Enbridge Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Interim statements are unaudited; amounts are Canadian dollars unless identified as US dollars.
Business context and financial performance
Enbridge operates liquids pipelines, gas transmission and midstream, gas distribution and storage, renewable power generation, and energy services. Q3 results reflected higher pipeline throughput and contributions from recently placed-in-service assets, alongside significant foreign-exchange derivative volatility and a one-time gain on a joint-venture transaction.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $11.573B | $11.466B | $39.885B | $34.551B |
| Operating income | $1.778B | $1.388B | $5.718B | $5.702B |
| Earnings attributable to common shareholders | $1.279B | $682M | $3.656B | $3.976B |
| Basic earnings per common share | $0.63 | $0.34 | $1.80 | $1.97 |
| EBITDA, non-GAAP | $3.583B | $2.605B | $10.602B | $10.029B |
| Cash from operating activities | Not provided by quarter | Not provided by quarter | $7.617B | $7.366B |
Calculated operating margin was approximately 15.4% in Q3 2022 versus 12.1% in Q3 2021. Reported Q3 earnings included a $1.076B pre-tax gain from the DCP/Gray Oak joint-venture realignment. For the nine-month period, common earnings declined despite revenue growth, in part because of larger unrealized derivative losses.
Cash flow, debt and liquidity
- Nine-month investing cash use was $3.158B, including $3.204B of capital expenditures; financing cash use was $3.785B. Cash and restricted cash increased $737M to $1.057B.
- At September 30, total current and long-term debt on the balance sheet was approximately $80.3B, up from $74.1B at December 31, 2021. Interest expense for nine months was $2.316B, compared with $1.923B.
- Cash and cash equivalents were $1.021B. Net available liquidity was reported as $8.1B, comprising $7.1B of available committed credit facilities and $1.0B of unrestricted cash. The company said it could fund anticipated requirements for approximately a year without accessing capital markets if needed.
- Nine-month common dividends paid were $5.226B. The quarterly common dividend was increased 3% to $0.86 per share, effective March 2022. Enbridge reported compliance with debt covenants.
Material changes and unusual items
- Q3 revenue rose about 1% year over year; nine-month revenue rose about 15%. Nine-month EBITDA increased about 6%, while common earnings fell about 8%.
- On August 17, Enbridge and Phillips 66 combined their indirect DCP and Gray Oak interests in a joint venture. Enbridge’s indirect Gray Oak interest increased to 58.5% from 22.8%, and its DCP interest decreased to 13.2% from 28.3%. Enbridge received about $522M cash and recorded a $1.076B accounting gain; both investments remain equity-method investments. Enbridge expects to assume Gray Oak operatorship in Q2 2023.
- Reported results were affected by non-cash derivative fair-value movements. Nine-month net unrealized derivative fair-value losses were $1.691B in the cash-flow reconciliation; management identified $1.751B of foreign-exchange-related net unrealized losses in its earnings discussion. Management cautioned that hedge accounting and economic hedging can create short-term reported earnings volatility.
- On September 27, Enbridge acquired renewable project developer Tri Global Energy for $295M cash plus contingent consideration of up to US$53M, subject to milestones. Its contribution to Q3 revenue and earnings was immaterial.
- After quarter-end, Enbridge completed the sale of an 11.6% non-operating interest in seven Athabasca regional pipelines for approximately $1.1B. It also announced a CEO transition: Greg Ebel is to succeed Al Monaco effective January 1, 2023.
Outlook, risks and contingencies
- The filing does not provide a clear new numerical full-year earnings or EBITDA guidance figure. Management said current financing plans do not include common-equity issuance and that available liquidity is expected to support current capital projects and other requirements.
- Project execution remains exposed to inflation, interest rates, foreign exchange, labor and material costs, supply-chain availability, weather, and regulatory and customer approvals. The filing identifies modest schedule pressure for the Calvados offshore wind project, now expected in 2025, and solar self-power projects, expected in 2023–2024.
- Enbridge Gas reported a $693M purchase-gas variance account balance at September 30. Gas-price-related recovery periods were extended from 12 to 24 months in approved mitigation plans, affecting timing of customer recovery.
- Line 5 litigation remains a material uncertainty. A federal court found trespass on certain Bad River Reservation parcels and said the Band is entitled to some profits-based damages and an injunction; the amount and scope were unresolved in the filing, with trial held in late October/early November 2022. A separate Michigan Attorney General challenge to the Straits of Mackinac easement also remained pending.
- Enbridge disclosed approximately US$11M in Minnesota enforcement resolutions related to alleged L3R construction violations, including amounts for financial assurances and environmental/resource projects. Management said other ordinary-course legal and regulatory matters were not expected to materially affect financial position or results.
- Management identifies commodity demand and prices, foreign exchange, inflation, interest rates, project timing and approvals, regulation, litigation, and weather among forward-looking risks. The filing notes that actual results may differ materially from forward-looking statements.
Important facts for investors to verify
- How much of reported earnings and EBITDA growth reflects recurring operations versus the $1.076B joint-venture gain, derivative revaluations, and other unusual items.
- Debt maturity and refinancing needs, interest-rate exposure, and whether liquidity remains adequate as capital spending, dividends, and debt service continue.
- Developments and potential operational or financial consequences in the Line 5 proceedings, including any injunction or damages determination.
- Resolution of interim Canadian Mainline tolls and recovery of Enbridge Gas’s purchase-gas variance balance.
- Whether major growth projects meet expected cost and in-service schedules, and how the Gray Oak/DCP realignment and renewable acquisitions contribute to future cash flows.