Mr. Al Monaco reports
ENBRIDGE INC. REPORTS FOURTH QUARTER 2016 RESULTS
Enbridge Inc. had fourth quarter and full-year 2016 adjusted earnings before interest and taxes of $1,198-million and $4,662-million, respectively. Fourth quarter available cash flow from operations (ACFFO) was $879-million, or 95 cents per common share, and full-year ACFFO was $3,713-million, or $4.08 per common share. Full-year adjusted EBIT and ACFFO per share increased by 12 per cent and 10 per cent, respectively, over the comparative full-year period.
Q4 highlights
- Earnings were $365-million or 39 cents per common share for the fourth quarter and $1,776-million or $1.95 per common share for the full year, both including the impact of a number of unusual, non-recurring or non-operating factors.
- Adjusted earnings were $522-million or 56 cents per common share for the fourth quarter and $2,078-million or $2.28 per common share for the full year.
- Adjusted earnings before interest and income taxes were $1,198-million for the fourth quarter and $4,662-million for the full year.
- Available cash flow from operations was $879-million or 95 cents per common share and $3,713-million or $4.08 per common share for the fourth quarter and full-year period, respectively.
- Enbridge and Spectra Energy Corp. shareholders voted overwhelmingly in favour of the merger of the two companies, which will create North America's premier energy infrastructure company. The transaction remains subject to finalization of certain regulatory approvals.
- Senior management appointments announced to take effect upon closing of the merger.
- Enbridge continued to successfully execute its growth capital program, bringing $2-billion of projects into service during 2016.
- In November, 2016, the Canadian federal government approved the Canadian portion of the Line 3 replacement program.
- New Creek wind and Athabasca pipeline twin projects were placed into service in December and January, respectively.
- In December, 2016, the New Brunswick provincial government passed legislation to renew Enbridge Gas New Brunswick Inc.'s (EGNB) franchise agreement for a 25-year renewable term and approved a regulatory recovery mechanism for $145-million of deferred costs previously written down by EGNB following a regulatory decision in 2012.
- In January, 2017, Enbridge announced the privatization of Midcoast Energy Partners LP (MEP) and further joint financing actions with Enbridge Energy Partners LP (EEP).
- During the fourth quarter of 2016, the company raised over $3.7-billion of new long-term capital and continued to progress its $2-billion asset monetization plan by closing the sale of its South Prairie region assets for $1.08-billion and entering into agreements to sell approximately $600-million of additional miscellaneous non-core assets and investments.
- On Jan. 5, 2017, Enbridge announced the declaration of a quarterly common share dividend of 58.3 cents per common share, payable on March 1, 2017, a 10-per-cent increase over the prior quarterly rate.
- On Feb. 15, 2017, Enbridge announced it completed the acquisition of an interest in the Bakken pipeline system.
- In February, 2017, Enbridge acquired an effective 50-per-cent interest in the 497-megawatt Hohe See offshore wind project in Germany; the company's total investment through completion of construction in 2019 will be approximately $1.7-billion; the equity financing requirement for the investment was satisfied through financing actions undertaken by the company in the fourth quarter.
"Our fourth quarter results contributed to solid 2016 full-year adjusted EBIT and cash flow growth," said Al Monaco, president and chief executive officer. "We are pleased with mainline system performance which recovered sharply from the impacts of the northeastern Alberta wildfires in the second quarter. The system delivered an average 2.5 million barrels per day ex-Gretna during the fourth quarter and delivered a record 2.6 million barrels per day in December. Despite the impact of the wildfires and a larger and earlier-than-planned equity offering during the first quarter, we've again delivered results right in line with the adjusted EBIT and ACFFO guidance we announced heading into the year. We have been successful in achieving our planned cost savings, which also contributed to our strong results and will make us even more competitive going forward.
"We also continued to advance our existing organic growth capital program and very meaningfully progressed our strategy to extend and diversify the company's growth platforms with the announcement of our transformative combination with Spectra Energy. The combination with Spectra Energy will position Enbridge as the premier energy infrastructure company in North America, significantly enhancing our natural gas footprint and diversifying the company's organic growth opportunities while maintaining its low-risk shareholder value proposition."
