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ENBRIDGE INC Annual Report, Year Ended Dec 31, 2014

Filing Date
Filed February 19, 2015
Period End
December 31, 2014
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 19, 2015. Cited figures are marked; the original filing is the authoritative source.

Enbridge Inc. (NYSE/TSX: ENB) filed its Form 40-F for fiscal 2014 on February 19, 2015, reporting record growth-capital execution and a strengthening earnings base.

Earnings attributable to common shareholders rose to C$1,154 milliona ($1.39 per share) from C$446 million in 2013, while adjusted earnings, the non-GAAP measure management uses for its dividend policy, grew 10% to C$1,574 million ($1.90 per share). Approximately C$10 billion of growth projects were placed into service in 2014, including Flanagan South and Seaway Pipeline Twin, and the commercially secured backlog expanded to C$34 billion, with more than C$9 billion scheduled for 2015. Reported earnings are heavily distorted by unrealized derivative mark-to-market swings (about C$320 million net in 2014), so investors should anchor on adjusted earnings and cash flow.

Cash from operations was C$2,547 millionb, below 2013 largely because of working-capital timing, while capital expenditures reached C$10.5 billion and debt capitalization rose to 63.1%. The most consequential items for investors are capital structure and funding. Long-term debt increased to C$33.4 billion, and management is relying on sponsored vehicles to fund growth.

The planned Canadian Restructuring Plan would transfer roughly C$17 billionc of Canadian Liquids Pipelines assets to Enbridge Income Fund, targeted for mid-2015. Dividend policy was reset with a 33% increase to C$0.465 per quarter and a new payout range of 75%-85% of adjusted earnings. Credit ratings were placed on negative watch (S&P Watch-Negative, Moody's Negative-Developing, DBRS Under Review-Developing) following the announcement, and none had been changed as of filing.

Key risks include a sharp fall in crude prices in late 2014 (WTI-referenced benchmarks fell from over US$100d to about US$55 per barrel), execution risk on a large project slate, regulatory and litigation exposure (Northern Gateway judicial review, Sierra Club challenge to Flanagan South, and Line 6B crude release costs estimated at US$1.2 billion), and rising interest and preference-share costs. Management argues that tolls-based, take-or-pay contract structures limit direct commodity exposure, so earnings and cash flow are not expected to be materially affected by low prices.

02—Key points

Key Highlights

  1. Adjusted earnings rose 10% to C$1,574 million ($1.90 per share) in 2014, up from C$1,434 million ($1.78) in 2013, while GAAP earnings attributable to common shareholders were C$1,154 million ($1.39 per share).
  2. About C$10 billion of growth projects entered service in 2014, including Flanagan South and Seaway Pipeline Twin, and the commercially secured growth portfolio rose to C$34 billion, with over C$9 billion expected in 2015 and all projects targeted by 2018.
  3. Quarterly common dividend increased 33% to C$0.465 per share effective March 1, 2015; the payout policy range was raised to 75%-85% of adjusted earnings from 60%-70%.
  4. Canadian Restructuring Plan would transfer about C$17 billion of Canadian Liquids Pipelines and renewable assets to Enbridge Income Fund (with roughly C$15 billion of associated growth capital), targeted for mid-2015 and subject to approvals.
  5. Total long-term debt reached C$33.4 billion (total debt C$35.5 billion) and the debt capitalization ratio rose to 63.1% from 58.2%; rating agencies placed Enbridge's ratings on watch/review with negative outlooks.
  6. Cash from operating activities was C$2,547 million versus C$3,341 million in 2013, mainly due to adverse working-capital swings; capital expenditures were C$10.5 billion.
  7. Crude oil benchmarks fell from over US$100 per barrel in June 2014 to about US$55 by year-end; management expects limited earnings impact because most revenue is toll-based under long-term contracts.

03—Questions

Frequently Asked Questions

  1. How did Enbridge perform in 2014 on an adjusted basis?

    Adjusted earnings were C$1,574 million, or $1.90 per common share, up from $1.78 in 2013 and $1.61 in 2012. Growth came mainly from Liquids Pipelines (Canadian Mainline throughput, new Regional Oil Sands assets) and Sponsored Investments (EEP's Line 6B expansion), partly offset by weaker Gas Pipelines, Processing and Energy Services results.

  2. Why is GAAP earnings so much lower than adjusted earnings?

    GAAP earnings of C$1,154 million include unrealized derivative fair value losses of about C$320 million, a C$157 million tax charge on intercompany asset transfers to the Income Fund, and Line 6B and other one-time items. Management uses adjusted earnings to set dividend targets and believes it better reflects operating performance, though it is a non-GAAP measure.

  3. What is the Canadian Restructuring Plan and why does it matter?

    Enbridge plans to transfer its Canadian Mainline and Regional Oil Sands businesses, plus some renewable assets (about C$17 billion carrying value), to Enbridge Income Fund over time. The goal is to fund growth more cheaply and reduce Enbridge's own funding need, with Enbridge's economic interest in the Fund rising to roughly 90% initially. Completion depends on board, unitholder and regulatory approvals and is not assured.

  4. What are the biggest legal and regulatory risks?

    The Northern Gateway pipeline faces nine consolidated judicial review applications, with a hearing expected in fall 2015 and in-service no earlier than 2019 with substantially higher costs. The Sierra Club appeal of the Flanagan South approval is pending, and Line 6B crude release costs are estimated at US$1.2 billion, including possible Clean Water Act penalties of at least US$40 million.

  5. Is the dividend sustainable after the increase?

    The quarterly common dividend rose to C$0.465 ($1.86 annualized), a payout of about 74% of 2014 adjusted earnings. Management expects the payout to move toward the higher end of the new 75%-85% range by 2018 as growth capital is funded, leaving limited cushion if project cash flows or the restructuring slip. Dividends are discretionary and subject to board approval.

04—Continue

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