Enbridge Inc Q2 FY2021 Earnings Call

Welcome to the Enbridge Incorporated Second Quarter 2021 Financial Results Conference Call. My name is Frenzy, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session for the investment community. Please note that this conference is being recorded. I will now turn the call over to Jonathan Morgan, Vice President Investor Relations. Jonathan, you may begin.

Thank you. Good morning, and welcome to our Enbridge Inc. Second Quarter 2021 Earnings Call. Joining me this morning are Al Monaco, President and Chief Executive Officer; Colin Gruending, Executive Vice President and Chief Financial Officer; Vern Yu, Executive Vice President, Liquids Pipeline; Bill Yardley, Executive Vice President Gas Transmission and Midstream; Cynthia Hansen, Executive Vice President, Gas Distribution and Storage; and Matthew Akman, Senior Vice President Strategy and Power. As per usual, this call will be webcast and I encourage those listening on the phone to follow along with the supporting slides. A replay of the call will be available later today and a transcript will be posted to the website shortly after. We will try to keep the call to roughly one hour. And in order to answer as many questions as possible, we will be limiting to one plus a single follow up if necessary. We'll be prioritizing calls from the investment community. So if you are a member of the media, please direct your questions to our communications team who will be happy to respond. As always, our investor relations team will be available for any detailed follow-ups after the call. Onto Slide 2, where I'll remind you that we'll be referring to forward-looking information on today's presentation and Q&A. By its nature, this information contains forecast assumptions and expectations about future outcomes which are subject to the risks and uncertainties outlined here and discussed more fully in our public disclosure filings. We'll also be referring to non-GAAP measures summarized below. With that, I'll turn it over to Al Monaco.