Enbridge announced the combination with Spectra Energy in September, 2016. The combination brings together some of the highest-quality liquids and natural gas infrastructure assets in North America. The combined company will include a $26-billion portfolio of commercially secured growth projects through 2019 and a $48-billion probability-risk-weighted development project portfolio which, together with existing businesses, is expected to support highly visible dividend growth of 10 per cent to 12 per cent per annum through 2024, while maintaining a conservative dividend payout of 50 per cent to 60 per cent of ACFFO.
The merger transaction has received clearance from the Canadian Transportation Agency, the Committee on Foreign Investment in the United States and the United States Federal Trade Commission. In addition, the Ontario Energy Board (OEB) has communicated that it is satisfied that the transaction does not require OEB approval.
"We've made significant progress since the announcement in securing regulatory approvals and currently remain on target to close in the first quarter of 2017," said Mr. Monaco. "In December, both companies' shareholders overwhelmingly approved the merger transaction and the feedback received from shareholders has been very positive. We have also worked diligently with our regulators and have obtained nearly all of the required approvals. We are working jointly with Spectra Energy to plan for closing and the efficient integration of our companies and I am pleased with the progress we've made together. Our joint integration planning teams have done a great job laying the foundation to operate as one company, with one vision for the future, upon closing."
On closing, the following senior management appointments, reporting to Mr. Monaco, will take effect:
- Guy Jarvis, executive vice-president and president, liquids pipelines;
- Bill Yardley, executive vice-president and president, gas transmission and mid-stream;
- John Whelen, executive vice-president and chief financial officer;
- Vern Yu, executive vice-president and chief development officer;
- Bob Rooney, executive vice-president and chief legal officer;
- Cynthia Hansen, executive vice-president, utilities and power operations;
- Karen Radford, executive vice-president and chief transformation officer;
- Byron Neiles, executive vice-president, corporate services.
"I am excited to announce the senior management appointments today. The executive team is comprised of very strong and proven leaders, who are well positioned to successfully execute our strategies and deliver shareholder value for the combined company," Mr. Monaco said.
In January, 2017, Enbridge announced an increase in its quarterly common share dividend to 58.3 cents per share, marking the 22nd consecutive year in which the company has raised its dividend. Enbridge expects to further increase its quarterly common share dividend upon closing of the merger transaction by an amount sufficient to bring the aggregate increase in the quarterly dividend to approximately 15 per cent above the prevailing quarterly rate in 2016.
Mr. Monaco added: "The 10-per-cent dividend growth reflects the strength of our base business and the impact of $2-billion in growth capital projects brought into service during 2016 and an additional $6-billion in Enbridge growth capital projects expected to come into service in 2017. Delivering consistent and dependable dividend growth is core to our shareholder value proposition and is a direct reflection of our low-risk business model, which is designed to perform well in all market conditions. The combination with Spectra Energy will allow for a top up of our dividend in 2017, postclosing, and importantly, is expected to drive ongoing dividend growth in the range of 10 per cent to 12 per cent per annum through 2024."
During 2016, the company placed $2-billion of capital projects into service, including the Greater Toronto Area project, which provides increased capacity and reliability for utility customers in the Greater Toronto Area, the Line 6B expansion and, most recently, the New Creek wind project that went into service in December. The Athabasca pipeline twin project, which entailed the twinning of the southern section of the Athabasca pipeline with a 36-inch-diameter pipeline from Kirby Lake, Alta., to the Hardisty crude oil hub, was placed into service in January, 2017.
On Feb. 15, 2017, EEP completed the acquisition of its previously disclosed transaction to acquire an effective 27.6-per-cent interest in the Bakken pipeline system for a purchase price of $1.5-billion (U.S.). The Bakken pipeline system consists of the Dakota Access pipeline and the Energy Transfer crude oil pipeline projects, both of which will be operated by Energy Transfer Partners LP and connects the prolific Bakken formation in North Dakota to eastern PADD II and the United States Gulf Coast.
