflected contributions from the Tupper Main and Tupper West gas plants acquired in April 2016, as well as higher adjusted EBIT from Alliance Pipeline that was driven by strong demand for seasonal firm service in the first quarter of 2017.
Adjusted EBIT for Liquids Pipelines in the first quarter of 2017 was lower than the comparable period in 2016, attributable to several factors, including a lower quarter-over-quarter foreign exchange hedge rate used to record Canadian Mainline revenues. The IJT Benchmark Toll and its components are set in United States dollars and the majority of the Company's foreign exchange risk on Canadian Mainline revenues is hedged. The effective hedge rate for the translation of Canadian Mainline United States dollar transactional revenues for the first quarter of 2017 was $1.04 compared with $1.11 for the corresponding period in 2016. In addition, the Canadian dollar foreign exchange rate at which United States operations were translated strengthened from $1.37 in the first quarter of 2016 to $1.32 for the corresponding period in 2017.
Further contributing to lower quarter-over-quarter EBIT was the sale of certain assets and reduced surcharges on the Bakken System and lower contributions on rail facilities owned by EEP due to expiry of contracts. In addition, EBIT generated by the United States Mid-Continent and Gulf Coast Systems were lower in the first quarter of 2017 as, effective January 1, 2017, the Company no longer adjusts for revenue that is deferred from certain take or pay tolling arrangements with make-up rights in its determination of adjusted EBIT. EBIT for the rest of the year is expected to be positively impacted by increased throughput optimization on the mainline system and the effect of new projects coming into service in 2017.
Within the Gas Distribution segment, Enbridge Gas Distribution Inc. (EGD) generated lower adjusted EBIT in the first quarter of 2017 compared with the corresponding 2016 period, primarily due to lower distribution revenues attributable to warmer than normal weather in the first quarter of 2017. Effective January 1, 2017, EGD ceased to exclude the effect of warmer/colder weathers from its adjusted EBIT. The effect of the warmer weather in EGD's adjusted EBIT for the first quarter of 2017 was approximately $29 million. The quarter-over-quarter decrease in EGD's adjusted EBIT was more than offset by contributions from Union Gas since the completion of the Merger Transaction.
Within Eliminations and Other, higher operating and administrative expenses drove an increase in the quarter-over-quarter adjusted loss. Operating and administrative costs were higher in the first quarter of 2017 due to higher information technology and other centralized service costs post integration with Spectra Energy and proportionally lower recoveries from business units during the quarter.
Adjusted earnings were $675 million, or $0.57 per common share, for the three months ended March 31, 2017 compared with $663 million, or $0.76 per common share, for the three months ended March 31, 2016.
Partially offsetting the quarter-over-quarter adjusted EBIT growth discussed above was higher interest expense as a result of debt assumed in the Merger Transaction. Preference share dividends were also higher quarter-over-quarter reflecting additional preference shares issued in the fourth quarter of 2016 to partially fund the Company's growth capital program.
Income taxes were lower in the first quarter of 2017 despite the quarter-over-quarter increase in adjusted earnings due to a valuation allowance expense recorded in the first quarter of 2016.
Adjusted earnings attributable to noncontrolling interests and redeemable noncontrolling interests increased in the first quarter of 2017 compared with the corresponding 2016 period. The increase was driven by additional noncontrolling interests in respect of the assets acquired in the Merger Transaction and an increase in earnings attributable to noncontrolling interests as a result of the EEP restructuring.
Interest expense, income taxes and noncontrolling interests and redeemable noncontrolling interests were also impacted by adjustments for unusual, non-recurring and non-operating factors.
Adjusted earnings per common share for the three months ended March 31, 2017 compared with the corresponding 2016 period also reflected the issuance of approximately 691 million common shares in February 2017 as part of the consideration for the Merger Transaction, and other issuances of approximately 75 million common shares in 2016, inclusive of 56 million common shares issued in March 2016.
AVAILABLE CASH FLOW FROM OPERATIONS
ACFFO for the first quarter of 2017 was $1,215 million, or $1.03 per common share, compared with $1,114 million, or $1.27 per common share, for the first quarter of 2016. The year-over-year growth in ACFFO amount was driven by the same factors as discussed in Adjusted EBIT above, as well as other items discussed below. However, ACFFO per common share has decreased quarter-over-quarter as the Company's ACFFO per common share was impacted by the increase in the number of common shares outstanding which resulted from the completion of the Merger Transaction on February 27, 2017, and other issuances in 2016, as noted above in
Also contributing to the quarter-over-quarter increase in ACFFO were higher cash distributions that the Company received from its equity investments, resulting from their improved operating performance as well as distributions from newly acquired equity investments which were a part of the Merger Transaction.
The above positive effects on ACFFO quarter-over-quarter were partially offset by higher maintenance capital expenditures in the first quarter of 2017, which reflected the spending on assets acquired in the Merger Transaction and a higher spending in Liquids Pipelines on certain leasehold improvements. The increase was partially offset by a decrease in maintenance capital expenditures in the Gas Distribution segment due to the timing of higher spending in 2016 on EGD's Work and Asset Management System (WAMS) program; and a decrease, excluding the effect of the Merger Transaction, in the Gas Pipelines and Processing segment due to a shift in the timing of maintenance capital expenditure to the later quarters of 2017.
Also partially offsetting the increase in ACFFO was higher interest expense and higher preference share dividends in the first quarter of 2017, as discussed in Adjusted Earnings above.
The increase in ACFFO quarter-over-quarter was also partially offset by increased distributions to noncontrolling interests related to assets acquired in the Merger Transaction, and to redeemable noncontrolling interests due to increased public ownership in the Fund Group (comprising the Enbridge Income Fund, Enbridge Commercial Trust, Enbridge Income Partners LP (EIPLP) and the subsidiaries and investees of EIPLP).
Other non-cash adjustments include various non-cash items presented in the Company's Consolidated Statements of Cash Flows, as well as adjustments for unearned revenues received in each period.
Enbridge will hold a joint conference call on Thursday, May 11, 2017 at 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time) with Enbridge Income Fund Holdings Inc., Enbridge Energy Partners, L.P., and Spectra Energy Partners, L.P. to discuss the first quarter 2017 results. Analysts, members of the media and other interested parties can access the call toll-free at 1-866-215-5508 or within and outside North America at 1-514-841-2157 using the access code of 44798051#. The call will be audio webcast live at http://edge.media-server.com/m/p/9gxn6d2m. 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 for seven days after the call at toll-free 1-888-843-7419 or within and outside North America at 1-630-652-3042 (access code 44798051#).
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.
Enbridge is North America's premier energy infrastructure company with strategic business platforms that include an extensive network of crude oil, liquids and natural gas pipelines, regulated natural gas distribution utilities and renewable power generation. The Company safely delivers an average of 2.8 million barrels of crude oil each day through its Mainline and Express Pipeline, and accounts for nearly 68% of United States-bound Canadian crude oil production, and moves approximately 20% of all natural gas consumed in the United States serving key supply basins and demand markets. The Company's regulated utilities serve approximately 3.5 million retail customers in Ontario, Quebec, New Brunswick and New York State. Enbridge also has a growing involvement in electricity infrastructure with interests in more than 2,500 MW of net renewable generating capacity, and an expanding offshore wind portfolio in Europe. The Company has ranked on the Global 100 Most Sustainable Corporations index for the past eight years; its common shares trade on the Toronto and New York stock exchanges under the symbol ENB. Life takes energy and Enbridge exists to fuel people's quality of life. For more information, visit www.enbridge.com.
SOURCE: Enbridge Inc.
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