Okay. Thanks, Jonathan. Good morning, everybody. Well, first just to kick it off, as you see on this cover slide here, it illustrates one of the key points we'll be speaking to today, which is the strong recovery that's underway right now. I'm going to start with the mid-year recap followed by an update on the fundamentals and how our business is nicely positioned for the energy transition. Colin will take you through the numbers and this time around our progress on sustainability. This next slide is our 2021 priorities dashboard. Our core businesses performed very well, high utilization across Liquids, Gas Transmission and the Gas Utility. That drove strong first and now second quarter numbers, so we're confirming full year EBITDA and DCF guidance as you saw in our release. The $17 billion capital program is on track with $10 billion scheduled for in-service this year and that will drive our three-year 5% to 7% Bcf per share CAGR outlook. Our balance sheet is in great shape. In fact, Moody's upgraded us to Baa1. So we're now at that level across our four agencies. And the sale of our minority stake in the Noverco provides more buffer and releases great value for a non-strategic asset. While upstream investment remains disciplined, we're seeing a pickup in commercial activity around the U.S. Gulf Coast in particular, system modernization and low-carbon opportunities. And we continue to bolster our industry-leading ESG position. MSCI reaffirmed our A rating, so we're pleased with that. So the message is that we're on track to deliver on the 2021 priorities we laid out at Enbridge Day last November. Moving to Slide 5. The economic recovery is gaining momentum. Global fuel demand has rebounded but not fully back to pre-pandemic levels. Transport sectors came back with gasoline, diesel and jet fuel all up. Petchem demand was less affected by the pandemic, so the jump is not pronounced here but still up 3%. We've seen the return of global LNG demand and with that strong pricing. We're still taking a cautious approach to the rebound, but it's pretty clear the recovery will drive crude and natural gas demand led by developing countries. And as you've heard us say before, we're big believers that natural gas will be essential, no matter what the case of the energy transition. Aside from the many benefits of gas, the fact is that it's also crucial in supporting renewables growth and reducing global emissions. And that's playing out more and more when you look at how gas is being built into long-term energy resource management planning. That's playing out in real-time in Ontario, with our announced new community expansions for gas and other regions looking to displace coal-fired generation. So the picture highlights the strong runway for conventional energy growth over the next decade. But as we've been saying, we've been evolving our business to align with the changing energy fundamentals. So here's what that looks like for us. Any way you look at it, we're going to play a big role in the energy future. That's simply because our businesses have both conventional and low-carbon growth opportunities, and this chart illustrates how we think about this duality. Demand for capacity on natural gas and crude systems means more modernization and expansion investments toward export infrastructure in particular. That's because over 80% of conventional demand comes from petrochemicals, industrial, power and heavy-duty transportation, which continues to grow globally, with limited alternatives at this time. In addition, we expect our low carbon growth opportunities to scale up. We've got a competitive renewables business with a growing European offshore portfolio, and that capability has allowed us to accelerate our solar self-power strategy and lower emissions. RNG, hydrogen and CCUS will take time to be a bigger part of the energy mix, but we're investing in these opportunities today, across our businesses. In Liquids, we're well positioned to support our customers' emissions goals through CCUS. I'm going to come back to this one in a few minutes. On to Slide 7. In the near-term, our 5% to 7% Bcf per share growth through 2023 will be driven by what you see here, 1% to 2% from embedded revenue escalators and of course that provides good inflation protection, low capital intensity optimizations and productivity improvements, while the rest is driven by secured projects in execution right now. We've also laid out our post-2023 growth drivers and our capital allocation options. Now Colin is going to go through the framework and priorities. But in summary, we have an attractive organic opportunity set, but we'll be very disciplined and not chase growth where the returns or commercial underpinnings don't fit the value proposition you're used to seeing from us. So we'll evaluate those organic opportunities against other options like share buybacks. Let's shift now to the business update, starting with Liquids. We just completed a 160,000 barrel per day expansion of the Woodland System to keep up with Kearl production. And those volumes of course support downstream throughput on the Mainline. It's a good example of the low-cost opportunities we have in Liquids. Now in Q2, customers took advantage of the shoulder season for refinery and upgrade or turnarounds, resulting in lighter throughput, as we forecasted. Volumes are picking up again, trending towards our full-year forecast of about 2.8 million barrels per day and we've laid out this trajectory in the chart. On Mainline contracting, the hearing wrapped up last week as you heard. Shipper support continues to be strong and noteworthy that some of the centers even, while disputing the negotiated toll are supportive of contract. On to Line 3, we received a positive decision from the Minnesota Court of Appeals, which reaffirmed the PUC permits. Construction-wise, we're tracking to schedule. We're about 80% through Mainline construction, slightly higher on stations. So we're moving along well and continue to work on water crossings. All that to say, we're on track for a Q4 in service. And once we get there, Line 3 will contribute nicely to cash flow growth. We're all focused on construction progress of course, but a couple of things to point out here. First, the project enhances the safety and reliability of our system. That's good for us. It's good for customers, but it's also positive for the rest of our stakeholders. And second, there’s great support from local communities and tribes that continues and we've invested locally to ensure they benefit from this project. We're very proud of the $250 million-plus in spend, with tribal businesses, their workers and communities. Lastly, on the Liquids business, how we're thinking about carbon capture, using Western Canada as the reference point, given the opportunity to make a big impact on emissions, so that's on the next slide. First of all, there's no doubt that CCUS will be critical to meeting society's net zero targets. I think, little by little that is agreed upon by just about everyone. And it's essential to Canada's emissions goals in particular and the US as well. It was good to see some of the new infrastructure details come out also being supportive there. The sheer investment needed is going to be massive. With current technology, it takes roughly $1 billion of capital to reduce a mega ton of CO2. We're excited about this opportunity and our strategy is driven by the fundamentals. And while the technology really isn't that new, we need clarity on policy to scale up and attract capital. As you know in the US, the 45Q provides a good foundation that's starting to make things happen at an even faster pace. In Canada, incentives are on the way as well, and we're at the table to help shape that outcome. But important to recognize that emitters and our customers will be driving the timing. We're in discussions across industries to explore how we can support them. Our strategy focuses on the full value chain from capture through to storage, which aligns well with our assets, and we believe a utility-light commercial model will be the most cost effective. These are complex projects. So, our scale, customer relationships in all of our businesses, execution capability, and ESG focus make us a natural partner. And it will be important to work with technology and industry partners as well. As an example, we just entered into a partnership with Svante, which has developed innovative carbon capture technology. We like this because it can be used for a range of industrial applications at much lower capital cost. And that, of course, has attracted a lot of attention from the upstream community. We're going to keep you posted on how we're progressing on the strategy. Moving to the next slide in Gas Transmission, where we're slated to bring in $3 billion plus of projects into service this year. Construction on T-South and Spruce Ridge in BC is progressing well and we've put the initial phases in service in Q2. On T-South, two of the five stations and the initial segment of Spruce Ridge are operating. Both of these projects have cost of service commercial underpinning which ensures a solid return on $1.5 billion of comp. Great progress on our US Gulf Coast LNG strategy with construction of the Cameron Extension project which will supply about 800 million cubic feet a day to the Calcasieu Pass liquefaction plant. There, we're on track for Q4 in service and that's a $200 million project as a reminder. And these projects fit right in the middle of our low-risk fairway. The same is true for our modernization program and that's on Slide 12. The criticality as I mentioned of natural gas to the future energy mix is going to drive investments for many years to come. Part of that will be compression which also helps reduce emissions and as it says here, it's about a 25% per compressor reduction in emissions as we move along and we're working with industry partners now on how we can add carbon capture. We think modernization capital will be roughly $0.5 billion to $1 billion annually for which we'll earn a solid return. And related to that, we'll be initiating a Section 4 rate filing on this Eastern shortly. We've also received FERC approval on our alliance and M&E settlements and we should share back on East Tennessee soon. So, things are moving along on the regulatory front well on gas. Development activity, as I mentioned early, is also picking up and our new Ridgeline project is a good example. We're pleased to be working with the Tennessee Value Authority, that's TVA on an opportunity that could provide affordable cleaner energy to the utilities customers. Ridgeline would expand our East Tennessee system which would be about $1 billion assuming the combined cycle auction is selected through the TVA's review process. It's a great example of how natural gas can preserve reliable and affordable energy, while lowering emissions by replacing coal-fired generation. Pending TVA's environmental assessment and supply source determination, project approval, and the necessary permits were projected to be complete by 2026 and that will support our medium-term outlook. On to the next slide in Gas Distribution. The utility just continues to grow and deliver solid results. We're on track to add another 45,000 customers this year and we're very excited to be moving forward with our community expansion program comprised of 27 new connections including remote indigenous communities. Along with system modernization and reinforcement projects, we see investing $1 billion to $1.5 billion annually in this business. In our incentive regulatory framework, while generating a good return, also ensures that the investments get captured in the rate base. An evolving and substantial long-term opportunity is lower carbon emission solutions. On to Slide 15, our utility has been a fantastic way to develop innovative lower carbon RNG and hydrogen that will green the gas grid by leveraging our assets. On RNG, our Dufferin project went into service this month. That makes three projects in operation. There's another three in construction with 10 to 15 in the hopper including through a partnership with Comcor and Walker Industries. Perhaps a larger opportunity is leveraging our assets for hydrogen. Our initial pilots are proving out the technology and scaling hydrogen across the system. At our Markham Ontario facility, we validated the green power to gas phase, so that's good to see. And we're now constructing Phase 2 to inject hydrogen into a closed-loop system in the utility. The blending facility is about three quarters done and on track to be in service later this year. So, we're looking forward to that. In Quebec, we're planning to blend up to 5% into our Gassafair utility and that project is currently in design and engineering. So, you can see we've got a great utility platform to develop low-carbon opportunities within a low-risk business model. Now on to Slide 16 and our Renewables business. First, good progress on the three French offshore wind projects. On Saint Nazaire, 13 of the 80 stations are done and turbines are being manufactured for Fécamp and Calvados. These three projects are scheduled for in-service in late 2022 through 2024 and the first being Saint Nazaire, so solid cash flow growth to come over this period. Our Maple Power development team continues to build the pipeline. We've got two projects with potential for over 600 megawatts in France that has secured leases, Dunkirk near shore and Provence Grand Large which is a floater pilot obviously further offshore. And we're starting community consultations on the ramping extension project in the U.K. and that's up to a 1.2 gigawatts project. So you can see here there's a lot going on in this business. But in the bigger picture, the frothiness we're seeing in the renewable space has made our assets more valuable. And we've got an inventory project we started developing a while ago, before things got overheated so we can grow without getting involved in highly competitive situations. On to Slide 17 an update on solar self-powers there's lots happening here as well. We now have three projects in service, two in our gas system and one in liquids. We sanctioned another four liquid stations recently, which will add 40 megawatts. So it's beginning to be a meaningful part of our renewable strategy. What's exciting is the broader opportunity across our LP and GTM businesses. And you can see the dots here show the location of pump stations on the liquid system and compression on natural gas. We see the potential to deploy up to $0.5 billion over the next few years with more after that. Of course, these investments will need to clear our hurdle rates, and they also reduce Scope two emissions. You can see here on the chart, the opportunity for emissions reductions over the years. So with that, I'm going to turn it over to Colin.

