Business context and reporting period
Enbridge Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2022. Amounts are in Canadian dollars unless stated otherwise. Its businesses include liquids pipelines, gas transmission and midstream, gas distribution and storage, renewable power generation, and energy services.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenue | $15.097 billion | $12.137 billion |
| Operating income | $2.420 billion | $2.498 billion |
| Earnings | $2.057 billion | $2.014 billion |
| Earnings attributable to common shareholders | $1.927 billion | $1.900 billion |
| Basic and diluted EPS | $0.95 | $0.94 |
| EBITDA, a non-GAAP measure | $4.424 billion | $4.086 billion |
| Operating cash flow | $2.939 billion | $2.564 billion |
| Capital expenditures | $1.048 billion | $2.059 billion |
Revenue increased substantially, while operating income edged lower; management attributed much of the revenue growth to higher commodity sales and gas distribution sales. EBITDA rose, led by growth in liquids pipelines and gas transmission and midstream. Energy Services reported an EBITDA loss of $101 million versus income of $64 million in the prior-year quarter. Operating cash flow exceeded capital expenditures by approximately $1.891 billion.
At March 31, 2022, cash and cash equivalents were $413 million. Long-term debt was $70.490 billion and its current portion was $4.379 billion; short-term borrowings were a further $1.604 billion. Net available liquidity was $5.3 billion, including $4.9 billion of available committed credit and $413 million of unrestricted cash. The company reported negative working capital excluding current debt maturities, citing funding of its growth capital program, and said liquidity was available to meet obligations as they came due. It was in compliance with debt covenants.
Material changes versus the prior-year quarter
- Common-share earnings increased $27 million and EPS rose from $0.94 to $0.95. Management cited higher liquids pipeline throughput, the full Line 3 Replacement surcharge, recent asset and project contributions, higher commodity prices benefiting certain equity investments, and colder-than-normal weather in gas distribution.
- Mainline System throughput excluding Gretna averaged 3.0 million barrels per day, compared with 2.7 million. Lower capital expenditures reflected the U.S. Line 3 Replacement project entering service in late 2021.
- Interest expense increased to $719 million from $657 million, primarily due to lower capitalized interest after Line 3 entered service, higher average debt principal, and higher interest rates.
- Financing cash outflow increased to $1.483 billion from $565 million, including higher dividends, debt repayments, preference-share redemption, and $50 million of common-share repurchases; debt issuance partly offset these uses.
Outlook, commentary, risks and unusual items
The filing provides no new consolidated earnings or cash-flow guidance. Management said its financing activities were expected to fund the current capital-project portfolio for the next 12 months without capital-market access if markets were restricted or pricing unattractive. Its financing plan did not include additional common-equity issuance. The common dividend was increased 3% to $0.86 per share quarterly, effective March 1, 2022.
On March 31, Alberta awarded Enbridge the right to pursue development of the Wabamun Carbon Hub with project partners. The proposed hub and associated capture projects could avoid nearly 4 million tonnes of CO2 emissions, with phased in-service dates starting as early as 2025. These projects remain subject to development and execution. A precedent agreement for the Valley Crossing expansion depends on the proposed Texas LNG facility reaching a final investment decision.
Management identified a $44 million after-tax negative impact from unusual, infrequent or other non-operating factors, primarily associated with derivative fair-value movements and a $44 million pretax impairment of lease assets related to office relocation plans. Derivative mark-to-market movements create reported earnings volatility; management said its hedging program is intended to mitigate foreign-exchange and commodity risks over time. Other risks discussed include regulatory and toll-setting outcomes, inflation and interest rates, foreign exchange and commodity prices, construction costs and timing, market access, and litigation. Management said ordinary-course legal and regulatory matters were not expected to materially affect consolidated financial position or results. No material changes to the annual report’s risk factors were reported.
Most important facts for investors to verify
- Whether growth in EBITDA and common earnings persists after separating operating performance from non-cash derivative revaluations and other unusual items.
- Debt, interest costs, refinancing needs, and the adequacy of available liquidity given negative working capital and planned capital spending.
- Progress and final toll treatment for the Canadian Mainline and other rate proceedings, including the interim toll arrangements.
- Delivery, costs, and in-service timing of secured growth projects, as well as the conditions and funding for announced projects still under development.
- Potential outcomes of the Minnesota environmental matters and other legal, regulatory, and tax contingencies.