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ENBRIDGE INC Annual Report, Year Ended Dec 31, 2007

Filing Date
Filed February 22, 2008
Period End
December 31, 2007
In the record · 2016–202610-K1810-Q268-K238

ENB filed 18 annual reports (10-K), 26 quarterly reports (10-Q) and 238 current reports (8-K) between 2016 and 2026.

  1. FY2018 annual report10-K · Feb ’19Feb ’19
  2. Leadership change8-K · Jan ’22Jan ’22
  3. Leadership change8-K · Oct ’25Oct ’25

01—Abstract

Summary

Summary of the 40-F filed February 22, 2008. Cited figures are marked; the original filing is the authoritative source.

Enbridge Inc. (NYSE/TSX: ENB) reported 2007 earnings applicable to common shareholders of C$700.2 milliona, or C$1.97 per share (diluted C$1.95), up from C$615.4 million (C$1.81) in 2006.

Management attributes the increase mainly to colder-than-normal weather and strong results at Enbridge Gas Distribution (EGD), lower corporate interest expense, higher earnings from Enbridge Energy Partners (EEP), and a favorable Canadian tax change. Revenue rose about 12% to C$11.9 billionb, though much of that reflects pass-through gas commodity sales and Tidal Energy trading volumes rather than pipeline growth. Adjusted operating earnings were C$636.5 million (C$1.79 per share), and the dividend of C$1.23 per share equaled roughly 69% of adjusted operating earnings, within the 60-70% payout target.

The central investor issue is the growth program. Capital spending reached C$2.3 billionc in 2007 (cash investing outflow C$2.26 billion), and management expects roughly C$3.7 billion of total spending in 2008, including about C$2.8 billion on organic growth projects. Commercially secured projects total about C$12.4 billion and are targeted for completion through 2011, with management citing roughly 10% average annual organic EPS growth over four years.

Funding relies on operating cash flow, debt and equity; the company issued C$566 milliond of new equity in February 2007, and debt-to-capitalization was 62.7% excluding non-recourse debt. Ratings were stable at Moody's and S&P but DBRS placed its outlook on Negative in November 2007.

Key risks include execution and cost overruns on large pipeline projects, Alberta royalty changes effective 2009 that could slow oil sands development, the Tax Fairness Plan's 29.5% distribution tax on Enbridge Income Fund from 2011, and weather sensitivity at EGD. The company also announced in February 2008 that it is evaluating a sale of its 25% stake in CLH, the Spanish refined products pipeline, with proceeds earmarked for growth projects.

02—Key points

Key Highlights

  1. 2007 earnings applicable to common shareholders of C$700.2M (C$1.97/share), up 14% from C$615.4M (C$1.81/share) in 2006.
  2. Adjusted operating earnings of C$636.5M (C$1.79/share), up from C$592.9M in 2006; C$30.2M of corporate and other favorable tax changes were excluded from adjusted results.
  3. Gas Distribution and Services earnings rose to C$184.1M in 2007, boosted by colder-than-normal weather at EGD (EGD earnings C$128.8M vs. C$61.8M in 2006).
  4. Growth capex: about C$2.3B spent in 2007; C$3.7B total spending planned for 2008 and C$12.4B of commercially secured projects expected in service through 2011.
  5. Quarterly dividend of C$0.3075 (annualized C$1.23 in 2007, targeting 60-70% of adjusted operating earnings); estimated 2008 dividend of C$0.33/quarter.
  6. Balance sheet: total assets C$19.9B, debt-to-capitalization 62.7% (excluding non-recourse debt), with C$5.6B committed credit facilities at year-end (C$6.6B after a January 2008 addition).
  7. February 13, 2008: announced evaluation of strategic alternatives to monetize its 25% stake in CLH (Spain), with potential sale proceeds directed to growth projects.

03—Questions

Frequently Asked Questions

  1. Why did earnings increase in 2007?

    Earnings rose C$84.8M, driven mainly by colder-than-normal weather and customer growth at EGD, lower corporate interest expense from reduced average debt, higher earnings at Enbridge Energy Partners, and a significant benefit from favorable Canadian tax legislation. These were partly offset by lower Aux Sable results due to derivative losses and weaker Energy Services earnings.

  2. Is the dividend sustainable given the large capital program?

    The company targets paying 60-70% of adjusted operating earnings as dividends and paid about 69% in 2007. Growth capex is funded through operating cash flow plus new debt and equity, so dividend growth depends on continued earnings growth and access to capital markets. The company's EaR metric indicated limited near-term earnings volatility, at 2.8% of forecast earnings.

  3. What are the main growth projects and their risks?

    Major projects include the Southern Access Mainline Expansion (400,000 bpd, completing 2009), Alberta Clipper (450,000 bpd, mid-2010, awaiting NEB approval), Southern Lights diluent line (late 2010), Waupisoo Pipeline (mid-2008), and Fort Hills pipeline (mid-2011). Risks include regulatory approvals, cost escalation, construction delays, and Alberta's royalty framework effective January 2009, which could slow oil sands development.

  4. Why are credit rating outlooks and debt levels important?

    DBRS placed Enbridge's long-term debt and preferred share ratings on Negative outlook in November 2007, while Moody's and S&P kept stable outlooks. Debt-to-capitalization was 62.7% excluding non-recourse debt (66.5% including it). Rising capex increases borrowing needs, so a ratings downgrade could raise financing costs for the growth program.

  5. What is the CLH monetization and how does it affect investors?

    Enbridge is evaluating strategic alternatives for its 25% interest in CLH, Spain's refined products pipeline, whose book value was C$626.4M at year-end 2007 and which earned C$65.6M in 2007. Any sale is not assured, and timing is uncertain. Proceeds would fund growth projects, and divesting a steady earnings contributor would reduce International segment income, which was C$95.1M in 2007.

04—Continue

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