10-QPeriod: Q3 FY2020

ENBRIDGE INC Quarterly Report for Q3 Ended Sep 30, 2020

Filed November 6, 2020For Securities:ENBENBMFEBBGFEBRGFEBRZFENBGFENBRFENFFFEBGEFENBFFENBHFENBNFENBOFENBSFEBBNFENNPF

Summary

Enbridge Inc.'s (ENB) Q3 2020 report, filed on November 5, 2020, shows a mixed financial performance with some positive operational highlights tempered by significant non-cash charges. For the third quarter, earnings attributable to common shareholders increased slightly to $990 million ($0.49 per share) from $949 million ($0.47 per share) in the prior year. However, the nine-month period paints a different picture, with earnings attributable to common shareholders significantly down to $1.208 billion ($0.60 per share) from $4.576 billion ($2.27 per share) in 2019. A substantial driver of this year-over-year decline in earnings for the nine-month period was the recognition of significant impairment losses on equity method investments, notably in DCP Midstream ($1.7 billion), SESH ($394 million), and Steckman ($221 million). These non-cash charges, while impacting reported earnings, do not directly affect operational cash flow. The company also experienced a non-cash, unrealized derivative fair value loss of $201 million for the nine-month period, contrasting with a gain in the prior year. Operationally, Enbridge highlighted strength in its Liquids Pipelines segment, benefiting from a higher International Joint Tariff Benchmark Toll and contributions from the Canadian Line 3 Replacement Program. The Gas Transmission and Midstream segment saw improved earnings due to rate settlements on Texas Eastern and Algonquin. The company is actively managing its liquidity, with over $14 billion in net available liquidity, and has taken steps to reduce operating costs by approximately $300 million in 2020. Despite the impact of COVID-19 on volumes and commodity prices, Enbridge maintains a resilient business model supported by highly contracted assets and strong customer creditworthiness.

Key Highlights

  • 1Third-quarter earnings attributable to common shareholders increased to $990 million ($0.49/share) from $949 million ($0.47/share) year-over-year.
  • 2Nine-month earnings attributable to common shareholders significantly decreased to $1.208 billion ($0.60/share) from $4.576 billion ($2.27/share) due to substantial non-cash impairment losses on equity investments ($2.351 billion total).
  • 3The Liquids Pipelines segment showed resilience with higher International Joint Tariff Benchmark Tolls and contributions from the Line 3 Replacement Program.
  • 4Gas Transmission and Midstream segment benefited from positive rate settlements on Texas Eastern and Algonquin.
  • 5Enbridge maintained strong liquidity with over $14 billion in net available liquidity and implemented cost reduction measures of approximately $300 million in 2020.
  • 6COVID-19 impacted volumes in the Liquids Pipelines segment, leading to an expected underutilization of 100-300 kbpd in Q4 2020, but a gradual recovery is anticipated.
  • 7The company is managing its debt effectively, completing its 2020 debt funding plan and extending credit facilities to ensure financial flexibility through 2021.

Frequently Asked Questions

The substantial decrease in earnings for the first nine months of 2020, compared to the same period in 2019, was primarily due to significant non-cash impairment charges on equity method investments totaling approximately $2.351 billion, particularly an impairment of $1.7 billion on the investment in DCP Midstream. Additionally, there was a non-cash, unrealized derivative fair value loss of $201 million in 2020, versus a gain in 2019.

Enbridge has implemented proactive measures to ensure operational reliability and employee safety. While COVID-19 has impacted volumes in the Liquids Pipelines segment, leading to expected underutilization, the company anticipates a gradual recovery. Enbridge has also initiated cost reduction measures of approximately $300 million in 2020 and has maintained strong liquidity, exceeding $14 billion in net available liquidity, to navigate the uncertain environment.

The Liquids Pipelines segment experienced lower volumes due to the impact of COVID-19 on crude oil supply and demand, leading to an expected underutilization of 100-300 kbpd in the fourth quarter of 2020. However, Enbridge anticipates a continued but gradual recovery in demand as economic activity resumes. The segment benefited from a higher International Joint Tariff Benchmark Toll and contributions from the Canadian Line 3 Replacement Program.

Enbridge has completed its 2020 debt funding plan and strengthened its financial position by issuing new debt. The company has also significantly enhanced its available liquidity by increasing its revolving credit facilities and extending existing credit facilities, ensuring it has sufficient capacity to fund its capital projects and meet its obligations through 2021 without needing to access capital markets if conditions are unfavorable.