"Over the course of 2016 we made good progress on our secured growth capital program, bringing six major projects into service and expanding our footprint in a number of business lines," noted Mr. Monaco. "In 2017, we expect to put another $6-billion of organic growth projects into service being our Regional oil sands optimization project, the Norlite pipeline system project and the Bakken pipeline system, which we expect will contribute to growing available cash flow from operations."
In November, the Canadian federal government approved the Canadian portion of the Line 3 replacement program. The approval marks an important milestone for this essential maintenance project that will ensure the safe and reliable delivery of Canada's energy resources to market. The anticipated in-service date for this project is 2019, pending Minnesota Public Utilities Commission (MNPUC) regulatory approvals.
On Feb. 17, 2017, the company announced it had acquired an effective 50-per-cent interest in the partnership that is constructing the 497-megawatt Hohe See offshore wind project. Enbridge will partner with state-owned German utility EnBW in the construction and operation of this late-design project, with the target in-service date in 2019. The project is located in the North Sea, 98 kilometres (61 miles) off the coast of Germany and will be constructed under fixed-price engineering, procurement, construction and installation contracts, which have been secured with key suppliers. The project is backed by a government legislated 20-year revenue support mechanism. Enbridge's total investment in the project through to the project's completion and in-service date in 2019 is expected to be approximately $1.7-billion (1.07 billion euros), including planned spend of approximately $600-million (440 million euros) throughout 2017.
"This project represents an attractive opportunity for Enbridge to deliver on our priority to extend growth beyond 2019 and highlights the ability to execute on the $48-billion in projects under development we introduced in conjunction with the Spectra Energy combination announcement. These projects will support the extension of our 10-per-cent to 12-per-cent annual-dividend-per-share growth rate through 2024," said Mr. Monaco.
The Canadian federal government also directed the National Energy Board (NEB) to dismiss the company's Northern Gateway project application and the certificates have been rescinded. In consultation with the potential shippers and aboriginal equity partners, the company has assessed this decision and concluded that the project cannot proceed as envisioned. Project activity is limited to winding down while evaluating potential value preservation options. Enbridge recorded an impairment of $373-million ($272-million after tax) during the fourth quarter of 2016.
In December, the New Brunswick provincial government passed legislation to renew EGNB's franchise agreement for a 25-year renewable term and return full regulatory authority for natural gas distribution to the New Brunswick Energy and Utilities Board. The government also approved a regulatory recovery mechanism for $145-million of deferred costs starting no later than 2020. These accumulated costs had previously been written down following a decision of the New Brunswick Public Utilities Commission in 2012, but will now be recognized in income in future years.
In January, 2017, Enbridge announced that it had entered into a merger agreement through a wholly owned subsidiary, whereby it will take private MEP by acquiring all of the outstanding publicly held common units of MEP. Total consideration to be paid by Enbridge for these units will be approximately $170-million (U.S.) and the transaction is expected to close in the second quarter of 2017. In addition, pursuant to a continuing strategic review of EEP, further joint financing actions with EEP were announced. Specifically, Enbridge and EEP entered into an agreement for the joint financing of the United States portion of the Line 3 replacement program, whereby Enbridge and EEP will finance 99 per cent and 1 per cent, respectively, of the project development and construction costs. Enbridge has reimbursed EEP approximately $450-million (U.S.) for capital expenditures on the project to date and will finance 99 per cent of the expenditures through construction. EEP will retain an option to acquire up to 40 per cent of the U.S. L3R program at book value, once the project is completed and in service. EEP also used a portion of the proceeds reimbursed by Enbridge under the U.S. L3R program joint financing arrangement to acquire an additional 15-per-cent interest in the cash-generating Eastern Access projects pursuant to an existing joint financing agreement for approximately $360-million (U.S.). The strategic review of EEP is continuing and it is currently expected that any resulting actions will be announced early in the second quarter of 2017. Any such contemplated actions are not expected to be material to Enbridge's previously published financial projections.
