Letter to Shareholders
The New Enbridge
Essential to our success is an ability to continually assess our environment and adapt to change; and over the last three decades, Enbridge has done just that. In the 1990’s, we purchased Enbridge Gas Distribution as we believed in the potential of natural gas; 20 years ago we were the first to offer incentive tolling to better align with our customers’ needs; and 15 years ago we began investing in renewables, ahead of the curve. In 2017, we changed again: the completion of our merger with Spectra Energy transformed Enbridge into a North American infrastructure leader with global scale.
With the completion of the merger, we now have what we believe are the highest-quality liquids and natural gas infrastructure assets on the continent under one roof. The new Enbridge has a much stronger and more balanced portfolio of oil and natural gas assets, growth opportunities and geographic reach. Our expanded footprint provides unmatched scale, diversity, financial flexibility and multiple platforms for organic growth to continue to deliver the energy people need and want—today and for decades to come.
This has been done as we maintain and build on the value proposition that has served our company and our shareholders well: our reliable, low-risk business model, transparent growth and a growing dividend.
Two years ago, we began a process to transform our business by finding more efficient and effective ways of working. After the merger, we moved quickly to integrate the Spectra assets and bring together 15,000 people into the new Enbridge. We ended 2017 as one team, working towards a common goal of building the best energy delivery company in North America.
Beyond the transaction, 2017 was a very busy year punctuated with numerous accomplishments and milestones.Impressively, we put $12 billion of new assets into service in 2017, a record achievement in a single year, but equally important these projects are expected to provide strong cash flows and earnings for decades to come. This included Sabal Trail, a greenfield natural gas system serving the U.S. Southeast; the Wood Buffalo Extension, serving the Fort Hills oil sands project in northern Alberta; and the Chapman Ranch wind power facility in Texas. Our ability to advance these and other projects is the result of continued on-the-ground engagement with local communities, stakeholders and regulators to build understanding and trust, which is critical to what we do and part of our corporate DNA.
In our core businesses, we moved record volumes on our Mainline System, which came from a combination of oil sands supply growth and capacity optimization initiatives undertaken by our team to increase throughput, which benefited our customers and our industry, too. Our expanded gas transmission business operated very well and delivered the results we expected from the Spectra transaction. Same goes for our gas distribution businesses, where we added approximately 50,000 customers and brought a major expansion into service, another benefit of the Spectra deal. Importantly, we once again delivered industry-leading safety performance. Our 15,000 employees performed their daily work with the utmost focus on safety, not only for the communities in which we operate, but also for their fellow teammates. Shareholders could not be better served by our employees’ long-term dedication to safely and reliably operating our assets. Like us, the communities where we live and work expect us to be world-class operators, and each year we work harder at running our business while protecting the public, the environment and our people.
Another area of focus was to secure funding for our capital program and to ensure a strong balance sheet. We raised about $14 billion of capital across the Enbridge group of companies on favorable terms and sold $2.6 billion of non-core assets, surpassing our original target of $2 billion set at the time we announced the Spectra transaction. We also took steps to simplify our sponsored vehicles, which hold critical infrastructure assets.
Integration of the Spectra business is well on track and we achieved the cost synergy objectives we were anticipating for the first year. With the combined strength and earnings power of our core businesses, contributions from new projects and cost synergy capture, distributable cash flow per share was $3.68, which was within the 2017 financial guidance range communicated to investors. Finally, we increased our dividend by 15 percent in 2017, our 23rd consecutive year of dividend hikes.
Despite our teams’ best efforts, there were some disappointments: upstream volume disruptions prevented the full utilization of our liquids Mainline; we experienced project delays due to regulatory and permitting challenges prevalent in our industry today; and three years of low commodity prices took their toll on our commodity-sensitive businesses. Equally disappointing was the fact that we did not realize the type of shareholder returns that you, our owners, have become accustomed to, and that we expect to deliver on your behalf. We strongly believe that as our team continues to deliver on the benefits of the Spectra merger, our capital expansion projects and financial targets, our shareholders will enjoy strong total shareholder returns.
The new Enbridge has a much stronger and more balanced portfolio of oil and natural gas assets, growth opportunities and geographic reach.
