ENBRIDGE INC annual report, FY2021

Enbridge Inc. — FY 2021 Form 10-K

Reporting period: Year ended December 31, 2021; the filing also provides unaudited fourth-quarter results. Unless otherwise noted, amounts are Canadian dollars. Enbridge operates liquids pipelines, gas transmission and midstream, gas distribution and storage, renewable power generation, and energy services.

Financial performance

MetricFY 2021FY 2020
Operating revenue$47.071 billion$39.087 billion
Operating income$7.805 billion$7.957 billion
Earnings attributable to common shareholders$5.816 billion$2.983 billion
Diluted earnings per share$2.87$1.48
EBITDA (non-GAAP)$14.236 billion$10.692 billion
Cash from operating activities$9.256 billion$9.781 billion
Capital expenditures$7.818 billion$5.405 billion
Total debt$75.640 billion$66.897 billion
Net available liquidity at year-end$6.5 billion$12.7 billion

Revenue rose about 20%, principally reflecting higher commodity sales reported gross by Energy Services; management says that business’s net margins are generally a small fraction of gross revenue. Transportation and other services revenue was nearly unchanged at $16.172 billion. Operating income declined modestly despite higher revenue; reported operating margin was approximately 16.6%, versus 20.4% in 2020. The increase in common-share earnings and EBITDA largely reflects the absence of substantial 2020 impairments, including a $1.7 billion impairment of the DCP Midstream investment, as well as a $303 million gain on the Noverco sale. These comparisons are therefore affected by unusual items.

Fourth-quarter 2021 revenue was $12.470 billion, common-share earnings were $1.840 billion, and EPS was $0.91, compared with $10.008 billion, $1.775 billion, and $0.88, respectively, in fourth-quarter 2020.

Segments and material changes

  • Liquids Pipelines: EBITDA was $7.897 billion, up from $7.683 billion. Mainline average throughput ex-Gretna increased to 2.8 million barrels per day from 2.6 million; Line 3 Replacement capacity entered service in October. The full-year segment comparison was affected by derivative gains and an interim Mainline toll provision.
  • Gas Transmission and Midstream: EBITDA was $3.671 billion versus $1.087 billion, with the comparison heavily affected by 2020 impairments. Excluding unusual and other non-operating factors discussed by management, EBITDA decreased $45 million.
  • Gas Distribution and Storage: EBITDA was $2.117 billion versus $1.748 billion, including the Noverco sale gain. Excluding identified unusual factors, EBITDA increased $31 million, supported by higher rates and customer additions; warmer-than-normal weather reduced 2021 EBITDA by about $55 million.
  • Renewable Power Generation: EBITDA was $508 million, down from $523 million, partly due to weaker wind resources and the February Texas winter storm.
  • Energy Services: EBITDA loss widened to $313 million from a $236 million loss, reflecting compressed location and quality differentials, fewer storage opportunities, and winter-storm effects.

Cash, debt and capital allocation

Operating cash flow was $9.256 billion, below the $9.781 billion reported in 2020. Investing activities used $10.657 billion, including $7.818 billion of capital expenditures and $3.785 billion for acquisitions, primarily the Moda purchase. Financing activities provided $1.236 billion, supported by debt issuance and borrowings; common dividends paid were $6.766 billion. Year-end long-term debt was $67.961 billion, with $6.164 billion of current maturities; total debt including short-term borrowings was $75.640 billion.

Available committed credit facilities were $6.221 billion and cash and cash equivalents were $286 million at year-end. Enbridge reported compliance with debt covenants and Moody’s upgraded its ratings to Baa1 with stable outlook. Management noted negative working capital of $3.1 billion, primarily related to growth-program liabilities, and cited committed facilities as a funding source. A 3% increase in the quarterly common dividend to $0.86, or $3.44 annualized, was announced for payment beginning March 2022.

Outlook, risks and notable items

  • Management expects distributable cash flow per share to grow at a 5–7% compound annual rate through 2024, relative to 2021. This is a forward-looking target, not a guarantee.
  • The commercially secured capital program was approximately $9 billion through 2024. Management estimated annual self-funding capacity of about $5–6 billion for new organic growth without additional common equity, while maintaining key credit metrics.
  • The CER denied Enbridge’s proposed Canadian Mainline contracting application in November 2021. Interim tolls remain in effect while alternatives are discussed; management expected greater toll-framework clarity by 2023. Final tolls and possible adjustments could affect revenue.
  • Enbridge acquired Moda for $3.7 billion in cash, plus potential contingent payments of up to US$150 million. It sold its Noverco interest for $1.1 billion and monetized part of its French offshore wind interests.
  • Material legal and permitting uncertainty remains around Line 5 in Michigan, including litigation and the Great Lakes Tunnel permitting process, and around DAPL’s vacated easement and required environmental impact statement. Enbridge reported that DAPL was not then subject to a shutdown order.
  • Other key exposures include pipeline integrity incidents, severe weather, cyberattacks, regulatory and environmental compliance costs, project delays or cost inflation, energy-transition effects on demand, interest rates, foreign exchange, commodity-price volatility in certain businesses, and access to capital markets.
  • The company reported a US$3.3 million commitment for the Clearbrook groundwater matter, including an escrow for potential future monitoring and mitigation. It recorded a $111 million impairment on PennEast after project development ceased.

Most important facts for investors to verify

  • Progress, timing, and financial effects of a replacement Canadian Mainline toll framework, including any interim-period adjustments.
  • Underlying distributable cash flow, payout coverage, and the assumptions behind the 5–7% per-share growth target; reconcile these non-GAAP measures to audited GAAP results.
  • Debt maturities, refinancing needs, liquidity availability, and the effect of higher interest rates on funding costs and dividend capacity.
  • Current status and potential operational impact of Line 5 and DAPL litigation, permits, and related project timelines.
  • Execution, cost, and in-service-date risks for secured projects, and whether expected returns and self-funding capacity are being achieved.
  • How much of 2021 earnings improvement reflects recurring operations versus impairments, asset-sale gains, and derivative fair-value movements.