All right. Thanks Al and good morning everyone. I'll start with a quick overview of our $17 billion capital program. As you know, it's a big growth driver for us, but not our only one. We're making great progress on our program across the footprint. And we're on track, as Al said, to deliver $10 billion of projects into service this year. This well-diversified growth portfolio should generate, a significant step-up in cash flows really a conveyor belt, if you like of additional cash flows for many years. And in turn, considerable financial flexibility and investment capacity which is clear on Slide 19. In addition to our secured growth execution, we've actively recycled capital, at attractive valuations over the last few years, high-grading the portfolio and further strengthening our financial position. Our recently announced sale of our interest in Noverco at 29 times earnings multiple is a great example of this. When that transaction closes we'll have completed over $9 billion of asset sales since 2018, all while growing total cash flows. And as you know, deleveraging while growing is not exactly an easy feat. Today our balance sheet is where we want it to be and across the board our agencies recognize the strength currently, even now prior to executing on our 2021 capital program. We've been BBB+ rated with three agencies for a while now and the upgrade from Moody's last month makes four-for-four. And as I mentioned our execution will lead to even stronger metrics in 2022 towards the bottom of our target range or even below. Our preference even then will be to live near the lower end of that target range to preserve maximum optionality. On to Slide 20 and a quick overview of our capital allocation priorities, we said this before but it bears reemphasizing because it illustrates capital discipline. Our priorities are unchanged. Financial strength, responsible dividend growth and $3 billion to $4 billion per year of ratable utility-like, in-corridor reinvestment represent our core game plan if you like. That will leave us with about $2 billion of additional annual capacity which will deploy against the next best alternatives. So as Al alluded to a couple of times, conventional growth will need to compete with share buybacks which remain attractive also. Now I'll walk through our quarterly financial results on Slide 21. Adjusted EBITDA was $3.3 billion, while DCF was $1.24 per share and earnings were $0.67 per share. I won't review all the details during our news release and 10-Q. But if I step back there are a few key observations. First, each of our platforms is humming along nicely. Q2 last year was of course the trough for energy demand and it's clear that the economic recovery is now in full swing. Second, foreign currency translation continues to provide a slight headwind. As you know our assets are geographically diversified with about two-thirds of our businesses earning U.S. dollar-denominated income which we have substantially hedged. The translation of our U.S. operating results in each segment were negatively impacted by the weaker U.S. dollar, which is partially offset by our hedging gains reported below in eliminations and Other segment. Third, Energy Services continues to be challenged by underutilization of some of our fixed contract commitments, due to a confluence of unusual market conditions including weak basis, limited blending opportunities and market backwardation structurally, so a little value in storage these days. In contrast, you'll recall last year we benefited from significant contango conditions and related storage gains due to the pandemic. As a reminder, these relate to unused demand charges; they are not speculative trading losses. Finally, in DCF, we're benefiting from favorable interest rates and the translation of U.S. interest expense and we're expecting cash tax savings stemming from increased utilization of existing tax pools to offset proportionately larger U.S. dollar taxable income. So, overall, another good quarter in the books. So let's move now to the outlook for the second half of the year on Slide 22. Starting with EBITDA, operating performance for the first half of the year was a little better than planned, but that's been partially offset by the weaker U.S. dollar, as I mentioned, and negative contribution by energy services also. Overall, we expect first half trends to continue through the second half of the year, including strong utilization of our systems, so we're confident that we'll perform within our guidance range for EBITDA. A few more comments on EBITDA. As I mentioned, our U.S. dollar exposure is substantially hedged, which materially protects us from a weaker dollar. Secondly, a comment on inflation. It's potentially trending up. But again, we're well protected here, with about 80% of our revenues having either built-in inflators contractually or periodic regulatory protections through rate proceedings. From a quarterly EBITDA profiling perspective, a reminder that seasonally Q3 is our lowest quarterly contributor, of course, with lower heating days in the summer months affecting our utility, lower wind resources and renewables, and some seasonal effects in our Liquids System partly related to maintenance. I should also mention that Texas Eastern service is fully resumed now and sooner than expected previously. Of course Q4, profile-wise, tends to be a larger contributor with winter heating season driving good results in our gas businesses and Line 3 is on track to be in service, which should contribute nicely to cash flows per our original guidance. Turning to DCF. Our second half results will, of course, align with EBITDA, but should also benefit from continued favorable interest expense, lower rates, favorable USD translation and lower financing requirements than we originally expected, due to the anticipated proceeds from the Noverco transaction close. Finally, at this point, we do expect that cash tax savings for the full year will be around $100 million relative to our original guidance for the year. On to Slide 23, with a quick word on sustainability. We've integrated sustainable practices into our business for a long time. Each of the ES&G are absolutely essential to how we have been running our business and engaging with our customers and communities in which we operate. In June we issued our 20th Annual Sustainability Report, which reflects this long-standing commitment. The report highlights our good progress towards our emission reduction targets. We've reduced Scope 1 emissions by 32% and Scope 2 emissions by 14% since 2018. And we have line of sight to execution pathways needed to meet our 2030 intensity goal and our 2050 net zero goal. On the S, community and stakeholder engagement is integral to both project execution and, of course, operations thereafter. A few numbers. We've spent over $1 billion with indigenous groups since 2017, including direct spend and subcontracting opportunities with indigenous businesses. And in 2020, in one year, we contributed $3 billion of property taxes and income taxes to various levels of government. Our continental workforce is diverse already and we're striving to enhance all elements of diversity, including at the board level, to achieve our 2025 target. On the G our Board is highly engaged with the diversity of backgrounds, experience, and thought and, importantly, our ESG priorities are tied to enterprise-wide management compensation, ensuring alignment to our performance. Our objective is to be a leader and the ESG rating agencies recognize this across the board. We continue to innovate, and in this regard, and in this quarter, that mindset is reflected in our issuance of our first sustainability-linked bond. A few comments on it. We're proud to be a leader in sustainability-linked financing. Our published framework guides our thinking in this regard. And in that framework, we've selected KPIs that align with our goals and we think are critical to our long-term success. Of course, we followed up the framework with a $1 billion sustainability-linked bond in June, which combined with our $1 billion credit facility, also sustainability linked earlier this year, that now ties already $2 billion in financings to our ESG performance. We think this capital formation trend will dovetail well with how we conduct business. In particular, we see both pricing and moreover access benefits for sustainable financing. For example, approximately 40% of our SLB order book were ESG-type mandate investors, adding further demand to our already diverse investor following. Before I turn things back to Al to wrap-up, I'm excited to introduce and invite you to attend two events. On September 28, we'll be hosting our inaugural ESG forum in New York. At that event, you'll hear from a diverse group of our leaders about how we've embedded leading ESG practices within our business. And we'll continue to hold our Annual Investor Day on December 7. This year it will be in Toronto. This is always a great opportunity for us to share our business and corporate plans and we look forward to connecting with many of you in person. It's been a while. Thank you and back to you Al.

