What does the Mainline Tolling Settlement mean for Enbridge's liquids business?

The CER-approved MTS sets tolls for Western Canadian crude and liquids shipments through December 31, 2028. It provides regulatory certainty on tariffs, includes US-indexed cost escalators, and uses a financial performance collar that rewards efficient throughput and cost management while limiting downside in extreme disruptions. Retroactive effect to July 2021 also means the settlement impacts previously recognized periods.

Why did Enbridge raise its EBITDA growth outlook?

The increase to 7%-9% average annual adjusted EBITDA growth through 2026 is primarily attributed to the announced U.S. gas utility acquisitions, expected to close in 2024, combined with base business growth from low-cost optimizations and the secured growth backlog. These acquisitions are not included in 2024 guidance.

Why is EBITDA growth expected to outpace EPS and DCF per share growth?

Management attributes the gap to the common equity issued on September 5, 2023 to pre-fund the utility acquisitions, which increases the share count, and to current cash tax assumptions. As a result, EBITDA growth is expected to be higher than growth in per-share metrics.

How will Enbridge fund its growth without stressing the balance sheet?

Enbridge plans to invest about $6-$7 billion annually on secured projects, stay within a 4.5x-5.0x debt-to-EBITDA target, and limit additional investments to those accretive on a per-share basis. It estimates up to $9 billion of annual investment capacity after dividends.

What are the risks to these projections?

The forward-looking statements rely on assumptions about commodity supply and demand and prices, interest rates, inflation, FX, construction costs and timing, and regulatory and customer approvals. Key risks include closing timing of the acquisitions and the Flint Hills dock deal, the Gray Oak expansion depending on a successful open season, and the realization of expected benefits from the projects.

ENBRIDGE INC 8-K: Material Agreements & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed March 8, 2024. Cited figures are marked; the original filing is the authoritative source.

On March 4, 2024, the Canada Energy Regulator approved Enbridge's Mainline Tolling Settlement (MTS), which sets tariffs for crude oil and liquids shipments from Western Canada through December 31, 2028.

The new tolls took effect on an interim basis July 1, 2023 and are retroactive to July 1, 2021. The MTS includes an international joint tariff for heavy crude from Hardisty to Chicago, US-indexed escalation for operating, administration and power costs, distance- and commodity-adjusted tolls, and a financial performance collar that rewards Enbridge for optimizing throughput and cost while protecting it from extreme supply or demand disruptions or unforeseen cost exposure. Regulatory certainty on the Mainline is a meaningful de-risking event for a core liquids asset.

On March 6, 2024, ahead of its Enbridge Day investor conference, Enbridge extended its visible growth outlook. It now expects average annual growth through 2026 of 7%^a-9% for adjusted EBITDA, 4%-6% for EPS, and about 3% for DCF per share, with roughly 5% growth thereafter. Management reaffirmed 2024 guidance for EBITDA and DCF per share, which excludes the pending U.S. gas utility acquisitions announced September 5, 2023.

The company cited a secured growth backlog of $25 billion and annual investment capacity of up to $9 billion^b after dividends, while targeting a 4.5x-5.0x leverage range. Planned spending of about $6-$7 billion per year on secured projects is paired with roughly $3 billion annually in low-risk gas utility infrastructure.

New accretive projects announced include a planned ~120 kbpd Gray Oak pipeline expansion (pending open season), 2.5 million barrels of additional storage at EIEC (about US$0.1 billion^c combined with Gray Oak), the purchase of two marine docks from Flint Hills Resources for about US$0.2 billion (expected to close Q3 2024), and about US$0.2 billion of offshore pipelines for the Shell/Equinor Sparta development, expected in service in 2028. Investors should note that the filing is mainly a regulatory and strategic update: the outlook is forward-looking, relies on management assumptions, and the Mainline and utility acquisition outcomes remain subject to the risks described in the filing.

02—Key points

Key Highlights

CER approved the Mainline Tolling Settlement on March 4, 2024, effective through December 31, 2028, with retroactive effect to July 1, 2021.
Visible growth outlook raised: adjusted EBITDA growth of 7%-9% annually through 2026, up from prior guidance, driven mainly by the pending U.S. gas utility acquisitions.
EPS growth outlook of 4%-6% and DCF per share growth of about 3% annually through 2026; roughly 5% growth expected post-2026.
2024 EBITDA and DCF per share guidance reaffirmed; guidance excludes the U.S. gas utility acquisitions expected to close at various times in 2024.
Secured growth backlog of $25 billion across more than 20 projects, with annual investment capacity of up to $9 billion after dividends at 4.5x-5.0x leverage.
New accretive projects: Gray Oak expansion (~120 kbpd, pending open season), 2.5 million barrels of EIEC storage, and Flint Hills marine docks for ~US$0.2 billion.
Sparta offshore pipelines (~US$0.2 billion, 2028 in-service) supported by long-term fixed-payment contracts, adding Gulf of Mexico exposure via the Oceanus Pipeline joint venture.

03—Questions

Frequently Asked Questions

What does the Mainline Tolling Settlement mean for Enbridge's liquids business?
The CER-approved MTS sets tolls for Western Canadian crude and liquids shipments through December 31, 2028. It provides regulatory certainty on tariffs, includes US-indexed cost escalators, and uses a financial performance collar that rewards efficient throughput and cost management while limiting downside in extreme disruptions. Retroactive effect to July 2021 also means the settlement impacts previously recognized periods.
Why did Enbridge raise its EBITDA growth outlook?
The increase to 7%-9% average annual adjusted EBITDA growth through 2026 is primarily attributed to the announced U.S. gas utility acquisitions, expected to close in 2024, combined with base business growth from low-cost optimizations and the secured growth backlog. These acquisitions are not included in 2024 guidance.
Why is EBITDA growth expected to outpace EPS and DCF per share growth?
Management attributes the gap to the common equity issued on September 5, 2023 to pre-fund the utility acquisitions, which increases the share count, and to current cash tax assumptions. As a result, EBITDA growth is expected to be higher than growth in per-share metrics.
How will Enbridge fund its growth without stressing the balance sheet?
Enbridge plans to invest about $6-$7 billion annually on secured projects, stay within a 4.5x-5.0x debt-to-EBITDA target, and limit additional investments to those accretive on a per-share basis. It estimates up to $9 billion of annual investment capacity after dividends.
What are the risks to these projections?
The forward-looking statements rely on assumptions about commodity supply and demand and prices, interest rates, inflation, FX, construction costs and timing, and regulatory and customer approvals. Key risks include closing timing of the acquisitions and the Flint Hills dock deal, the Gray Oak expansion depending on a successful open season, and the realization of expected benefits from the projects.

04—Continue

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