Letter to Shareholders
Delivering on Our Promises
2018 was a busy and productive year for Enbridge. Following our transformative acquisition of Spectra Energy in 2017, we established key priorities to further strengthen the company for the future. We’re pleased with our progress and we’ve entered 2019 an even stronger and more streamlined company. Let’s review some of the significant accomplishments and challenges of last year.
Strong operating results
Our three core businesses performed very well and generated record operating and financial results.
In Liquids, we delivered 2.785 million barrels per day (bpd) on our Mainline System—a new record. We’ve added 450,000 bpd of capacity to the Mainline since 2015 through expansion and low-cost optimizations, and our team is busy working on a number of near and medium-term enhancements to address transportation constraints in Western Canada.
In Gas Transmission, we reached peak deliveries on most of our systems and we’ve re-contracted more than 98% of the revenue that was up for renewal on our major pipes.
In our Utility, we delivered reliable, low-cost energy to our 3.7 million customers in Ontario.
Distributable cash flow per share grew by 20%
Strong operating results and new projects put into service translated into a 20% increase in distributable cash flow (DCF) to $4.42/share. We also increased our 2019 dividend by 10% to $2.95/share, which marks our 24th consecutive year of dividend increases.
$7 billion of new projects in service
We successfully brought $7 billion of projects into service, including two highly strategic natural gas pipeline projects: the NEXUS pipeline, which connects growing production in the Marcellus and Utica basins to key markets in the upper U.S. Midwest and serves our utility franchise in Ontario; and the Valley Crossing pipeline, which extends our Texas Eastern system and provides market access to growing demand in Mexico. We also brought our first European wind project into operation—Rampion Wind Farm offshore the UK. All of these projects are underpinned by long-term contracts, which support our low-risk business model.
Significant progress on Line 3 Replacement
Landowners, communities as well as Indigenous and Tribal communities along the right-of-way—on both sides of the border—are highly supportive of our Line 3 Replacement Project. In Canada, the pipeline has been installed and remaining work on related facilities is nearing completion. In Wisconsin, construction is complete. In Minnesota, following a thorough 43-month regulatory review, the Minnesota Public Utilities Commission granted its approval. The State of Minnesota has now provided a timeline to finalize its remaining permits before the end of 2019 and we expect the remaining federal permits will be finalized shortly thereafter. As a result of this progress, we now expect the project to be in-service in the second half of 2020.
2018 was a busy, productive year, and we’ve entered 2019 an even stronger more streamlined company.
Gregory L. Ebel
Board of Directors
Chief Executive Officer
Before we design new projects, we begin by listening to questions and concerns of local stakeholders, including Indigenous communities. We’ve built great partnerships with Indigenous communities that respect their culture and protect water, land and environment, as well as generating economic benefits for them.
$2.1 billion of new projects secured for future growth
We’ve announced $2.1 billion of new capital growth projects in both our liquids and gas businesses. These projects are in the middle of our investment fairway and will support our near-term and post-2020 outlook. This includes the Gray Oak Pipeline, which will deliver light crude oil from the Permian Basin to Corpus Christi and other local markets, and fits nicely within our strategy to build out our liquids pipeline network along the U.S. Gulf Coast.
A stronger and simpler company than a year ago
We’ve maintained our focus on a pure pipeline and utility business model by selling $7.8 billion in non-core assets, including Canadian and U.S. gathering and processing businesses. Today, we have three premium energy infrastructure franchises—liquids and gas pipelines and our natural gas utility. These are great low-risk businesses with strong competitive advantages and embedded growth.
The proceeds from these sales were used to accelerate debt repayment and strengthen our balance sheet. Our debt to EBITDA metric came down to 4.7X at year-end, well below our original target of 5.0X. This added financial flexibility enabled us to suspend the dividend reinvestment program, completing our transition to a self-funding growth model; we will use internally-generated cash flow to finance projects moving forward, rather than issue new common equity.
