Enbridge Reports Record 2023 Financial Results, Reaffirms 2024 Financial Guidance and Advances Strategic Priorities

CALGARY, AB, Feb. 9, 2024 /CNW/ – Enbridge Inc. (Enbridge or the Company) (TSX:ENB) (NYSE:ENB) today reported fourth quarter 2023 financial results, reaffirmed its 2024 financial guidance and provided a quarterly business update.

Highlights
(All financial figures are unaudited and in Canadian dollars unless otherwise noted. * identifies non-GAAP financial measures. Please refer to Non-GAAP Reconciliations Appendices.)

Full year GAAP earnings of $5.8 billion or $2.84 per common share, compared with GAAP earnings of $2.6 billion or $1.28 per common share in 2022
Adjusted earnings* of $5.7 billion or $2.79 per common share*, compared with $5.7 billion or $2.81 per common share in 2022
Adjusted earnings before interest, income taxes and depreciation and amortization (EBITDA)* of $16.5 billion, an increase of 6%, compared with $15.5 billion in 2022
Cash provided by operating activities of $14.2 billion, compared with $11.2 billion in 2022
Distributable cash flow (DCF)* of $11.3 billion, an increase of $0.3 billion, compared with $11.0 billion in 2022
Achieved financial guidance for the 18th consecutive year, demonstrating the stability and predictability of Enbridge’s business
Reaffirmed 2024 full year financial guidance for EBITDA and DCF. The gas utilities acquisitions announced on September 5, 2023 (the “Acquisitions”) are expected to close at different times during 2024 and are not included in the 2024 financial guidance
Increased the 2024 quarterly dividend by 3.1% to $0.915 ($3.66 annualized) per share reflecting the 29th consecutive annual increase
Announced the sale of the Company’s 50% interest in Alliance Pipeline (Alliance) and its 42.7% interest in Aux Sable to Pembina Pipeline Corporation, at an attractive valuation, for $3.1 billion
Filed applications for all key required federal and state regulatory approvals to complete the pending Acquisitions and secured approximately 85% of the financing for the aggregate purchase price
Filed the industry approved Mainline Tolling Settlement (MTS) with the Canada Energy Regulator (CER) on December 15, 2023
Concluded the fully subscribed upsized Flanagan South Pipeline (FSP) binding open season for 110 kbpd of committed full-path Mainline to U.S. Gulf Coast delivery service
Announced and concluded an oversubscribed open season on Southern Lights Pipeline for 165 kbpd of committed service through 2030 on existing capacity
Announced definitive agreement to participate in the construction and operation of the first phase of the Fox Squirrel solar project, through a 50% interest in a joint venture with EDF Renewables
Exited 2023 in a strong financial position with Debt to EBITDA of 4.1x, below the target range of 4.5x to 5.0x reflecting substantial equity pre-funding prior to closing the Acquisitions

CEO COMMENT
“I’m pleased to report another year of strong safety, operational and financial performance across the enterprise. While geopolitical instability, persistent inflation and rising interest rates impacted the North American energy industry, Enbridge achieved its financial guidance for the 18th year in a row. Our stable, low-risk, diversified business remains well positioned to grow earnings and dividends for shareholders for years to come.” said Greg Ebel, President and CEO of Enbridge.

“The Enbridge team worked hard to execute our strategic priorities. In 2023, we announced approximately $23 billion of attractive acquisitions, placed $2 billion of secured capital into service and sanctioned $10 billion of new organic projects. In addition, we announced $3.1 billion of asset sales at attractive valuations and secured approximately 85% of the $19.1 billion of required financing for the gas utility acquisitions.

“We adhered to our capital allocation priorities as we continued to grow the company while maintaining our target leverage ratio and returning capital to shareholders through a sustainable and growing dividend. 