During the fourth quarter, Enbridge further strengthened its liquidity and financial flexibility raising $750-million in preference shares and $750-million (U.S.) of hybrid securities, in addition to $1.5-billion (U.S.) of term debt. The preference shares and hybrid securities offerings represent approximately $900-million in common equity equivalent financing, further bolstering the balance sheet and satisfying the company's equity financing needs for the Bakken pipeline system, Hohe See offshore wind project and the actions taken to date in respect of its United States sponsored vehicles.
Concurrent with the announcement of the merger transaction, the company announced plans to monetize $2-billion in assets to provide for additional financing flexibility over the next 12 months. In December, an affiliate of Enbridge Income Fund sold its South Prairie region assets for $1.08-billion in cash. Also, during the fourth quarter, the company entered into agreements to sell approximately $600-million of additional miscellaneous non-core assets and investments, the full proceeds of which it expects will be realized before the end of the first quarter of 2017.
"We continue to progress our funding plans and have raised a significant amount of cost-effective capital through several different avenues since the end of the last quarter," noted Mr. Monaco. "We continue to evaluate sales of assets and are on track to achieve our $2-billion target. These actions have further bolstered our balance sheet and we are well positioned heading into the merger."
Fourth quarter and year-end 2016 performance overview
For more information on Enbridge's growth projects and operating results, please see the management's discussion and analysis (MD&A) which is filed on SEDAR and EDGAR and also available on the company's website.
HIGHLIGHTS
(in millions, except per share)
Three months ended Dec. 31, Year ended Dec. 31,
2016 2015 2016 2015
Earnings attributable to common shareholders
Liquids pipelines $1,389 $675 $3,557 $1,806
Gas distribution 150 111 492 455
Gas pipelines and processing 24 69 171 (229)
Green power and transmission 30 50 154 177
Energy services (147) 92 (185) 325
Eliminations and other (219) (156) (148) (899)
Earnings before interest and income taxes 1,227 841 4,041 1,635
Interest expense (412) (371) (1,590) (1,624)
Income taxes recovery/(expense) 32 (94) (142) (170)
(Earnings)/loss attributable to non-controlling
interests and redeemable non-controlling interests (406) 76 (240) 410
Preference share dividends (76) (74) (293) (288)
Earnings/(loss) attributable to common shareholders 365 378 1,776 (37)
Earnings/(loss) per common share 0.39 0.44 1.95 (0.04)
Diluted earnings/(loss) per common share 0.39 0.44 1.93 (0.04)
Adjusted earnings
Liquids pipelines 1,011 949 3,958 3,384
Gas distribution 150 128 494 446
Gas pipelines and processing 95 88 366 336
Green power and transmission 43 49 165 175
Energy services (5) (22) 28 61
Eliminations and other (96) (74) (349) (246)
Adjusted earnings before interest and income taxes 1,198 1,118 4,662 4,156
Interest expense (403) (372) (1,545) (1,273)
Income taxes (136) (130) (520) (486)
Non-controlling interests and redeemable
non-controlling interests (61) (48) (226) (243)
Preference share dividends (76) (74) (293) (288)
Adjusted earnings 522 494 2,078 1,866
Adjusted earnings per common share 0.56 0.58 2.28 2.20
Cash flow data
Cash provided by operating activities 1,058 772 5,211 4,571
Cash provided by/(used in) investing activities 8 (2,262) (5,192) (7,933)
Cash provided by financing activities 1 1,457 1,102 2,973
Available cash flow from operations
Available cash flow from operations 879 876 3,713 3,154
Available cash flow from operations per common share 0.95 1.03 4.08 3.72
Dividends
Common share dividends declared 497 401 1,945 1,596
Dividends paid per common share 0.530 0.465 2.12 1.86
Operating data
Liquids pipelines -- Average deliveries
(thousands of barrels per day)
Canadian Mainline (1) 2,481 2,243 2,405 2,185
Lakehead system (2) 2,624 2,388 2,574 2,315
Regional oil sands system (3) 1,197 996 1,032 1,004
Gas pipelines -- Average throughput
(millions of cubic feet per day)
Alliance pipeline Canada 1,429 1,481 1,532 1,488
Alliance pipeline U.S. 1,541 1,642 1,668 1,645
Gas distribution -- Enbridge Gas Distribution Inc.
