Enbridge Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are Canadian dollars unless stated otherwise. Enbridge operates liquids pipelines, gas transmission and midstream, gas distribution and storage, renewable power generation, and energy services businesses.
Financial performance
| Metric | Q3 2023 | Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Revenue | $9.844B | $11.573B | $32.351B | $39.885B |
| Operating income | $1.794B | $1.778B | $6.806B | $5.718B |
| Earnings attributable to common shareholders | $532M | $1.279B | $4.113B | $3.656B |
| Basic and diluted EPS | $0.26 | $0.63 | $2.02 | $1.80 |
| EBITDA (non-GAAP) | $2.836B | $3.583B | $11.803B | $10.602B |
| Cash from operating activities | Not presented by quarter | $10.389B | $7.617B | |
| Capital expenditures | $2.347B | $1.215B | $3.284B cash-flow statement amount | $3.204B |
Q3 revenue fell 15% year over year, principally reflecting lower commodity sales, while transportation and other services revenue increased. Nine-month revenue also declined, but operating income and common earnings increased. Q3 common earnings were sharply lower largely because the prior-year quarter included a $1.076B gain from the DCP/Gray Oak joint-venture transaction. Management also cites litigation provisions, derivative valuation movements, and other one-time items in period comparisons. EBITDA is a non-GAAP measure and may not be comparable across issuers.
For the first nine months, investing activities used $3.503B and financing activities used $5.146B; cash and restricted cash increased $1.740B to $2.647B. Common dividends paid were $5.390B. The quarterly common dividend was raised 3.2% to $0.8875 per share, effective March 2023.
At September 30, 2023, total assets were $178.410B and equity was $68.474B. Short-term borrowings were $1.584B, current long-term debt $7.138B, and long-term debt $68.793B. Net available liquidity was $20.4B, including $17.8B of available committed credit facilities and $2.6B of unrestricted cash. Enbridge reported compliance with debt covenants. Interest expense for the first nine months rose to $2.709B from $2.316B.
Material changes and business drivers
- Liquids Pipelines nine-month EBITDA increased to $7.061B from $6.093B, supported by higher Mainline throughput and contributions from increased ownership of Gray Oak and Cactus II and stronger Ingleside demand. New interim Mainline tolls and a lower Line 3 Replacement surcharge partly offset gains.
- Gas Transmission and Midstream nine-month EBITDA declined to $3.220B from $4.384B, primarily because 2022 included the joint-venture transaction gain and Enbridge now has a lower interest in DCP. Tres Palacios acquisition and Texas Eastern rate-case revenues provided offsets.
- Gas Distribution and Storage nine-month EBITDA was $1.354B versus $1.368B. Management cited warmer weather, higher operating costs, and higher rates and customer demand.
- Renewable Power Generation nine-month EBITDA fell to $295M from $389M, reflecting weaker wind resources and lower European power prices, partly offset by new project contributions.
- Energy Services remained loss-making in Q3, with EBITDA of negative $106M, but improved from negative $348M for the first nine months of 2022 to negative $83M in 2023. Results are market-sensitive and may not indicate future performance.
Outlook, transactions, risks and unusual items
- Mainline tolling: Enbridge reached an agreement in principle with shippers for a seven-and-a-half-year settlement through 2028, with interim tolls effective July 1, 2023. It remains subject to regulatory and other approvals. Management expects the financial outcome to be in line with previously reported results after specified adjustments; the filing does not provide formal company-wide earnings guidance.
- Dominion gas utility acquisitions: Enbridge agreed to acquire three US utilities for $19.1B, including $12.8B cash and $6.3B assumed debt. Closings are expected in 2024, subject to approvals and other conditions. Enbridge raised $4.6B through a share offering and issued subordinated debt to fund part of the cash consideration; the acquisition bridge commitment was reduced to US$3.4B by quarter-end.
- Other transactions: Tres Palacios gas storage was acquired in April for $451M. Subsequent to quarter-end, Enbridge acquired Aitken Creek gas storage for $400M plus adjustments, agreed to increase its interest in German offshore wind facilities, and agreed to acquire seven US renewable natural gas facilities for $1.7B, subject to closing conditions.
- Legal and regulatory exposure: A US court ordered Line 5 to cease operating on specified Bad River tribal parcels without valid rights of way by June 16, 2026, imposed past-trespass damages of approximately $5.2M and ongoing quarterly payments, and required monitoring measures. Enbridge appealed; the Band cross-appealed. Separate Line 5 easement proceedings and the Dakota Access Pipeline environmental review remain ongoing. The Army Corps’ draft review presented alternatives but no preferred option; DAPL remained operational at filing.
- Other unusual items: Enbridge recognized a $124M litigation-related provision in Q3. It also incurred a $638M realized loss from terminating Canadian Mainline foreign-exchange hedges following the change in tolling framework. Unrecognized derivative fair-value movements create short-term reported earnings volatility.
- Risks and contingencies: Acquisition completion, integration and realization of expected benefits are uncertain. Other key exposures include regulatory approvals and rate proceedings, litigation, commodity and foreign-exchange movements, interest rates, access to capital, construction costs and schedules, and insurance availability. Management says ordinary-course litigation is not expected to materially affect consolidated results, but outcomes cannot be predicted with certainty.
Investor verification priorities
- Track regulatory approval, financing costs, closing conditions, and integration plans for the $19.1B Dominion acquisitions.
- Confirm final Mainline settlement approval and the eventual treatment of interim tolls and potential adjustments.
- Monitor Line 5 appeals and compliance deadlines, as well as Dakota Access environmental review developments.
- Assess recurring operating performance separately from the prior-year joint-venture gain, hedge-related mark-to-market volatility, litigation provisions, and hedge termination loss.
- Review debt, interest expense, liquidity, and dividend funding as acquisitions and other committed projects proceed.