Okay. Thanks, Colin. Just before we open it up just a few takeaways. I think 2021 is a pivotal year to deliver on the three-year outlook that we outlined at Enbridge Day last year and progressing well. The businesses are running at high utilization and financial performance as you just heard is strong. Execution of the program is tracking to plan with that $10 billion that Colin just referred to. The pace of the economic recovery gives us confidence around demand for conventional energy over the medium-term. And importantly, our assets are essential to the energy transition. As you've heard, we're making good progress on our low-carbon investment strategy in several areas. And finally, our leading position on ESG is getting stronger yet and good progress on our goals there. So we'll begin the Q&A session now. The team is on the line here. I'll hand off as required on specific issues.

Thank you. We will now begin the question-and-answer session. Jeremy Tonet of JPMorgan is on the line.

I just want to start off here on the RNG side. I really want to dive into the strategy a little bit. Just wondering what the current C&I demand for RNG that you're seeing here? Is there any differentiation by sourcing carbon attributes? Just wondering if commercial industrial customers are interested in RNG for the negative attributes.

Okay, Jeremy. Hi. I think it would be best for Cynthia to address this since she is advancing that strategy and has strong engagement with the customers. Then, if Bill has anything to add regarding Gas Transmission, he can chime in.

Thanks, Al. Yes, Jeremy, we're having some really strong interest from various commercial and industrial users, of course, across Ontario and Fort of Quebec we have the opportunity to deliver that. And then we've been able to facilitate the delivery of RNG across North America because of course it trades in a fungible way. So we are seeing lots of strong interest. There is a really great opportunity to continue to build on that as we have the partnerships as Al mentioned with Comcor and Walker Industries to really help build that out across Canada. So it's something that we're seeing some strong interest. We've been able to facilitate some of those transactions, and we look forward to the opportunity to expand on that in the future. William, you wanted to add some?