Volumes (billions of cubic feet) 119 117 414 437
Number of active customers (thousands) (4) 2,158 2,129 2,158 2,129
Heating degree days
Actual (5) 1,129 1,007 3,412 3,710
Forecast based on normal weather volume 1,243 1,222 3,617 3,536
(1) Canadian Mainline throughput volume represents mainline system deliveries ex-Gretna, Manitoba,
which is made up of United States and Eastern Canada deliveries originating from Western Canada.
(2) Lakehead system throughput volume represents mainline system deliveries to the United States
Midwest and Eastern Canada.
(3) Volumes are for the Athabasca mainline, Waupisoo pipeline and Woodland pipeline, and exclude
laterals on the Regional oil sands system.
(4) Number of active customers is the number of natural gas consuming EGD customers at the end of
the period.
(5) Heating degree days measure coldness that is indicative of volumetric requirements for natural
gas utilized for heating purposes in EGD's franchise area. It is calculated by accumulating, for
the fiscal period, the total number of degrees each day by which the daily mean temperature falls
below 18 C. The figures given are those accumulated in the Greater Toronto Area.
EBIT
For the year ended Dec. 31, 2016, EBIT was $4,041-million compared with $1,635-million for the year ended Dec. 31, 2015. For the fourth quarter of 2016, EBIT was $1,227-million compared with $841-million for the fourth quarter of 2015.
As discussed below in adjusted EBIT, the company has continued to deliver strong year-over-year earnings growth from a majority of its businesses, offset partly in the second quarter of 2016 by the impacts of extreme wildfires in northeastern Alberta. The positive impact of this growth and the comparability of the company's earnings for each period are impacted by a number of unusual, non-recurring or non-operating factors and include the following significant items:
- The company has a comprehensive long-term economic hedging program to mitigate interest rate, foreign exchange and commodity price risks which create volatility in short-term earnings. Over the long term, Enbridge believes its hedging program supports the reliable cash flows and dividend growth upon which the company's investor value proposition is based. For the year ended Dec. 31, 2016, the company's EBIT reflected $543-million of unrealized derivative fair value gains, compared with $2,017-million of unrealized derivative fair value loss in the corresponding 2015 period.
-
EBIT for 2016 reflected an $850-million gain ($520-million after tax attributable to Enbridge) within the liquids pipelines segment related to the disposition of the South Prairie region assets in December, 2016.
-
The company's 2016 EBIT was also impacted by certain impairment charges reflected within the liquids pipelines segment. In the fourth quarter of 2016, the Canadian federal government directed the NEB to dismiss the company's Northern Gateway application and the certificates of public convenience and necessity under the authority of the NEB have been rescinded. In consultation with potential shippers and aboriginal equity partners, the company assessed this decision and concluded that the project cannot proceed as envisioned. After taking into consideration the amount recoverable from potential shippers on Northern Gateway, the company reflected an impairment of $373-million ($272-million after tax) in the fourth quarter of 2016.
-
In September, 2016, EEP announced that it had applied for the withdrawal of the regulatory applications for the Sandpiper project that were pending with the MNPUC. In connection with this announcement and other factors, the total impairment charge in respect of the Sandpiper project recorded during the year, including related project costs of $12-million, was $1,004-million, of which $875-million was attributable to non-controlling interests in EEP and Marathon Petroleum Corp., EEP's partner in the Sandpiper project ($81-million after tax in total attributable to Enbridge's common shareholders).
-
In the second quarter of 2016, an impairment charge of $176-million ($103-million after tax attributable to Enbridge) was recorded relating to Enbridge's 75-per-cent joint venture interest in Eddystone Rail, a rail-to-barge transloading facility located in the greater Philadelphia, Pa., area that delivers Bakken and other light sweet crude oil to Philadelphia area refineries. Due to a significant decrease in price spreads between Bakken crude oil and West African/Brent crude oil and increased competition in the region, demand for Eddystone Rail services dropped significantly, resulting in an impairment of this facility.
