Enbridge Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020, including unaudited fourth-quarter results. Unless noted otherwise, amounts are Canadian dollars. Enbridge is a North American energy infrastructure company operating liquids pipelines, gas transmission and midstream, gas distribution and storage, renewable power generation, and energy services businesses.
Financial results and position
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $39.1 billion | $50.1 billion |
| Operating income | $8.0 billion | $8.3 billion |
| Earnings attributable to common shareholders | $3.0 billion | $5.3 billion |
| Diluted earnings per common share | $1.48 | $2.63 |
| Cash from operating activities | $9.8 billion | $9.4 billion |
| Capital expenditures | $5.4 billion | $5.5 billion |
| Long-term debt at year-end | $62.8 billion | $59.7 billion |
- Fourth-quarter revenue was $10.0 billion; earnings attributable to common shareholders were $1.8 billion, or $0.88 per share.
- Segment EBITDA was $10.7 billion versus $13.6 billion. Liquids Pipelines contributed $7.7 billion, Gas Transmission and Midstream $1.1 billion, Gas Distribution and Storage $1.7 billion, Renewable Power Generation $523 million, and Energy Services recorded a $236 million loss.
- Revenue fell 22% year over year, largely reflecting lower commodity sales and gas distribution sales. Commodity sales are reported gross and generally generate margins that are a small fraction of revenue.
- Cash and cash equivalents were $452 million; net available liquidity was $12.7 billion, including cash. Committed credit facilities totaled $23.9 billion, with $12.3 billion available. Working capital, excluding current debt maturities, was negative $3.7 billion.
- Total debt carrying value was approximately $66.9 billion, including current maturities and short-term borrowings. Enbridge reported compliance with debt covenants and investment-grade credit ratings.
- Common dividends paid were $3.24 per share for 2020, compared with $2.95 in 2019. The company announced a 3% increase to $0.835 quarterly, or $3.34 annualized, effective March 2021.
The filing does not provide a clear consolidated operating-margin measure in the summarized information.
Material changes versus 2019
- Common-share earnings declined by $2.3 billion. Key 2020 charges included a $1.7 billion impairment of the DCP Midstream investment, $615 million of impairments to SESH and Steckman Ridge investments, and $339 million of employee severance, transition and transformation costs.
- Reported results also reflected volatile non-cash derivative fair-value gains: $856 million in 2020 versus $1.6 billion in 2019. Such accounting gains and losses can make reported earnings less comparable with underlying cash performance.
- Liquids Pipelines EBITDA was essentially flat at $7.7 billion. Mainline throughput averaged 2,622 thousand barrels per day, down from 2,705 thousand, as COVID-19 reduced crude demand; volumes recovered during the second half.
- Gas Transmission and Midstream EBITDA fell to $1.1 billion, principally reflecting investment impairments. Gas Distribution and Storage EBITDA was nearly unchanged at $1.7 billion. Renewable Power Generation EBITDA increased to $523 million, while Energy Services swung to a $236 million loss amid compressed market differentials and fewer profitable transportation opportunities.
- Operating cash flow increased to $9.8 billion from $9.4 billion. Long-term debt rose by about $3.2 billion; total assets declined to $160.3 billion from $163.2 billion.
Outlook, management commentary and risks
- Management said Enbridge exceeded the midpoint of its 2020 financial guidance range; the filing text provided here does not state the guidance range or a specific 2021 earnings outlook.
- Management described a targeted 5%–7% growth rate through 2023. The secured capital program was approximately $16 billion, with the current program expected to be financed without additional common equity. After its completion, management anticipates capacity to invest $5–$6 billion annually in new organic growth while maintaining credit metrics within planning parameters.
- Management expected a return to full Mainline utilization in 2021 as economic activity and refinery utilization recovered. It estimated that each 100-thousand-barrel-per-day change in Mainline volumes would affect quarterly revenue, net of power savings, by approximately $35 million.
- The U.S. Line 3 Replacement Program was under construction in Minnesota after receiving required permits, with completion expected in the fourth quarter of 2021. The total program estimate increased to $9.3 billion in source currencies, reflecting, among other items, winter construction, permitting time, environmental measures and COVID-19 protocols.
- The Mainline contracting application remained in regulatory proceedings; an oral hearing was expected after April 2021, with no date set. If no replacement agreement was in place by June 30, 2021, the existing toll settlement provided for interim tolls to continue.
- Significant legal and regulatory uncertainty surrounds the Dakota Access Pipeline (DAPL), including the Army Corps’ environmental review and litigation seeking an injunction against operations. Line 5 also faces Michigan litigation and an attempted easement revocation, with the state seeking shutdown of the Straits crossing by May 2021. The company said it would defend continued operation.
- Other key risks include COVID-19 and energy-demand uncertainty, commodity-driven utilization and customer credit risks, pipeline integrity and operational incidents, project cost or schedule overruns, regulatory and environmental changes, climate-related costs, cyberattacks, and access to capital. The filing notes prior Texas Eastern pipeline incidents; the May 2020 rupture led to pressure restrictions that were lifted in the fourth quarter after integrity work.
- Enbridge set goals of net-zero operational GHG emissions by 2050 and a 35% reduction in emissions intensity by 2030. Management said ESG measures would affect incentive compensation beginning in 2021.
Important facts for investors to verify
- Progress, remaining cost and schedule for the U.S. Line 3 Replacement Program, and whether its expected 2021 in-service timing is achieved.
- Outcomes of DAPL and Line 5 proceedings, including any injunction, shutdown risk or required additional capital spending.
- Terms and timing of a new Mainline tolling arrangement, and the financial sensitivity to throughput and toll changes.
- Whether DCP Midstream distributions recover, and whether further impairments or reduced equity-investment cash flows arise.
- Liquidity, debt maturities, credit ratings and dividend coverage as the capital program continues; reported available liquidity and negative working capital should be assessed alongside cash generation and facility availability.