Yes, I'll just add a couple of things. First of all, on the commercial and industrial side, we are seeing direct interest. However, in many cases, it is the local distribution companies, which are our major customers, that are eager to collaborate with us to bring renewable natural gas from various sources. They are motivated, and their primary focus is on expanding usage, even if it's just for residential purposes, indicating that this could represent a significant portion of our gas supply by the middle of the century. There is a lot of potential for collaboration between Cynthia's utility and our substantial transmission system.

Got it. It seems like there could be a shift towards diversifying supply away from Russian LNG during the winter in the Northeast. I wanted to change the topic to carbon capture and ask how you view the total addressable market in this area. There appears to be significant attention on oil sands producers, but it seems that heavy industry doesn't have any viable option for carbon reduction other than CCUS. I'm curious about your perspective on this and the potential opportunities in both Canada and the U.S. as well.

Yes. Maybe I'll start it off and Vern can add, Jeremy. Well, first of all, you're absolutely right. And the numbers on the total addressable market vary. I mean, the bottom line is, it's a big number. It's likely on the order of $2 trillion. And I go back to my comments earlier on. If you look at the sources of emissions reductions opportunities, I think everybody is familiar with them, but energy efficiency certainly renewables will be a big chunk, but a very significant and for certain chunk will be CCUS. We just don't see how we meet the goals without CCUS. So the capital is going to be large. And obviously, existing infrastructure players like ourselves are going to be involved. And as I said earlier in the comments, we're thinking that the opportunity set for us really covers from the upstream capture part through of course the transportation and ultimately sequestration. And if you look at the assets, for example, in the utility good storage assets there that are applicable. Bill's gas transmission has got great storage there. And, of course, if you look at the overall picture here in Canada and the oil sands and the future of the oil sands, it's pretty obvious that CCUS will be a big part of that. So it's large. As I said earlier, it's not immediate. These things will take some time to work out especially as the policy and incentive framework rolls out here over the next little while, but no doubt big opportunity.

Okay. Thanks, Al. Jeremy, you're absolutely right. The industrial opportunity is very substantial. As you know, cement, plastics, power generation, all kinds of other things are really critical to what we do as a society and CCUS can make a meaningful difference in our emission reductions. So, I think the EIA has put out stats out there that to meet global net zero goals and CCUS is anywhere between 9% and 30% of the total carbon abatement we want to see by the middle of this century. So, we're actively talking with customers both in the oil sands as well as across heavy industry to see what we can do to help reduce emissions. Obviously, in Canada, we need a little bit more clarity on the investment tax credit. But in the U.S., we're also very active. So, I think in our announcements today, we talked about an opportunity to work with a new technology player, Svante, and we will be focused with them looking at industrial CCUS implementation across North America.

Got it. That’s very helpful. Thank you.

Okay. Thank you.

Your next question comes from the line of Robert Kwan from RBC Capital Markets. Your line is now open.

Hey, good morning. Questions here just on capital allocation. And starting with asset monetization. Your strategy has really shifted away from as needed for funding to something more opportunistic like you've done with Noverco. So, I'm just wondering are there other material opportunities to do more that we might see in the relatively near future? And if so, how do you think about the timing of that? Is it just selling it down when it's opportunistic and deploy the capital later or is it going to be more about timing for when you've got deployment opportunities?

I think the main driver is the former. And really, it's driven by, I guess, Robert, the constant look at the portfolio and whether or not, we can monetize assets at a superior value as you've seen. I mean, I think the bigger picture, we're generally happy with our asset mix, certainly, the commercial structure that underpins them. We have very little G&P exposure now. We see ample conventional runway in those businesses. And as I just went through, the businesses support our strategic actions to support the transition. We look at every possible opportunity to release value. I think we've proven that we'll take action. I think over the last three years, it's been about $9 billion of assets and with this latest one Noverco as well. So we'd certainly consider looking at other things if we received more than full value for them. So it's going to be opportunistic. As Colin pointed out, the balance sheet is in very good shape. So it will be selective monetization to generate value where we can on a, I guess, a specific basis when we see those opportunities.

Got it. And then if I kind of continue on capital allocation you spent a lot of time today talking about a lot of the energy transition opportunities. And it seems like that portfolio of opportunities is getting bigger and bigger. So, I guess first what approach do you take to ascribing value to some of the soft factors around it being ESG-friendly? And I guess specifically thinking about your willingness to accept single-digit equity returns to some of the solar self-powering? And then I guess the second part of it is as this pool of potential projects grow. If you exceed that $3 billion to $4 billion in capital threshold that you set out does that change how you approach capital allocation with respect to the pecking order or your priorities of maintaining that leverage range and your self-funding constraints?

Thank you for your question, Robert. We have a strong and established investment framework that we have applied with discipline for many years. Generally, we do not accept single-digit returns except in certain situations, such as in Cynthia's business due to regulatory requirements. Our return expectations tend to be higher. When considering energy transition investments, we adopt a similar approach. As an infrastructure company, we aim to ensure a return on and of our capital. Our perspective on energy transition investments is not in an experimental or cutting-edge manner; we will remain disciplined in our approach. We believe there is capacity for energy transition capital investments within our projected financial outlook of $5 billion to $6 billion per year. We have clear visibility to $3 billion to $4 billion, and further investments will compete against one another, including those in energy transition. Additionally, we have factored ESG considerations into our investment framework for a couple of years to either incentivize or discourage certain investments based on our hurdle rates. This is the approach we are taking.

