Enbridge Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; filed November 6, 2020. Unless stated otherwise, amounts are Canadian dollars. Financial statements are unaudited.
Business context and financial performance
Enbridge operates liquids pipelines, gas transmission and midstream, gas distribution and storage, renewable power generation, and energy services businesses. The COVID-19 pandemic and lower energy demand pressured pipeline volumes and commodity-linked activities. Reported revenue includes substantial commodity sales and related costs.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $9.110B | $11.598B | $29.079B | $37.717B |
| Operating income | $2.095B | $1.588B | $5.706B | $6.492B |
| Earnings | $1.104B | $1.060B | $1.517B | $4.913B |
| Earnings attributable to common shareholders | $990M | $949M | $1.208B | $4.576B |
| EPS, diluted | $0.49 | $0.47 | $0.60 | $2.27 |
| EBITDA, as presented by Enbridge | $2.988B | $2.803B | $6.661B | $10.680B |
Cash flow: Nine-month operating cash flow was $7.527B, versus $7.405B. Investing activities used $3.644B, versus $5.029B; financing activities used $3.845B, versus $2.124B. Cash and restricted cash ended the period at $692M, compared with $872M at September 30, 2019.
Debt and liquidity: At September 30, 2020, short-term borrowings were $969M, current long-term debt was $3.616B, and long-term debt was $62.967B. Committed credit facilities totaled $24.327B, with $14.005B available; reported net available liquidity, including $657M unrestricted cash, was $14.7B. Enbridge reported compliance with debt covenants. It also disclosed negative working capital, excluding current maturities of long-term debt.
Margins: The filing does not provide a single consolidated margin figure. It reports operating income and EBITDA as above; commodity sales and corresponding costs make revenue-based comparisons less informative.
Material changes versus prior comparable periods
- Q3 revenue declined $2.488B year over year, largely reflecting lower commodity sales. Q3 earnings attributable to common shareholders rose $41M, while reported EBITDA increased $185M.
- Nine-month common earnings fell $3.368B and EBITDA fell $4.019B year over year. Enbridge attributed much of the earnings decline to equity-investment impairments, derivative fair-value changes, severance and other unusual items.
- Nine-month equity-investment impairment expense was $2.351B. Separately, Enbridge reported $324M of equity-earnings losses related to asset and goodwill impairments at DCP Midstream, LP. The DCP impairment, reduced distributions from DCP, and impairments of Steckman Ridge and SESH were linked to weaker commodity conditions and revised outlooks.
- Long-term debt on the balance sheet increased from $59.661B at December 31, 2019 to $62.967B at September 30, 2020. Enbridge issued debt and expanded or extended credit facilities during the period.
Outlook, management commentary, risks and unusual items
- COVID-19 and volumes: Mainline System volumes began a modest recovery in Q3. Management expected 100–300 kbpd of underutilization in Q4 2020 and a return to full utilization in 2021. It estimated each 100 kbpd volume change would affect quarterly revenue, net of power savings, by about $35M. The outlook remained uncertain.
- Resilience and cost actions: Management cited long-term take-or-pay and cost-of-service contracts, investment-grade or credit-supported customers representing about 95% of first-nine-month revenue, and diversified cash flows. It targeted approximately $300M of 2020 operating-cost reductions and said liquidity could fund current capital projects and debt maturities through 2021 without capital-market access if conditions were unfavorable.
- Unusual items: Nine-month results included major equity-investment impairments, non-cash derivative fair-value losses, a $159M Texas Eastern rate-settlement impact, and $318M of employee severance, transition and transformation costs. Q3 included $615M of impairments of SESH and Steckman investments, partly offset in year-over-year comparisons by favorable non-cash derivative movements and the absence of certain 2019 losses. Reported results are therefore meaningfully affected by non-cash and other items.
- Projects and regulation: The U.S. Line 3 Replacement Program’s cost estimate for its Minnesota portion was under review; required permits remained outstanding, and construction timing was uncertain. Enbridge withdrew its Dawn-Parkway expansion application in October, citing demand changes and COVID-19 uncertainty. The Mainline contracting hearing was expected after April 2021; no date had been set.
- Legal and operational risks: Litigation concerning the Dakota Access Pipeline included a pending request to enjoin operations while an environmental review proceeds. Line 5’s east segment resumed service in September after inspections and a court order, but separate litigation over the Straits easement continued. A May rupture on Texas Eastern led to pressure restrictions; eastbound restrictions were lifted, while southbound service was expected to resume after planned integrity work. Management said other legal proceedings were not expected to have a material impact, but outcomes remain uncertain.
- Other exposures: Enbridge identified commodity-price and utilization risk, customer and supplier credit deterioration, capital-market access, project permitting and cost risk, and uncertain pandemic effects. It had approximately $2.9B of signed service and materials purchase commitments expected to be paid over five years. The board declared a common-share quarterly dividend of $0.81, payable December 1, 2020.
Most important facts for investors to verify
- Whether Mainline volumes recover as forecast and how throughput affects revenue and earnings.
- The composition of reported earnings and EBITDA, especially impairments, derivative fair-value movements and severance costs.
- Debt maturities, available liquidity, refinancing needs and continued covenant compliance.
- Resolution and timing of U.S. Line 3 permits, Mainline contracting proceedings, Dakota Access litigation and Line 5 disputes.
- Whether the dividend and capital program remain supported by operating cash flow amid pandemic, commodity-price and project risks.