“In Liquids Pipelines, we saw high utilization across our systems and set multiple throughput records. The Mainline transported annual average volumes of 3.1mmbpd anchored by December’s exit rate of 3.26mmbpd. The industry approved MTS settlement announced in May will help to ensure high utilization and first-choice service standards for years to come. In the U.S. Gulf Coast, both Enbridge Ingleside Energy Center (EIEC) and Gray Oak set annual records for throughput. Enbridge’s U.S. Gulf Coast infrastructure provides customers with the most cost-effective path from the Permian to tidewater and we are well positioned to take advantage of growing Permian production.

“In Gas Transmission, we continue to expand our existing infrastructure to support the growing demand for safe, reliable and affordable natural gas. We added over 100 bcf of combined gas storage between Aitken Creek in B.C. and Tres Palacios in the U.S. Gulf Coast. In the U.S. Northeast we concluded an open season on Algonquin Pipeline to expand deliveries to New England. Finally, we closed the first six acquisitions of the landfill-to-RNG facilities from Morrow Renewables.

“In Gas Distribution, we announced a once-in-a-generation opportunity to acquire large-scale gas utilities at historically attractive multiples. The assets operate in gas supportive jurisdictions and are expected to be accretive in their first full year of ownership. Our pro-forma gas distribution business will deliver approximately 9.3 Bcf/d of natural gas to 7 million customers, making it North America’s largest natural gas utility platform. These acquisitions are expected to balance Enbridge’s earnings mix to approximately 50% Natural Gas and Renewables and 50% Liquids.

“In Ontario, EGI connected approximately 46,000 new customers to our network. We also received the Ontario Energy Board decision on Phase One of our 2024 rebasing application. We are actively working with the government of Ontario to address issues we see with the decision around affordability, consumer choice and reliability of gas to Ontario communities and industry.

“In Renewables, our scale continues to allow Enbridge to find select accretive projects. In 2023, we closed the acquisition of additional economic interests in the Hohe See and Albatros German offshore wind projects and announced the joint construction and operation of Fox Squirrel Solar. These projects are expected to be immediately accretive to DCF per share and complement both our growth outlook and energy transition contributions. Offshore in France, 50% of turbines have been installed at Fécamp and the 497MW project is expected to achieve commercial operation in the coming months.

“Our value proposition is underpinned by our disciplined approach to investment and balanced financial outlook. Looking to the future, we will continue to expand and modernize our infrastructure, driving growth and reducing emissions from our business. We believe that our balance sheet strength, secured growth backlog, proven execution capability, and growing dividend will drive value for our shareholders.

“Enbridge is committed to being the first-choice for our customers, communities, shareholders, regulators, policy makers and our employees. I’m proud of everything we accomplished this year and I look forward to building on those successes as we continue positioning Enbridge as the first-choice energy provider and investment opportunity.”

FINANCIAL RESULTS SUMMARY

Financial results for the three and twelve months ended December 31, 2023 and 2022 are summarized in the table below:

GAAP earnings attributable to common shareholders for the fourth quarter of 2023 increased by $2,793 million or $1.34 per share compared with the same period in 2022, primarily explained by the absence in 2023 of a non-cash goodwill impairment of $2.5 billion relating to the Gas Transmission reporting unit as a result of the increased cost of capital in addition to the operating performance factors discussed in detail below.

On a full year basis for 2023, GAAP earnings attributable to common shareholders was positively impacted by the goodwill impairment in 2022 discussed above, a non-cash, net unrealized derivative fair value gain of $1,127 million ($856 million after-tax) in 2023, compared with a net unrealized loss of $1,246 million ($950 million after-tax) in 2022, reflecting changes in the mark-to-market value of derivative financial instruments used to manage foreign exchange, interest rate, and commodity risks; partially offset by the absence in 2023 of a non-cash gain of $1.1 billion ($732 million after-tax) on the closing of the joint venture merger transaction with Phillips 66 (P66) realigning our effective economic interests in Gray Oak and DCP Midstream LLC (DCP) and a realized loss of $638 million ($479 million after-tax) due to termination of foreign exchange hedges, as foreign exchange risks inherent within the Competitive Toll Settlement (CTS) framework are not present in the negotiated Mainline tolling agreement.