To summarize, the transition we are focusing on operates alongside our core growth strategy. Based on what Colin mentioned regarding our capital capacity, it is evident that approximately $3 billion to $4 billion of the overall $5 billion to $6 billion falls under our core conventional business, which also delivers the returns you have come to expect from us. The additional $2 billion in capacity will be subject to competition among projects, whether it’s in Matthews' renewables division, solar self-power, or other investments, including organic growth. The returns we've achieved with RNG and hydrogen in Cynthia's sector have been consistent. Colin's emphasis on maintaining discipline is crucial, and while it's essential to allocate some resources for the transition, we do not anticipate a major decline in our returns.

Hey, that’s great. Thank you very much.

Okay. Thank you.

Your next question comes from the line of Shneur Gershuni from UBS. Your line is now open.

Good morning.

Hi.

I was wondering if we could continue the discussion on the CCUS side, as it has been a topic of interest today. You announced the MOU that you have in place. Could we discuss the technical aspects? You mentioned in your prepared remarks that around $1 billion of capital corresponds to one megaton, for example. Can you explain how you plan to utilize your existing pipeline systems for transporting carbon? What technical aspects should we consider to handle the higher pressures? Do you require thicker pipeline walls, or do new systems need to be built, or can some of the more recently installed pipes handle this? I would appreciate it if you could provide an overview of the technical aspects we should be aware of.

Okay. Thanks. Those are great questions. I think from a technical perspective, our view is that new pipelines are better than existing pipelines to manage carbon CO2 precisely. They need to operate at significantly higher pressures to deal with the liquefied CO2. So, I think what we've been most focused on is that when you go ahead and execute this kind of infrastructure, you're most mindful of minimizing the overall cost. So while there's going to be a need for hubs throughout North America, the shortest pipeline you can build to those hubs will be the most cost advantageous. So from our perspective, it's really looking at the individual customers' need, the emitter and trying to figure out what is the cheapest and most reliable system to set up for them. And I think in most circumstances, that's going to involve building new pipelines that have a very short distance to sequestration hub.

That makes perfect sense. And then, maybe to continue on here, I really enjoyed this slide talking about your connection flexibility and two-thirds of the $46 billion of going high-priority investments and so forth. And so you kind of have this $2 billion flex. And then, when I look at your $17 billion of secured backlog, just trying to understand how that number is going to grow over time in context of the discussion that's been going on today? How much capital are you looking at, or how many projects in terms of dollars are you looking at that could move into the secured backlog that would be classified by most investors as energy transition related capital? Is it something where the backlog can grow by $5 billion over the next three to five years, or is it something that it grows by $10 billion, $20 billion?

Let me start off, and Colin can add later. We've outlined our backlog, which is around $30 billion. We haven't emphasized this as much because we're focusing on capital efficiency and minimizing large investments. This backlog translates to about $5 billion to $6 billion each year. If you break it down by business, liquids are projected to contribute roughly $1 billion to $2 billion annually through optimizations, expansions, and extensions. GTM is likely in the $2 billion range for modernizations and expansions, and we have significant LNG projects to consider. In the utility sector, I'm estimating about $1 billion to $1.5 billion for reinforcements and new community expansions. Lastly, in renewables, it appears to be around $1 billion a year. My point is that it doesn't take much to reach the $5 billion to $6 billion annual capacity with our organic backlog. We believe the $3 billion to $4 billion we identified is secure, while the remaining projects will require careful consideration. There's a solid backlog in place, but we will be judicious in how we proceed. Colin, do you have anything to add?

Well, maybe just a reminder that I think Shneur you're asking about energy transition oriented capital. I'm not exactly sure what you've got in that bucket, everybody's defining that a bit differently. But I think we would argue a lot of our core businesses will contribute to energy transition. So I think Al's answer captures that globally. Within a more refined definition of energy transition, I think Al mentioned there's not an immediate scalable investment opportunity in some of these areas other than renewables, which I think Matthew is pretty excited about and we can allocate $1 billion to $2 billion a year in that business in the immediate term. I don't know if that helps round that out Shneur.

No it perfectly does. Really appreciate the color today and I hope you guys enjoy your weekend.

Okay. Thank you.

Your next question comes from the line of Rob Hope from Scotiabank. Your line is now open.

Good morning everyone. Question is on the gas modernization capital of $0.5 billion to $1 billion a year. In your comments you did highlight that adding new compressors or upping the compressors can significantly reduce emissions there. I just wonder is there some additional upside here adding CCUS to the compressors or even just going straight to electric drive, plus adding in some additional on-site solar. Just want to get a sense of how you're thinking about upside flex to that modernization level.

Okay. Bill go ahead.

We are currently replacing gas with more efficient equipment for our modernization efforts. In the future, projects like the TVA project could allow for electric compression as long as we have reliable power for those units. There may also be opportunities to site gas or enhance existing gas with carbon capture and usage systems, alongside new pipelines. Additionally, we have identified areas where we can effectively store carbon. Overall, we aim to prioritize the most economical options that significantly reduce our emissions footprint.

And then maybe as a follow-up to that. If you are able to eke some additional capacity just with new compressors there, could you get customer support in terms of contracts initially, or do you think this would largely be related to new rate cases there so often?

