10-QPeriod: Q2 FY2020

ENBRIDGE INC Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 29, 2020For Securities:ENBENBMFEBBGFEBRGFEBRZFENBGFENBRFENFFFEBGEFENBFFENBHFENBNFENBOFENBSFEBBNFENNPF

Summary

Enbridge Inc. (ENB) reported its second-quarter 2020 results, showing a decrease in earnings attributable to common shareholders compared to the prior year, primarily impacted by non-operating factors such as unrealized derivative fair value gains/losses and inventory adjustments. Operationally, the company faced challenges due to the COVID-19 pandemic, leading to reduced volumes in its Liquids Pipelines segment and a significant impairment charge on its investment in DCP Midstream. Despite these headwinds, Enbridge maintained strong liquidity with over $14 billion in available credit facilities, bolstered by recent debt issuances and asset sales. The company continues to manage its business through long-term contracts and a comprehensive hedging program, aiming to ensure stable cash flows and dividend growth. The company's business segments showed varied performance. Liquids Pipelines experienced lower volumes due to decreased crude oil demand, while Gas Transmission and Midstream benefited from rate settlements but was impacted by the DCP Midstream impairment. Gas Distribution and Storage saw improved earnings driven by rate increases, and Renewable Power Generation reported stronger results due to better wind resources and project contributions. The Energy Services segment faced challenges from volatile commodity prices and reduced margin opportunities. Enbridge remains focused on operational reliability and cost management while navigating the uncertain economic environment.

Key Highlights

  • 1Earnings attributable to common shareholders decreased to $1.65 billion ($0.82 per share) for the three months ended June 30, 2020, down from $1.74 billion ($0.86 per share) in the same period of 2019. For the six months, earnings were $218 million ($0.11 per share) compared to $3.63 billion ($1.80 per share) in the prior year.
  • 2A significant non-cash impairment charge of $1.74 billion related to its equity investment in DCP Midstream was recorded in the six months ended June 30, 2020.
  • 3Total operating revenues decreased to $7.96 billion for the three months ended June 30, 2020, from $13.26 billion in the prior year. For the six months, revenues were $19.97 billion compared to $26.12 billion.
  • 4Liquids Pipelines segment EBITDA was impacted by lower volumes due to COVID-19 related demand reduction, though partially offset by higher tolls and contributions from the Line 3 Replacement Program.
  • 5The company maintained strong liquidity, with approximately $14.1 billion in available committed credit facilities as of June 30, 2020, and completed several debt issuances during the first half of the year.
  • 6Enbridge completed the sale of its Ozark Gas Transmission and Montana-Alberta Tie Line assets, generating approximately $252 million in cash proceeds.
  • 7The company implemented cost reduction measures totaling approximately $300 million for 2020, including employee compensation adjustments and a voluntary workforce reduction program.

Frequently Asked Questions

The primary driver for the significant decrease in earnings for the six months ended June 30, 2020, was a substantial non-cash impairment charge of $1.74 billion related to Enbridge's equity investment in DCP Midstream, LLC. This impairment was a result of the decline in the market price of DCP Midstream, LP's publicly-traded units due to broader market conditions exacerbated by the COVID-19 pandemic.

The COVID-19 pandemic led to reduced demand for crude oil and other commodities, which in turn decreased volumes transported on Enbridge's Mainline System by approximately 400 kbpd in the second quarter of 2020 compared to the first quarter. Shippers reduced nominated batches due to lower demand, storage limitations, and declining commodity prices. While the company expects a gradual recovery, it anticipates continued underutilization in the third and fourth quarters of 2020.

Enbridge is actively managing its financial position by implementing cost reduction measures of approximately $300 million for 2020, completing asset sales (Ozark and MATL) for cash proceeds, and maintaining strong liquidity. As of June 30, 2020, the company had over $14 billion in net available liquidity, including approximately $14.1 billion from committed credit facilities. It also strengthened its financial position through several debt issuances during the first half of 2020 and extended significant credit facilities to ensure funding for capital projects through 2021.

Enbridge is involved in several legal and regulatory matters. Notably, the Dakota Access Pipeline faces ongoing legal challenges that could lead to its shutdown, and the Line 5 Dual Pipelines project in Michigan is subject to litigation regarding its operation and the validity of its easement. While management believes these proceedings will not have a material adverse impact, they represent areas of ongoing attention and potential risk.