The period-over-period comparability of GAAP earnings attributable to common shareholders is impacted by certain unusual, infrequent factors or other non-operating factors which are noted in the reconciliation schedule included in Appendix A of this news release. Refer to the Company’s annual Management’s Discussion & Analysis for 2023 filed in conjunction with the year-end financial statements for a detailed discussion of GAAP financial results.

Adjusted EBITDA in the fourth quarter of 2023 increased by $196 million compared with the same period in 2022. This was driven by higher Mainline volumes, higher contributions from the Midcontinent and Gulf Coast segment due to higher FSP volumes and record EIEC export volumes, higher Canadian utility rates and customer base, the expiration of certain transportation commitments in the Energy Services business and favorable USD/CAD hedge settlement rates. These impacts were partially offset by lower Mainline tolls effective July 1st, a lower Line 3 Replacement (L3R) surcharge and the timing of recognition of revenues attributable to the Texas Eastern rate case settlement in 2022.

Adjusted EBITDA for the year ended December 31, 2023 increased by $0.9 billion compared with 2022. This was primarily driven by the impact of the operating factors listed above as well as contributions from the Tres Palacios acquisition and the translation of U.S dollar denominated earnings. The average CAD to USD exchange rate in 2023 was $1.35 compared with $1.30 in 2022. These positive impacts were partially offset by a reduction in earnings from our investment in DCP as a result of our decreased interest due to the joint venture merger transaction with P66 that closed during the third quarter of 2022 and lower commodity prices impacting both DCP and Aux Sable.

Adjusted earnings in the fourth quarter of 2023 increased by $92 million, or $0.01 per share, primarily due to higher Adjusted EBITDA contributions discussed above, partially offset by higher financing costs due to higher interest rates and higher depreciation expense from assets acquired and placed into service last year.

Adjusted earnings for the year ended December 31, 2023 increased by $51 million, and decreased by $0.02 per share compared with same period in 2022, primarily due to the factors discussed above as well as higher earnings attributable to noncontrolling interests from the sale of 11.57% non-operating interest in seven Enbridge-operated pipelines to Athabasca Indigenous Investments in Q3, 2022.

DCF for the fourth quarter of 2023 increased by $69 million, primarily due to higher Adjusted EBITDA contributions discussed above, as well as the positive impact of the timing of maintenance capital spend and lower current income taxes over the period, partially offset by higher financing costs from higher interest rates and lower net distributions in excess of equity earnings.

DCF for the year ended December 31, 2023, increased by $284 million compared with 2022. This was primarily driven by the same operating factors as listed above as well as higher annual cash distributions in excess of equity earnings from Gray Oak and DCP, partially offset by higher distributions to noncontrolling interests from the sale of 11.57% non-operating interest in seven Enbridge-operated pipelines to Athabasca Indigenous Investments and higher maintenance capital across the organization.

Both full year and quarterly per share metrics were impacted by the bought deal equity issuance in the third quarter of 2023, as part of the pre-funding and de-risking of the financing plan for the pending Acquisitions.

Detailed financial information and analysis can be found below under Fourth Quarter and Year-End 2023 Financial Results.

FINANCIAL OUTLOOK

The Company exceeded its midpoint 2023 financial guidance for both EBITDA and DCF, reflecting the resilient growth embedded in the business and highly predictable nature of its results. Enbridge has met its annual financial guidance for 18 consecutive years.

The Company reaffirms its 2024 base business financial guidance for adjusted EBITDA and DCF. Enbridge’s financial guidance excludes EBITDA and DCF contributions from the Acquisitions announced on September 5, 2023.

Growth in 2024 is anticipated to be driven by contributions from recent acquisitions, assets placed into service, and toll escalators, partially offset by lower Mainline tolls, higher financing costs, and higher current income taxes.

Enbridge increased its 2024 quarterly dividend by 3.1% to $0.915 ($3.66 annualized) per share, commencing with the dividend payable March 1, 2024 to shareholders of record on February 15, 2024.

FINANCING UPDATE

Pre-Funding the Acquisitions

Since the announcement of the Acquisitions, Enbridge has pre-funded approximately $10 billion of the $12.8 billion (US$9.4 billion) cash consideration, significantly de-risking the execution of the Company’s funding plan.

