One of Enbridge's (NYSE:ENB) key priorities this year has been to simplify and deleverage the business by paying down debt and adding cash flow from new projects. This past quarter, management said it put the company ahead of schedule by doing more asset sales than originally intended. That should set the company up well to start adding new projects to its capital spending plan, but that hasn't happened yet.
Let's look at what happened this past quarter at Enbridge, and what investors should expect in the coming quarters.
Enbridge's results: The raw numbers
|Metric||Q3 2018||Q2 2018||Q3 20127|
|Revenue||CA$11.34 billion||CA$10.7 billion||CA$9.22 billion|
|Earnings attributable to common shareholders||(CA$90 million)||CA$1.07 billion||CA$765 million|
|Distributable cash flow*||CA$1.58 billion||CA$1.85 billion||CA$1.33 billion|
With Enbridge selling several billion in assets and other portfolio changes, there were a lot of adjustments and one-time charges that impacted Enbridge's reported results this past quarter. Enbridge noted that it took a CA$1.08 billion ($824 million) writedown related to the sale of its Canadian natural-gas gathering and processing business to Brookfield Infrastructure Partners, and the sale of its U.S. natural-gas gathering and processing business to a private equity firm. The two deals combined were valued at CA$5.5 billion, and the charges hit the company's gas transmission and midstream segment.
- The most significant announcement this past quarter was that it received approval to acquire all outstanding shares of its subsidiary partnerships. It expects to close deals with all four subsidiaries by mid-December.
- Enbridge also closed several previously announced asset sales that netted the company CA$5.7 billion in proceeds. Management also expects to close an additional CA$1.8 billion in sales by mid-2019. Because of these sales and increased cash generation from its existing assets, Enbridge has elected to end its DRIP because it says it no longer needs the cash proceeds.
- Two of its largest capital projects -- the NEXUS and Valley Crossing natural gas pipelines -- went into service in the quarter and should help to boost its gas transmission segment after selling its gathering and processing assets.
- The company announced that there was a rupture of its T-South gas pipeline in British Columbia in October that ignited. No one was injured, and management has repaired the ruptured segment and has brought it back into service at lower operating pressure.
What management had to say
In Enbridge's press release, CEO Al Monaco discussed how the company is ahead of schedule with its plan to pay down debt by using asset sales and growing cash flow from new projects that are going live:
[W]e've made great progress in achieving the key priorities that we laid out in our three-year business plan last November. In addition to delivering solid distributable cash flow and earnings-per-share growth, those priorities included executing significant noncore asset sales, accelerating balance sheet de-leveraging and simplifying the overall corporate structure.
This past quarter we received close to [CA]$6 billion of proceeds from the [CA]$7.5 billion of noncore-asset sales agreements announced this year. These sales will further focus our business on low-risk pipeline and utility assets, and a significant portion of the proceeds will immediately be put toward debt repayment. At quarter-end, our consolidated debt to EBITDA metric was down to 4.7 [times], well ahead of our year-end target of 5.0x.
You can read a full transcript of Enbridge's conference call here.
Wait and see
After so many asset sales, the pending deals to acquire all its subsidiaries, and the regulatory headaches in Minnesota to expand its Lakehead crude-oil pipeline system, it's perhaps understandable why management hasn't sanctioned a lot of new projects to grow the bottom line. It said back in July at its strategic update that it has CA$20 billion to CA$35 billion in projects under consideration, and getting its debt-to-adjusted-EBITDA levels down to 4.7 times this past quarter certainly makes it easier to fund new projects.
It has yet to announce any new projects, though, and that will likely be the case until all these subsidiaries deals close. The lack of new project announcements is a little surprising when you consider that other oil and gas transportation and infrastructure businesses seem to be announcing a new project on a daily basis. Management has announced it will have its next annual investor conference on Dec. 11. I think it's safe to say that we will see plans for several new projects at that meeting, and will have a much better understanding of what this combined company will look like.