Enbridge CEO Al Monaco: a final investment decision on the Northern Gateway project could be determined in 2016

Enridge CEO Al Monaco - Northern Gateway decision in 2016

A final investment decision on the Northern Gateway pipeline project could come in 2016, said Enbridge CEO Al Monaco December 3.

“It’s probably going to be in the latter half of 2016, if I had to make a guess,” Monaco said in a conference call to provide guidance for next year.
Responding to a question, Monaco said it’s too early to speculate on whether Enbridge might consider a location other than Kitimat for the-$7.9 billion project, which has already been conditionally approved by the federal government. Prime Minister Justin Trudeau has indicated he wants to see a ban on tanker traffic off the North Coast of British Columbia.

“We have heard the prime minister and the minister of natural resources [Jim Carr] indicate … their openness to listen; they have talked about the importance of Canada securing markets, so all we can say at this point is that we are looking forward to engaging with the federal staff on this,” said Monaco.

In the meantime, Enbridge will continue to focus discussions on First Nations consultation, which is what it has been doing since it received its certificate of public conveyance and necessity in 2014, he said.
“We also have 28 Aboriginal partners that are keen to invest in the project alongside us so we will be working with them as well to continue to discuss the project and hopefully we will have some good discussions with all levels of government.”

Enbridge wants to speak with governments, mainly in B.C., and communities to make sure people understand the project, said Monaco. With slightly lower crude oil volumes out of Western Canada as a result of lower commodity prices, the company is confident in the ability of its Mainline to serve the needs of customers for the next few years, he said.

“In a way, the timing [of Northern Gateway] isn’t too concerning to us; we continue to work on the things we need to.”

Linefill for the reversed Line 9 is now underway and the pipeline is “in operation,” with shippers now having the full ability to use their contracts as they choose to, said Guy Jarvis, president of liquids pipelines.

Mainline volume nominations for December are extremely strong, analysts heard.

“Assuming everything hangs together in terms of the supply making its way into the pipe and our downstream customers are running well, we will be achieving a new record throughput in December,” he said. In August 2015, Enbridge reported record Mainline throughput of 2.3 million barrels per day.

For 2016, the Mainline will be a strong driver of overall growth with forecast volumes of nearly 2.5 million barrels per day ex-Gretna, Manitoba, said John Whelan, vice-president of finance and chief financial officer. Higher volumes, he said, are expected to be offset somewhat by a lower Canadian residual benchmark toll as tolls on the Lakehead are expected to rise. Enbridge will also see the benefits of revenue and cash flow from Line 9 and from regional oilsands pipelines, which went into service this year, and by the Southern Access project, which is expected to be completed and in service by the end of this year.

However, while the company is highly confident about the volumes of heavy crude and the volumes out of North Dakota, it has been closely watching light crude volumes, said Jarvis. The company, he said, is already working on ways to come up with a crude slate that would enable it to use some of the heavies and put it into a light line to “beef up” some of the volumes if there is less demand for light crude.

With Line 9 in operation and the Southern Access extension on its way, though, the Mainline is quite strong on light crudes at least for December, said Jarvis.

Responding to a question, Monaco said the provincial government’s climate change policies will not have an overall impact on the company in the near term due to the timing of caps on oilsands emissions.

The Enbridge board of directors has declared a quarterly dividend of 53 cents per common share, payable on March 1, 2016 to shareholders of record on February 16, 2016. The dividend reflects a 14% increase from the prior quarterly rate, marking the 21st consecutive year of increased dividends for the company.

“The core of our shareholder value proposition is our reliable business model, which continues to deliver strong and predictable results and dividend growth,” said Monaco. “The 14% dividend increase reflects the confidence we have in our outlook, underpinned by the strength of our businesses, an industry leading growth program and our sound financial position.”

Over the last two years, Enbridge has increased its dividend by more than 50% while maintaining strong available cash flow coverage, he noted.

The company is confident in its ability to continue that type of growth in the current commodity environment because it has a strong liquids outlook and has $25 billion secured capital in execution that provides low risk cash flow growth, said Monaco. Enbridge also is largely insulated from low commodity prices in the near- to- medium-term, with currently less than three per cent of its business subject to direct commodity price exposure and 95 per cent of cash flow underpinned by strong commercial constructs, he said.

Oilsands projects in execution are expected to provide 800,000 barrels per day of growth out of Western Canada through 2019 and ex-Alberta pipe capacity likely will be constrained as volumes increase. “Even in a bearish case … there is a 500,000-bbl-per-day shortage of ex-Alberta capacity by 2021 and in any scenario, our liquids systems are competitively positioned because our tolls are the most economical to key markets.”

Enbridge systems also connect crude supply directly to refineries and downstream pipes totalling 3.5 million barrels per day of market demand, he said. “Given that production capacity outlook, our Mainline should be in good shape, and full, through the next several years.”

If additional capacity is needed, Enbridge believes the best way to do so is through low cost incremental expansions that minimize tolls and throughput commitments, according to Monaco.

Enbridge also announced a guidance range for 2016 available cash flow from operations (ACFFO) per share of $3.80 to $4.50. The growth in the company’s ACFFO per share guidance range for 2016 reflects growth from its existing businesses and the successful execution of its capital program. This includes projects brought on in 2015 such as the Mainline expansion program, the Edmonton-to-Hardisty pipeline, the Line 9 reversal and the Woodland pipeline expansion.

In 2016, combined capital expenditures for Enbridge and Enbridge Income Fund are about $9 billion. Forecast maintenance spending, mainly in the liquids pipeline segment, is between $800 million and $850 million for 2016, up from $700 million to $750 million this year, when some projects were deferred.

Enbridge also provided a guidance range for 2016 adjusted earnings before interest and taxes (EBIT) of $4.4 billion to $4.8 billion enterprise-wide.

The company is entering 2016 well positioned to execute on its five-year strategic plan which includes a $38 billion growth program, $25 billion of which is commercially secured and in execution, said Monaco. It is expected to generate compound average annual ACFFO per share growth of 15-18% through 2019 and annual average dividend per share growth of 14-16%.