This pre-funding included the issuance of 102.9 million common shares for gross proceeds of approximately CDN$4.6 billion inclusive of underwriters’ 15% over-allotment. The Company also issued US$2.0 billion of 60-year hybrid subordinated notes in the U.S. and $1.0 billion of 60-year hybrid subordinated notes in Canada (together the “Hybrid Issuances”) which will receive partial equity treatment from rating agencies. These Hybrid Issuances were substantially hedged at favorable interest rates relative to the market at the time of issuance. In the fourth quarter, Enbridge announced the sale of its interest in Alliance Pipeline and Aux Sable for $3.1 billion. A portion of the sales proceeds will be used to fund the Acquisitions and the remainder will be used for debt reduction.

Enbridge intends to use the aggregate net proceeds from the above pre-funding initiatives to pay down existing indebtedness in the near-term and ultimately finance a portion of the aggregate cash consideration payable for the Acquisitions. The remaining funding requirements can be readily satisfied through a variety of alternate sources, including the issuance of senior unsecured notes, the Company’s ongoing capital recycling program, the potential reinstatement of Enbridge’s Dividend Reinvestment Plan, and initiating At-The-Market common share issuances.

General

On November 6th, 2023, Enbridge Inc. issued US$3.5 billion of senior notes consisting of US$750 million of 3-year senior notes, US$750 million of 5-year senior notes, US$750 million of 7-year senior notes, and US$1.25 billion of 30-year senior notes.

Proceeds from these offerings were used to repay short-term debt, for capital expenditures including tuck-in acquisitions, and for general corporate purposes.

SECURED GROWTH PROJECT EXECUTION UPDATE

Enbridge placed over $2 billion of growth projects into service in 2023 primarily made up of Gas Distribution’s $1.2 billion of 2023 Utility Growth Capital, US$0.6 billion of GTM’s 2023 modernization program and Phase I of the Fox Squirrel solar project.

During 2023, Enbridge added $10 billion of new organic growth capital to its backlog, predominantly from the U.S. Gas Utility growth program (assuming successful closings of the Acquisitions), the addition of the US$1.2 billion Rio Bravo Pipeline to the secured growth backlog and the increase to the Sunrise Expansion on T-South of $400 million. The Company’s secured growth backlog now sits at $24 billion and is underpinned by commercial frameworks consistent with Enbridge’s low-risk model.

BUSINESS UPDATES

Liquids Pipelines: Enbridge files Mainline Tolling Agreement with Canada Energy Regulator

On December 15, 2023, Enbridge filed an application with the Canada Energy Regulator (CER) for approval of the Mainline Tolling Settlement with unanimous support from its Representative Stakeholder Group. The MTS covers both the Canadian and U.S. portions of the Mainline and sees the Mainline continuing to operate as a common carrier system available to all shippers on a monthly nomination basis.

The expected financial outcome from this settlement is in line with previously reported financial results after taking into consideration the previously recognized provision, inflationary cost adjustments and increased volumes. The CER indicated in its process letter that it may decide on the application following its comment process or it may establish further process steps. The CER’s comment period for the settlement closed on January 19, 2024 without opposition, with only letters of support.

The settlement term is seven and a half years through the end of 2028, with new interim tolls effective on July 1, 2023.

Liquids Pipelines: Enbridge concludes Flanagan South Open Season

The Company concluded the upsized open season for long-term contracted service on Flanagan South Pipeline. The 110 kbpd open season was fully subscribed, securing long-term strong utilization on the full Mainline pathway, from Western Canada to the U.S. Gulf Coast. FSP is now 90% term-contracted on its 720 kbpd capacity. This is expected to help sustain strong Mainline utilization through the foreseeable future.