Any time we add capacity, we need to get approval from the FERC to put it into service. In some instances, adding a new compressor is more efficient than the previous unit despite having the same horsepower rating. However, to provide increased output and receive certification, we must return to the FERC. This can lead to a very cost-effective expansion when it occurs.

Thank you.

Thanks, Rob.

Your next question comes from the line of Michael Lapides from Goldman Sachs. Your line is now open.

Hey, guys. Thank you for taking my question. Real quick on the Liquids segment and I know this is the old economy stuff. But just curious, you've always kind of outlined at Investor Day or Analyst Days a myriad out of potential growth projects, once you got Line 3 done. Just curious, how you're thinking about some of those, meaning I don't know the extra 100,000 barrels at Southern Access or maybe Flanagan South expansion and some of the stuff on the western part of the system as well?

Thank you. You're absolutely right. The Liquids Mainline and the downstream pipelines have available capacity for expansion. Currently, we are in active discussions with our customers following Line 3 to determine how and when we can proceed with those plans.

Got it. Okay. But do you see those as things that kind of happen not long after Line 3 come online, or is this something that could take another few years and you need to see a ramp in either production out of Western Canada kind of reaccelerate further than kind of what the producers are talking about now before those become economic?

Well, they're low cost, low permitting and fairly quick to market expansions. And I do think as we see the economy recover and as producers get confidence that the economy is coming again, we should see some good progress on those.

Got it. And last this would impact you guys that impact all the takeaway options, what you all hearing about the timeline for Trans Mountain expansion coming online? And how do you think about the dynamics of a market that's been short egress for multiple years, potentially becoming long pipeline takeaway once Trans Mountain and Line 3 are both in service?

I won't comment on when Trans Mountain will be in service, as that is best left to them. However, we have been anticipating that Trans Mountain will start operating and offering additional capacity for some time. Our understanding of the Western Canadian market is that there is a significant amount of heavy crude waiting to be put on the market from producers, amounting to 400,000 to 500,000 barrels per day. There are also several brownfield projects near completion that could bring more supply to market quickly once there is enough capacity. As soon as Line 3 goes into service, we will have some additional capacity, and Trans Mountain will too, which should be filled quite rapidly with these projects ready to go as soon as the capacity becomes available.

Yeah. I think just a quick add-on to that Michael. If you look at the fundamentals here and we just saw this through 2020, the fundamentals for heavy are very attractive to US refiners. So, I think given that and the fact that cash costs have really come down in the oil sands, in terms of break-evens. And they've done a good job in bringing down full cycle costs. So, I think there's a pretty good opportunity here for the oil sands to surprise again going forward given those factors.

Got it. Thank you guys. Much appreciate it.

Okay. Thanks, Mike.

Your next question comes from the line of Robert Catellier from CIBC World Markets. Your line is now open.

Thanks for taking my question. And I apologize for the background noise. But I'll follow-on to what you just talked about there. There seems to be just a general attitude in producer community to conserve capital and ramped up production quite as quickly. And so, I'm wondering how do you see that change in customer behavior impacting US Gulf Coast strategy and also the appetite for Mainline contracting?

Well, I think our US Gulf Coast strategy remains unchanged. We see strong demand for terminaling options in the Houston area, whether that's for tankage or VLCC export having that optionality will always be important for our customers to maximize the netback on their barrels. As we talk with producers, we see a very robust demand for capacity on our system and certainty for that capacity. So, I think both dovetailing through each other were a good set of our customers want to know what they have on our system, they can use it day in and day out then they can move their crude to the best markets and maximize the value of production and refining. So, we feel very good about the US Gulf Coast strategy. And I think with Mainline contracting, I think we've done a really good job at CER and providing evidence that the offering is good for industry as a whole, that is supported by more than 75% of our current shippers and we are very hopeful for a positive decision later this year.

Yeah, Robert, I think you're right about the conservation of capital. I don't think that's going to change anytime soon. But if you think about the fundamentals of crude, obviously like primarily in this case, they're still pretty strong in terms of exports. And we know that there's a runway for crude demand going forward. You're seeing that happen today. So the export strategy that we have around the Gulf, I think that's intact including on the LNG front that Bill runs. But the key to all of this is, and you're seeing more pressure on this keeping costs down. So we're focused on being as competitive as we can and really working supply chains and doing what we can to make sure that tariffs and tolls are low enough to attract these customers.

Your next question comes from the line of Ben Pham from BMO. Your line is now open.

Hi. Thanks. Good morning. Also a question on renewable power, you had the East West Tie line coming in 2022. Can you comment on whether electric transmission – is that – is that something you want to build on to expand look at new transmission opportunities, or is that more in that noncore opportunistic bucket?

Matt, do you want to respond to that or…

Sure. Hey, thanks Ben. I think it is opportunistic. I think it's the latter category, primarily. Transmission is something that is still very challenging from a permitting standpoint. Obviously, it's – we need more transmission for renewable, but it's easier sort of said than done. So our focus is going to be primarily on the contracted renewable power projects. And we don't have a lot of plans to invest in transmission. As far as East West Tie, the project has gone really well. And so that one we like a lot. It is a rate base regulated return type structure which we like. And it's right on track and should be in service early next year. So at that time, we'll see what we do with that, but we like the asset a lot and it's got a good solid safe return.

Okay. Great. And then moving to the Canadian LNG export opportunity, I haven't asked you guys this for a while. There's some news flow out there new partnerships formed. Could you remind us your position there on LNG export? And any sort of maybe more higher conversations you had recently?

