With all of the recent corporate changes at Enbridge (ENB 1.09%) behind it, the company can now focus on one thing: execution. This past quarter, it made that message abundantly clear as all of its attention turns toward either completing permitting and construction of current projects or renegotiating rates on its existing lines.
Let's take a look at Enbridge's most recent earnings results and what investors can expect from the company for the rest of the year and potentially beyond.
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Enbridge earnings: The raw numbers
| Metric | Q1 2019 | Q4 2018 | Q1 2018 |
|---|---|---|---|
| Revenue | CA$12.86 billion | CA$11.56 billion | CA$12.76 billion |
| Earnings attributable to common shareholders (loss) | CA$1.89 billion | CA$1.08 billion | $445 million |
| EPS (diluted) | CA$0.94 | CA$0.60 | CA$0.26 |
| *Distributable cash flow | CA$2.76 billion | CA$1.86 billion | CA$2.31 billion |
DATA SOURCE: ENBRIDGE EARNINGS RELEASE. EPS = EARNINGS PER SHARE. *PRIOR RELEASES LABELED THIS AS AVAILABLE CASH FLOW FROM OPERATIONS. CA$1.00 = US$0.74.
Enbridge's results have been particularly hard to follow in recent years because of its corporate structure. The company had an equity interest in several subsidiary partnerships. Ever since management's decision to acquire the outstanding interest in those subsidiaries, though, it is much easier to see what is going on at the business thanks to fewer adjustments and reshufflings that made any quarter-to-quarter comparison moot.
While management attributed much of the quarterly record results to improved performance, new assets ramping to full capacity, and new rates for some of its regulated businesses. It also noted that it benefited from favorable markets that may not be as good in the upcoming quarters.
Data source: Enbridge. Chart by author.
What happened with Enbridge this quarter?
- The company announced that its Line 3 expansion plan will be delayed because of the regulatory and permitting process in Minnesota. Management was originally targeting an in-service date in the second half of 2019, but now it's looking more like it will be the second half of 2020.
- It did note, though, that the Canadian portion of the line will be complete by the end of the month and that it recorded a record 2.7 million barrels per day running through the Canadian portion of the system.
- Management is also looking at some optimization projects that would add another 50,000-100,000 barrels per day to the Canadian part of Line 3 in the second half of 2019.
- The company is also trying to broker a deal with Michigan for its Line 5 pipe, where it would remove the older pipeline that lies on the bottom of the Straits of Mackinac and replace it with a utility tunnel well below the lake bottom.
- The combination of asset sales and growing EBITDA has lowered the company's debt-to-EBITDA ratio to 4.7 times and puts it within management's target range of 4.5 times to "comfortably below 5.0x." As a result of improving leverage ratios, Moody's recently upgraded its credit rating.
What management had to say
Even though Enbridge didn't announce any new major projects, it emphasized in its quarterly earnings and annual shareholder meeting presentations last week that it's growing its natural gas transmission footprint to serve increasing demand from petrochemicals and liquefied natural gas (LNG) export facilities in North America. Here's CEO Al Monaco discussing Enbridge's existing infrastructure to serve these systems and how it expects to be part of future plans in these regions.
For a number of reasons, the epicenter of [LNG] growth now is in the Gulf, and we're in the middle of that action for sure. Valley Crossing, Texas Eastern and our B.I.G. pipeline hug the Coast from South Texas all the way to Louisiana. They draw gas from multiple basins including the Permian, East Texas, and all the way up actually to the Marcellus through our bidirectional Texas Eastern system. We supply gas to Sabine LNG today, and we're interconnected to Cameron and Freeport, which are scheduled to start up later this year. And our network is perfectly situated to be the natural gas header of system to serve multiple new projects currently under development.
On the West Coast Canada, our Westcoast Connector project has an environmental permit right away into Prince Rupert, which would tie back into our existing BC pipe system to source growing Montney supply. And even on the Atlantic Coast, were positioned there to serve projects in the Canadian Maritimes or further south into Philly. We're working on a number of these facilities today in all of these regions as they look to secure pipe capacity or new infrastructure to serve their plans. We're excited about the potential here, and well keep you up-to-date on those opportunities.
You can read a full transcript of Enbridge's conference call here.
Looking forward
Enbridge's Line 3 project is a massive undertaking from a construction standpoint alone. Having to get regulatory approval and permits in three states and two countries makes it that much harder. So, it's no wonder that management is focusing so much of its time on completing this project. The one-year delay may discourage some investors, but the good news for the company is that the permitting process seems to be going more smoothly after some speed bumps in Minnesota.
Line 3 and recontracting many of its existing assets are going to be the center of attention over the next couple of years. Aside from Line 3, its project portfolio is looking a little thin. So, within the next year or two investors should expect some major project announcements. Based on Monaco's statements, don't be surprised if many of those new projects center around natural gas and LNG.