Liquids Pipelines: Enbridge concludes Southern Lights Open Season

During the fourth quarter, the Company initiated and concluded a binding open season on Southern Lights Canada Pipeline (SLCP) for 165 kbpd of existing capacity becoming available on July 1, 2025. Southern Lights Pipeline, which comprises both SLCP and Southern Lights U.S. Pipeline, is a 2,556-kilometre diluent pipeline originating at the Enbridge Manhattan Terminal in Illinois and terminating in Edmonton, Alberta. The open season was over-subscribed, ensuring long term utilization of the system through at least 2030.

Gas Transmission And Midstream: Enbridge announces sale of interest in Alliance Pipeline and Aux Sable

On December 13, 2023, Enbridge announced it had entered into a definitive agreement to sell its 50.0% interest in the Alliance Pipeline and its interest in Aux Sable (including 42.7% interest in Aux Sable Midstream LLC and Aux Sable Liquid Products L.P., and 50% interest in Aux Sable Canada LP) to Pembina Pipeline Corporation for $3.1 billion, including approximately $0.3 billion of non-recourse debt, subject to customary closing adjustments. The sale reflects an attractive valuation of approximately 11 times projected 2024 EBITDA for Alliance and approximately 7 times for Aux Sable.

The effective date of the transaction is January 1, 2024, with closing expected to occur in the first half of 2024, subject to the receipt of regulatory approvals and customary closing conditions. A portion of the proceeds will be used to pre-fund the Acquisitions and the remainder will be used for debt reduction.

Gas Transmission And Midstream: Maritimes & Northeast Pipeline Toll Settlement

The toll settlement agreement for the Canadian portion of Maritimes & Northeast Pipeline (M&N Canada) expired in December 2023. M&N Canada reached a toll settlement with shippers for the effective period from January 1, 2024 to December 31, 2025. On November 28, 2023, M&N Canada filed the 2024 – 2025 toll settlement agreement with the CER for review and approval. A CER decision is expected in the first quarter of 2024.

Gas Distribution and Storage: Enbridge’s Acquisition of Gas Utilities from Dominion

On September 5, 2023, Enbridge entered into three separate definitive agreements with Dominion Energy, Inc. (Dominion) to acquire The East Ohio Gas Company, Questar Gas Company and its related Wexpro companies, and Public Service Company of North Carolina for an aggregate purchase price of $19.1 billion (US$14.0 billion), comprised of $12.8 billion (US$9.4 billion) of cash consideration and US$4.6 billion of assumed debt, subject to customary closing adjustments. The Acquisitions continue to be expected to close in 2024, subject to the satisfaction of customary closing conditions, including the receipt of required U.S. federal and state regulatory approvals. To date, the Company has significantly de-risked the funding plan for the Acquisitions, and retains considerable optionality to fund the balance.

In the weeks following the announcement of the Acquisitions, Enbridge established a dedicated integration team to ensure as seamless a transition of the gas utilities into the Company’s existing operations as possible. Enbridge and Dominion’s regulatory teams are in the process of securing the required U.S. federal and state regulatory approvals to complete the Acquisitions. The waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act expired on November 1, 2023. On January 11, 2024 Enbridge and Dominion received final clearance, without any required mitigation or condition, from the Committee on Foreign Investment in the United States for the Acquisitions.

Gas Distribution and Storage: Enbridge Gas Inc. Incentive Regulation Rate Application

On December 21, 2023, the OEB issued its Decision and Order on Phase 1 (Phase 1 Decision). The decision addressed three main areas: energy transition, Enbridge Gas Distribution and Union Gas amalgamation and harmonization issues, and other issues. The Phase 1 Decision included the following key findings or orders:

energy transition risk requires us to carry out a risk assessment to consider further risk mitigation measures in three areas: system access and expansion capital spending, system renewal capital spending and depreciation policy;
our 2024 capital plan must be reduced by $250 million with a focus on monitoring, repair and life extension of our assets and a further $50 million of capitalized indirect overhead costs must be expensed, escalating to $250 million per year during the IR term with an offsetting adjustment to revenues in each year;
all new small volume customers wishing to connect to natural gas pay their full connection costs as an upfront charge rather than through rates over time effective January 1, 2025;
approval of a harmonized depreciation methodology that reduced the level of depreciation sought and adjusted asset lives including extensions of service life for certain asset classes;
an increase in equity thickness from 36% to 38% effective for 2024; and
January 1, 2024 will be the effective date for 2024 rates.