Okay. Well, Bill do you want to take that one?

Yeah. Sure. There are obviously big opportunities and would like to see things get organized. It's actually quite exciting to see what the Niska announced recently and them having a project that's sort of led by First Nations. So that's good and that fits well with us. We engage with the local communities pretty well and with First Nations as well. I think our West Coast Gas Connector project is actually pretty well situated for anything new that happens in Western Canada. So those are real big opportunities. And then and you're going to approach those obviously very cautiously, but good opportunities. And then, I'll just give in a comment about the Gulf Coast. The Gulf Coast is actually seeing a bit of a resurgence or at least a pickup from where they left off maybe 1.5 years ago. And our efforts there though, they're not as grand. They're very manageable and there are a number of them. So good opportunities in LNG for us.

Just one other thing I'll add to in BC. Of course, the good news is we're well situated there on our West Coast mainline. And so whatever happens out there into the future aside from the connector itself that Bill was talking about it's going to be good for our existing business there.

Hi, it's very helpful. Thank you.

Your next question comes from the line of Linda Ezergailis of TD Securities. Your line is now open.

Thank you. From an operational perspective recognizing that your energy services are dealing with a number of factors compounding the negative results. I'm just wondering, if you could give us a sense of what sort of demand charges we might expect prospectively, or will they be diminishing over the next year or two? And would you, just renew them opportunistically? Can you comment on your strategy within energy services generally?

Linda, yes Colin. Yes, good question. So I think what you're seeing flow through our quarterly results right now is pretty much worst-case scenario. So I don't see any worse than this. It should get better as conditions improve. Any one of those three strategies we typically see some value from. And secondly, if not we do have contracts that roll off in the later days and taper down. So I look forward to seeing this improve.

But no change to strategy?

It's a small business, likely smaller than our peers' marketing operations. It usually operates back to back and is tightly risk controlled. Last year was exceptionally successful for us, though this year hasn't been as strong. However, it still fits within our overall strategy and typically contributes 0 to 1% of our EBITDA, so it's well managed.

Okay. And recognizing about the Alliance pipeline is not a big part of your business but maybe just a comment generally on recontracting in the natural gas pipeline, specifically Alliance and how that might be influenced if at all by some of the emerging West Coast LNG export opportunities potentially influencing duration or level of interest for that asset?

Yes, I think you made a good point, Linda. The Alliance pipeline is one of the two assets we are carefully considering for recontracting in the future. We don’t really see issues with our other assets. The key aspect of the Alliance is its basis, but it also has the advantage of connecting to Aux Sable with liquids, which is a significant differentiator. Over the past year, we had a substantial recontracting period and were able to secure contracts, although for shorter terms, which is understandable. We expect this trend to continue. Recently, we've noticed some positive movement in the basis. Looking ahead, it's uncertain since LNG developments are still some time away, making it hard to predict any substantial impact. However, overall, one would anticipate that this would be favorable for Alliance.

Thank you.

Q - Praneeth Satish:

Thanks. Good morning. So I see you've got 10 to 15 RNG projects underway in Canada. I guess my question is do you plan to enter the US market at some point? I know the trade-off would be you wouldn't have your utility as a customer. But clearly you have expertise in the market there as big. So would you be open to producing and selling RNG in the US to third-party customers?

Okay. Well maybe conceptually we'll have Cynthia answer that. But I know Bill has got some comments here too on how this relates to his Gas Transmission business.

Sure. Thanks Al. You're right. The experience that we're gaining by developing these projects the RNG projects, how we're working with the various participants and our customers is something that we can build on. So we have obviously, the relationship that we've announced in Canada with Walker and Comcor that's going to help us continue to build that expertise and across. And I know both Bill's team and my team have been talking about what that future could look like with US. And while there are instances where we could tie into some of the existing infrastructure that Bill has in the US we do have obviously, an opportunity to take and leverage the knowledge. So I think it's something that Bill, can expand on but we're looking at it and again it fits within all of the criteria that Al and Colin have talked about. It's something that could eventually be developed, but maybe Bill you can expand on how your team has been addressing the US interest.

Yes. Thanks Cynthia. Yes, I mean, this is a huge opportunity for us in the US, and we're very lucky to have the experience that Cynthia's team has and has generated and continues to generate with the sort of cutting edge projects on the RNG front. For us, our infrastructure from the Gulf Coast over to Florida and all the way up to the Northeast, we would go by an awful lot of potential source sites for RNG. And it's probably two opportunities. One, serving the local distribution companies, which is an obvious one and partnering with them to do that. But then second, some of these more closed-loop opportunities where you have major industries, major farms that want to get credit for their operations, and basically serve them with the RNG that they actually get produced into our system. So I think the opportunity because of our reach is tremendous.

Great. Thanks. And then can you just give us a sense of how large the Ridgeline expansion project would be either from a CapEx or capacity perspective just looking for some bookends around the project. Thanks.

Go ahead Bill.

I'm sorry. I know it's about a $1 billion project and it's basically living in compression along our existing right of way in Tennessee.

We have reached our time limit and are not able to take any further questions at this time. I will now turn the call over to Jonathan Morgan for final remarks.

Thank you and thank you for taking the time to join us this morning. We really appreciate your ongoing interest in Enbridge. As always, our Investor Relations team is available to address any questions you may have following the call. And once again, thank you and have a great day.

Thank you, ladies and gentlemen. We appreciate your participation. This concludes today's conference. You may now disconnect.