After a first quarter filled with integration and restructuring charges, Enbridge's (ENB 0.68%) second-quarter earnings were surprisingly devoid of these expenses. This should have given us a clearer picture of the earnings power that Enbridge has now that it has completed the merger with Spectra Energy. That wasn't necessarily the case, though, as the company started a major maintenance program on possibly its most critical asset.
Let's sift through Enbridge's most recent earnings results to see how this oil and gas behemoth is progressing post-merger.
Image source: Getty Images.
Enbridge earnings: The raw numbers
| Metric | Q2 2017 | Q1 2017 | Q2 2016 |
|---|---|---|---|
| Revenue | CA$11.1 billion | CA$11.1 billion | CA$7.9 billion |
| ACFFO* | CA$1.32 billion | CA1.21 billion | CA$868 million |
| Earnings attributable to common shareholders | CA$919 million | CA$638 million | CA$301 million |
| Earnings per share | CA$0.56 | CA$0.54 | CA$0.33 |
DATA SOURCE: ENBRIDGE EARNINGS RELEASE. *ACFFO= AVAILABLE CASH FLOW FROM OPERATIONS.
Enbridge is such a massive company now that it's incredibly difficult to point to one or two things that went well or underperformed. Then again, a primary reason for the merger was greater diversification and economies of scale. So, in that sense, the deal has been a success. Enbridge's year-over-year numbers don't include the contribution from Spectra Energy, so take those results with a grain of salt.
The big driver of this quarter compared to the first quarter was a much larger contribution from its natural gas pipelines. Adding Spectra to the portfolio and completing some major gas transmission lines were the largest contributing factors. Operationally, its liquids pipelines didn't perform quite as well as they have in prior quarters because of maintenance work, but that business segment did realize a considerable gain on the value of some derivative contracts.
Data source: Enbridge earnings release. Chart by author.
What happened with Enbridge this past quarter?
- Enbridge has started work on Line 3 replacement. This pipe is the company's primary crude oil pipeline from Edmonton, Alberta, to Superior, Wisconsin, and is one of Enbridge's largest capital projects. The total estimate for the project is 5.3 billion Canadian dollars for the Canadian side of the pipe and $2.9 billion for the American leg. As part of the upgrade, Enbridge estimates it will be able to add 500,000 barrels per day of incremental capacity to the line.
- In the first half of the year, Enbridge and all of its subsidiaries -- Enbridge Energy Partners (EEP), Spectra Energy Partners (SEP), and Enbridge Income Trust -- brought CA$2.4 billion in projects on stream in Canada and another $3.2 billion worth online in the U.S.. The most notable projects were the Sabal Trail gas transmission line and the Bakken Pipeline System that Enbridge co-owns with Energy Transfer Partners.
- Management expects to complete another CA$4.1 billion and $1.4 billion in projects by the end of 2017.
- Adding to the backlog of new construction, Enbridge announced it would expand its T-South pipeline to deliver gas to Vancouver, British Columbia. It also signed a deal to expand the Hohe See Offshore Wind project by another 112 megawatts. Management estimates it will cost about CA$3.6 billion to complete these new projects.
- Enbridge closed the deal for Enbridge Energy Partners to buy out the remaining pubic stake in Midcoast Energy Partners.
What management had to say
CEO Al Monaco commented on the progress the company has made integrating Spectra Energy and its subsidiaries into the larger business while bringing new projects into service so far this year.
I'm pleased with the progress that we've made in this first full quarter since we merged with Spectra Energy. Management is keenly focused on the key strategic priorities that we laid out at our mid-year investor update which include: growing organically, minimizing risk and streamlining the organization. Since the end of the first quarter, we've brought [CA]$5 billion of projects into service, added high-quality, low-risk organic projects to our inventory of secured growth projects, executed on our funding plans and strengthened the balance sheet. Our integration and synergy realization plans remain right on track and we continue to optimize the performance of our existing assets while operating safely and reliably.
10-second takeaway
Enbridge is trying to accomplish something rather remarkable. Not only is it North America's largest oil and gas pipeline and logistics company by a long shot, but the company's plan to grow dividends by 10%-12% annually makes it one of the faster-growing infrastructure companies as well. To get there, management has CA$31 billion in capital projects under construction and another CA$48 billion in the queue.
So far, it looks as though the integration of Spectra Energy is progressing smoothly. While it has yet to realize the CA$540 million in synergies from the deal that management said it would, it doesn't look like there have been any major snags, either. If it maintains this course, then its ambitious goal should be attainable.
