Enbridge Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Amounts are in Canadian dollars unless otherwise noted. Enbridge operates liquids pipelines, gas transmission and midstream, gas distribution and storage, renewable power generation, and energy services businesses. Interim results may be affected by seasonality and are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $12.187 billion | $12.013 billion |
| Operating income | $2.548 billion | $1.513 billion |
| Operating margin | 20.9% | 12.6% |
| Net earnings/(loss) | $2.014 billion | $(1.364) billion |
| Earnings/(loss) attributable to common shareholders | $1.900 billion | $(1.429) billion |
| Diluted EPS | $0.94 | $(0.71) |
| Cash from operating activities | $2.564 billion | $2.809 billion |
| Capital expenditures, cash flow statement | $2.059 billion | $1.147 billion |
Operating cash flow less capital expenditures was approximately $505 million, compared with $1.662 billion in Q1 2020; this is a simple calculation, not a company-defined free-cash-flow measure. EBITDA, as presented in the filing, was $4.086 billion versus a loss of $325 million, but both periods were substantially affected by unusual and non-cash items.
At March 31, 2021, total assets were $160.695 billion and total equity was $65.988 billion. Long-term debt was $62.688 billion and current maturities were $4.014 billion, or approximately $66.7 billion combined, compared with approximately $65.8 billion at December 31, 2020. Cash and cash equivalents were $465 million; net available liquidity was reported at $8.3 billion, including cash. Enbridge had $7.879 billion available under $21.072 billion of committed credit facilities and was in compliance with debt covenants. The filing reports negative working capital excluding current debt maturities.
Changes versus Q1 2020
- Reported common-share earnings improved by $3.329 billion, chiefly because Q1 2020 included large non-cash derivative losses, a $1.7 billion impairment of the DCP Midstream investment, related investee impairment losses, a Texas Eastern rate-case settlement loss, and an Energy Services inventory write-down. Management attributed $3.4 billion of the year-over-year earnings impact to unusual, infrequent, or other non-operating factors.
- Revenue increased modestly, while operating income rose substantially. The filing’s derivative mark-to-market movements materially affect reported revenue and earnings and should not be read as equivalent changes in underlying cash performance.
- Operating cash flow decreased $245 million, while cash capital expenditures increased $912 million. Cash and restricted cash ended the quarter at $524 million, up $34 million from the start of the period.
- Segment EBITDA was $2.039 billion in Liquids Pipelines (up from $850 million), $973 million in Gas Transmission and Midstream (versus a $1.054 billion loss), $634 million in Gas Distribution and Storage (up from $604 million), $156 million in Renewable Power Generation (up from $120 million), and $64 million in Energy Services (down from $121 million). The first two comparisons are heavily affected by prior-year unusual items.
- Common dividends paid per share were $0.835, compared with $0.810 in Q1 2020. The quarterly common dividend was increased 3% effective March 1, 2021.
Outlook, management commentary, and key risks
- Management said Mainline throughput had substantially recovered to pre-pandemic levels, especially for heavy crude, and described utilization across liquids pipelines, gas pipelines, and the gas utility as relatively strong. Pandemic duration and effects on demand and utilization remain uncertain.
- The US Line 3 Replacement Program was more than half complete and remained expected to enter service in Q4 2021. The filing lists other commercially secured projects with expected in-service dates spanning 2021–2024. No new consolidated earnings or cash-flow guidance is provided in the supplied filing text.
- Management said financing, cash generation, and liquidity were expected to support the current capital-project portfolio through 2021 without requiring capital-market access if markets were restricted or pricing unattractive. This is subject to market conditions and project execution.
- Enbridge sold 49% of an entity holding its 50% interest in French offshore wind developer EMF to CPP Investments; the buyer will fund its share of future development capital. Annova LNG announced it would not proceed with its project, ending the associated planned transportation arrangement.
- Mainline contracting remained before the Canada Energy Regulator; oral arguments were scheduled for May 19, 2021. A replacement Competitive Tolling Settlement was not expected by June 30, and existing tolls were to continue on an interim basis subject to later adjustment.
- Line 5 faces litigation and Michigan’s notice seeking termination of the Straits easement and shutdown; Enbridge said it would defend its right to operate. The Great Lakes Tunnel permitting process was ongoing. For DAPL, the easement had been vacated and an injunction request remained pending; the Army Corps said it did not then intend to bar continued operations and anticipated completing its environmental impact statement by March 2022.
- Other risks include commodity and foreign-exchange movements, interest rates, construction costs and timing, regulatory approvals, and legal proceedings. Management stated that resolution of ordinary-course proceedings was not expected to materially affect financial position or results, while noting outcomes cannot be predicted with certainty. The company had approximately $2.8 billion of signed purchase commitments expected to be paid over five years.
Important facts for investors to verify
- Separate underlying operating performance and cash generation from substantial non-cash derivative and prior-year impairment effects.
- Track Line 3 completion, project spending, and the timing and funding of other committed growth projects.
- Monitor Line 5 and DAPL court, regulatory, and operating developments, as well as the outcome of Mainline contracting and toll proceedings.
- Assess debt maturities, refinancing needs, available liquidity, and the sustainability of dividends against operating cash flow and capital requirements.
- Evaluate energy-demand recovery, pipeline throughput, Energy Services market exposure, and the continuing effects of COVID-19.