10-QPeriod: Q1 FY2024

ENBRIDGE INC Quarterly Report for Q1 Ended Mar 31, 2024

Filed May 10, 2024For Securities:ENBENBMFEBBGFEBRGFEBRZFENBGFENBRFENFFFEBGEFENBFFENBHFENBNFENBOFENBSFEBBNFENNPF

Summary

Enbridge Inc. reported its first-quarter 2024 financial results, demonstrating resilience and strategic progress. Total operating revenues were $11.04 billion, a decrease from $12.08 billion in the prior year, primarily due to lower commodity and gas distribution sales. However, earnings attributable to common shareholders were $1.42 billion ($0.67 per share), down from $1.73 billion ($0.86 per share) in Q1 2023, impacted by significant non-cash derivative fair value losses. The company successfully closed the acquisition of The East Ohio Gas Company (EOG) for $5.8 billion, significantly expanding its U.S. gas utility footprint. Additionally, Enbridge acquired six renewable natural gas (RNG) facilities for $1.3 billion, advancing its low-carbon strategy. These strategic acquisitions, along with ongoing capital projects, position Enbridge for future growth. The company also announced a joint venture to develop natural gas pipeline and storage assets in the Permian Basin. Operationally, the Liquids Pipelines segment saw improved EBITDA, driven by higher volumes. Gas Transmission also showed strength, benefiting from favorable contracting and recent acquisitions. The Gas Distribution and Storage segment was positively impacted by acquisitions and rate increases, although warmer weather presented a headwind. The Renewable Power Generation segment showed substantial growth, aided by new investments and stronger wind resources. Enbridge's financial position remains robust, with ample liquidity and compliance with debt covenants, though Moody's recently downgraded its senior unsecured debt rating to Baa2.

Key Highlights

  • 1Enbridge completed the significant acquisition of The East Ohio Gas Company (EOG) for $5.8 billion, expanding its U.S. gas utility operations.
  • 2The company also acquired six renewable natural gas (RNG) production facilities for $1.3 billion, aligning with its low-carbon energy strategy.
  • 3Total operating revenues for Q1 2024 were $11.04 billion, down from $12.08 billion in Q1 2023, primarily due to lower commodity and gas distribution sales.
  • 4Earnings attributable to common shareholders decreased to $1.42 billion ($0.67 EPS) from $1.73 billion ($0.86 EPS) in Q1 2023, impacted by non-cash derivative fair value losses.
  • 5The Liquids Pipelines segment reported improved EBITDA due to higher volumes, while the Gas Transmission segment benefited from favorable contracting and acquisitions.
  • 6Enbridge entered into a joint venture to develop natural gas pipeline and storage assets in the Permian Basin, signaling continued strategic growth initiatives.
  • 7Despite a recent credit rating downgrade by Moody's to Baa2, Enbridge maintained strong liquidity and compliance with debt covenants.

Frequently Asked Questions

The EOG acquisition, completed on March 6, 2024, for $5.8 billion, immediately added to Enbridge's consolidated results. For the period from March 6 to March 31, 2024, EOG generated approximately $105 million in operating revenues and $25 million in earnings attributable to common shareholders. Pro forma financial information suggests that if the acquisition had been completed on January 1, 2023, it would have significantly increased both operating revenues and earnings attributable to common shareholders for the first quarter of 2024 and 2023.

The company reported a non-cash, net unrealized derivative fair value loss of $677 million ($518 million after-tax) in Q1 2024, compared to a net unrealized gain of $542 million ($406 million after-tax) in Q1 2023. These fluctuations are a result of Enbridge's comprehensive economic hedging program designed to mitigate foreign exchange, interest rate, and commodity price risks. While these non-cash items create short-term earnings volatility, the company believes the hedging program supports long-term reliable cash flows and dividend growth.

The litigation concerning Line 5 on the Bad River Reservation is ongoing. While Enbridge filed an appeal against a court's decision that found the company in trespass on certain parcels and ordered ongoing quarterly payments for trespass, the parties are awaiting a decision from the 7th Circuit Court of Appeals, expected in 2024. Enbridge has been ordered to cease operations on specific parcels within the Band's tribal territory by June 16, 2026, unless a valid right-of-way is secured.

Enbridge's growth is being driven by several key initiatives. These include significant acquisitions like EOG and the RNG facilities, which expand its utility and renewable energy businesses. Strategic development is also evident in the joint venture for Permian Basin natural gas pipelines, the development of renewable power projects like offshore wind and solar farms, and the expansion of its gas transmission network. The company also focuses on optimizing its existing assets and securing favorable long-term contracts.