Enbridge has expressed concerns with certain aspects of the decision which impact energy affordability, consumer choice and the reliability of gas to Ontario communities and industry. In response, the Company will continue working with the Ontario provincial government to address those concerns.

Enbridge filed a Notice of Appeal in the Ontario Divisional Court on January 22, 2024 regarding four aspects of the Phase 1 Decision: small volume customer revenue horizon, the 2024 capital plan reduction, the extension of service life for certain asset classes and equity thickness. On January 29, 2024 Enbridge also filed a Notice of Motion with the OEB requesting the OEB to review five aspects of the Phase 1 Decision: small volume customer revenue horizon, the 2024 capital plan reduction, integration capital, depreciation and equity thickness. The outcome of these proceedings is uncertain.

The Phase 1 Decision results in interim rates, pending phases 2 and 3 of the proceeding, resolution of the Notice of Appeal, Notice of Motion and any possible legislative steps that could be undertaken by the Government of Ontario further to the Minister of Energy’s December 22, 2023 news release described in Objectives and Strategy. Phase 2 will establish and determine the incentive rate mechanism for the remainder of the rebasing term, and gas cost and unregulated storage cost allocation. Phase 3 will address cost allocation and the harmonization of rates and rate classes between legacy rate zones

The Phase 1 Decision is expected to be immaterial to Enbridge’s 2024 financial guidance.

Renewable Power: Fox Squirrel Solar Farm

In the fourth quarter of 2023, Enbridge announced a partnership with EDF Renewables to construct and operate Fox Squirrel Solar, a 577 MW ground-mounted solar facility under construction in Madison County, Ohio. Enbridge invested a total of US$152 million in the now operational first phase of the development and plans to invest in the following two phases during 2024, assuming certain conditions are met. The full generation capacity is de-risked by 20 year fixed-price power purchase agreements with a strong investment grade counterparty. The project is expected to be immediately accretive to DCF per share.

FOURTH QUARTER 2023 FINANCIAL RESULTS

GAAP Segment EBITDA and Cash Flow from Operations

For purposes of evaluating performance, the Company makes adjustments to GAAP reported earnings, segment EBITDA and cash flow provided by operating activities for unusual, infrequent or other non-operating factors, which allow Management and investors to more accurately compare the Company’s performance across periods, normalizing for factors that are not indicative of underlying business performance. Tables incorporating these adjustments follow below. Schedules reconciling EBITDA, adjusted EBITDA, adjusted EBITDA by segment, adjusted earnings, adjusted earnings per share and DCF to their closest GAAP equivalent are provided in the Appendices to this news release.

Adjusted EBITDA By Segment

Adjusted EBITDA generated from U.S. dollar denominated businesses was translated to Canadian dollars at the same average exchange rate (C$1.36/US$) in the fourth quarter of 2023 and 2022. On a full year basis, adjusted EBITDA generated from U.S. dollar denominated business was translated at C$1.35/US$, compared with C$1.30/US$ in 2022. A significant portion of U.S. dollar earnings are hedged under the Company’s enterprise-wide financial risk management program. The hedge settlements are reported within Eliminations and Other.

Liquids Pipelines

Liquids Pipelines adjusted EBITDA increased $66 million compared with the fourth quarter of 2022, primarily related to:

higher contributions from the Gulf Coast and Mid-Continent System due primarily to increased volumes on FSP and higher export demand at the EIEC;
higher Southern Lights revenue from uncommitted volumes; and
higher Mainline System throughput driven by higher crude demand; partially offset by
lower Mainline System tolls as a result of new interim tolls effective July 1, 2023 and a lower L3R surcharge

Full year 2023 Liquids Pipelines adjusted EBITDA increased $635 million compared with 2022 and was primarily impacted by the same factors discussed above as well as:

the favorable effect of translating US dollar earnings at a higher …

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