Chief Executive Officer
Gregory L. Ebel
Board of Directors
We have clear competitive advantages in our three core businesses, and they fit in our low-risk, reliable value proposition.
In August 2017, we broke ground in Canada on our Line 3 Replacement Program—the largest project in Enbridge's history—which will enhance the safety, operational reliability and throughput of the Mainline System.
At Enbridge, we continually look for ways to improve our business and leverage our strengths, which is critical to remaining competitive in today’s environment. After we closed the Spectra merger, we undertook a comprehensive review of our expanded asset base, business environment and competitive position, with the goal of assessing where best to allocate capital and to establish our new three-year plan.
As a result of this review, we are very focused on what we do best: growing our pipeline and utility assets because this is where we can add the most value. Moving forward, we will place greater emphasis on our three core businesses: liquids pipelines and terminals; natural gas transmission and storage; and natural gas utilities. These three core businesses share common characteristics:
- strategically located assets with direct connections between North America’s key supply areas, storage and demand markets;
- size, scale and flexibility to meet customer needs and compete to win new business;
- strong commercial underpinnings and highly predictable cash flows that align with our low-risk value proposition; and
- a large set of organic growth opportunities that naturally extend the scope and reach of our existing businesses.
We also decided to sell or monetize assets that don’t have these characteristics or don’t fit our business model. These non-core assets, including certain unregulated gas midstream and onshore renewable businesses, have a value of at least $10 billion.
2018 – 2020 Plan and Priorities
We have set a course for the next three years that will increase our competitiveness and grow our business. We’re confident the successful execution of this plan will generate approximately 10 percent compound annual distributable cash flow per share growth through 2020, which supports our ability to grow our dividend by 10 percent per year over the same period.
Our plan focuses on the following six priorities:
Safety andoperational reliability
Above all else, safety and reliability of our operations remains our number one priority.
Maximise the value of our core business
We will focus on growing our three core businesses—liquids pipelines, gas transmission and gas utilities—through optimization, extension and expansion. We have clear competitive advantages in these businesses, and they fit in our low-risk, reliable value proposition.
Execute our capital program
We will focus on bringing $22 billion of secured growth projects into operation through 2020. Our inventory of projects includes: the Line 3 Replacement Program that will enhance the safety, operational reliability and throughput of the Mainline System; the NEXUS Gas Transmission Project, a natural gas pipeline system connecting our Texas Eastern pipeline in Ohio to the Union Gas Dawn hub in Ontario; and the Valley Crossing natural gas pipeline, which will provide gas producers with market access to Mexico.
Strengthen our financial position
To fund growth opportunities, we’ve designed a prudent financing plan that provides flexibility of sources of capital and enables us to accelerate deleveraging of the balance sheet. As part of this, we plan to sell $3 billion of non-core assets in 2018.
Complete integration and transformation
We remain on track to capture the estimated $540 million in pre-tax annual synergies from the Spectra transaction by 2019. We have also implemented initiatives to target top-quartile cost performance.
Position for long-term growth
We will continue to evaluate opportunities to position Enbridge for the energy mix of the future, including expanding our offshore wind power generation business.
Thanks to the continued hard work and dedication of our employees, we were able to accomplish a great deal this past year. We are particularly proud of how our people came together to respond to hurricanes Harvey and Irma. We maintained our operations and lent a much-needed hand in our hard-hit communities.
We would like to thank our Board of Directors for their leadership through our first year as the new Enbridge. In particular, Rebecca Roberts, who is retiring from the Board, deserves our heartfelt appreciation for her service as a Director of Enbridge and Enbridge Energy Partners. We are honored and feel fortunate each day to work with the Enbridge team and to lead this great company.
We strongly believe that Enbridge is very well positioned for the future. We have talented people operating and growing the most strategically located and critical liquids and natural gas infrastructure and distribution systems on the continent. Our goal over the next three years is to build on our strengths to become the best-performing energy infrastructure company in North America, and to continue delivering long-term growth and shareholder value.
Chief Executive Officer
March 13, 2017
Gregory L. Ebel
Board of Directors