We’ve also simplified our business and corporate structure by:
- acquiring all of the public’s interest in our sponsored vehicles for a total of $13 billion, which brought all of our highly strategic and core assets under the Enbridge roof;
- amalgamating our Ontario utilities, which will result in efficiencies and a best in class utility operating model;
- centralizing functions and aligning processes and systems, helping us to reach the targeted synergies we promised as part of the Spectra deal.
Our number one priority is the safety and reliability of our systems. Overall, we had a good year on personal and contractor safety. However, the loss of a dear friend and co-worker in a helicopter accident and three incidents on our natural gas system late in 2018 and early this year remind us of the need to be constantly vigilant. We’re re-doubling our focus on safety and building a strong safety culture and we are steadfast in our goal of industry leadership.
We were disappointed that our accomplishments in 2018 didn’t translate to our share price, as it was a challenging year for Canadian and U.S. equity markets, particularly for energy and interest-sensitive sectors like ours. That said, we firmly believe that our value proposition—the best energy infrastructure assets, low-risk business model and reliable growth—will deliver superior returns for shareholders going forward.
Sustaining Growth for the Future
Over the last 10 years, Enbridge has benefited from an extraordinary period of growth in energy infrastructure in North America. We are now focused on new opportunities to sustain growth for the next generation. We believe that energy fundamentals will support growth within our pipeline and utility business model for decades to come. The International Energy Agency (IEA) forecasts that global energy demand will increase 25% by 2040, largely driven by population growth, greater urbanization and improved living standards. To meet this growing demand, the world will need all sources of energy supply and the infrastructure to deliver it.
This presents an opportunity for North America to both secure its energy independence and gain global energy market share. Abundant, low-cost energy resources and proximity to global markets gives the U.S. and Canada a distinct competitive advantage in supplying the world with cost effective and sustainable energy.
We see this as a great opportunity for Enbridge to play a leading role in providing critical energy infrastructure to connect supply within North America and deliver it to global markets.
There are plenty of attractive, accretive organic growth opportunities across our core businesses.
We’ll expand and extend our network to connect growing supply basins with key demand markets, including energy exports. Our three core businesses also have attractive, low-capital embedded growth opportunities that will enhance earnings and returns. Going forward and under a self-funding model, we’ll have $5-6 billion of available capital to reinvest in the business and we’ll continue to use a disciplined capital allocation framework to maximize shareholder value. Based on the opportunities in our core businesses, we expect to drive 5-7% growth in annual DCF/share post 2020.
Building a Company for the Future
Over the last 70 years, Enbridge has adapted to changing markets and energy trends. As we look to the future, we’re investing in energy sustainability, technology and the development of our people—all are critical to our long-term success.
Enbridge is on the front lines of the transition to a lower carbon economy. We are now a major North American player in natural gas transmission, distribution and storage, we’re delivering energy efficiency programs to lower emissions across our business and we have a strong presence in renewable energy.
We’re investing in technology and innovation to strengthen our competitive position and business performance. We opened our first Technology and Innovation Lab in February 2019 to further drive solutions focused on growing our business and improving customer experience and returns.
An engaged workforce is key to sustaining our future, which is why we’re placing a strong emphasis on career development. We want our people—our most important asset—to build long, meaningful careers at Enbridge. We are also focused on succession planning at all levels of our organization as well as building a diverse and inclusive workforce.
Looking back over 2018, our team came together to deliver on our promises. We’re grateful for the commitment and dedication of our people in achieving our goals and strong results.
We would also like to thank our Board of Directors for their guidance and strong governance. We are particularly appreciative of Michael McShane, who retired from the board this past year, and Clarence Cazalot, who will not be standing for re-election in 2019 and will be retiring at this year’s annual meeting of shareholders.
In February 2019, we welcomed Teresa Madden and Susan Cunningham as Directors. They bring extensive experience in energy and sound business judgement, and are strong additions to our Board.
Enbridge has the asset footprint, financial strength, people and proven ability to evolve and adapt to changing markets. We believe this will drive success and will enable us to continue to deliver shareholder value for decades to come.
Chief Executive Officer
March 13, 2019
Gregory L. Ebel
Board of Directors