-
EBIT for 2015 was also impacted by a goodwill impairment charge of $440-million ($167-million after tax attributable to Enbridge) recognized in the second quarter of 2015 related to EEP's natural gas and NGL businesses. The prolonged decline in commodity prices reduced producers' expected drilling programs and negatively impacted volumes on EEP's natural gas and NGL pipelines and processing systems, which EEP holds directly and indirectly through its partially owned subsidiary, MEP.
Earnings/(loss) attributable to common shareholders
For the year ended Dec. 31, 2016, earnings attributable to common shareholders were $1,776-million ($1.95 earnings per common share) compared with a loss of $37-million (four-cent loss per common share) for the year ended Dec. 31, 2015. For the quarter ended Dec. 31, 2016, earnings attributable to common shareholders were $365-million (39-cent earnings per common share) compared with $378-million (44-cent earnings per common share) for the quarter ended Dec. 31, 2015.
Adjusted EBIT
For the year ended Dec. 31, 2016, adjusted EBIT was $4,662-million, compared with adjusted EBIT of $4,156-million for the year ended Dec. 31, 2015. For the fourth quarter ended Dec. 31, 2016, adjusted EBIT was $1,198-million, an increase of $80-million over the corresponding 2015 period.
Growth in consolidated adjusted EBIT year over year was largely driven by stronger contributions from the company's liquids pipelines segment which benefited from a number of new assets that were placed into service in 2015, the most prominent being the expansion of the company's mainline system in the third quarter of 2015, as well as the reversal and expansion of Line 9B and completion of the Southern Access extension in the fourth quarter of 2015, which provided increased access to the Eastern Canada and Patoka markets, respectively. The company continued to realize throughput growth on the Canadian Mainline, Lakehead system and Regional oil sands system primarily due to strong oil sands production growth in Western Canada enabled by recently completed pipeline expansion projects. However, the positive effect of increased production and higher capacity on liquids pipelines throughput was partially negated in the second quarter of 2016 by the impact of extreme wildfires in northeastern Alberta which led to a temporary shutdown of certain of the company's upstream pipelines and terminal facilities resulting in a disruption of service on Enbridge's Regional oil sands system with corresponding impacts into and out of Enbridge's downstream pipelines, including Canadian Mainline and the Lakehead system. Reduced system deliveries resulted in a negative impact of approximately $74-million on the company's adjusted EBIT for 2016. Growth in Canadian Mainline adjusted EBIT was also partially offset by a combination of a lower average international joint tariff (IJT) residual benchmark toll, which decreased effective April 1, 2016, and a lower foreign exchange rate on hedges used to convert Canadian Mainline U.S. dollar toll revenues to Canadian dollars.
In 2016, the company also benefited from stronger adjusted EBIT contributions from the United States Mid-Continent and Gulf Coast systems, attributable to increased transportation revenues mainly resulting from an increase in the level of committed take-or-pay volumes on the Flanagan South pipeline. Adjusted EBIT from Feeder pipelines and other was also higher, reflecting the benefits of a full year of earnings from Southern Access extension.
These positive trends on consolidated adjusted EBIT were partially offset by the performance of the United States portion of the Bakken system where adjusted EBIT fell primarily due to a lower surcharge on tolls subject to annual adjustment, as well as lower revenues from EEP's Berthold rail facility as a result of declining volumes on expiry of contracts.
Many of the annual trends discussed above were also factors driving adjusted EBIT growth in the liquids pipelines segment in the fourth quarter of 2016, when compared with the fourth quarter of 2015. However, the decrease in Canadian Mainline IJT residual benchmark toll and a lower rate on foreign exchange hedges of U.S. dollar toll revenue resulted in a decrease in Canadian Mainline adjusted EBIT for the fourth quarter of 2016 compared with the fourth quarter of 2015. In addition, there was a decrease in Mid-Continent and Gulf Coast adjusted EBIT for the fourth quarter of 2016 compared with the corresponding 2015 period, due to a year-over-year decline in demand for services on Spearhead pipeline.
Within the gas distribution segment, EGD, which operates under a five-year customized incentive rate plan, approved in 2014, generated higher adjusted EBIT in 2016 primarily due to higher distribution charges arising from growth in EGD's rate base.
The gas pipelines and processing segment benefited from operational efficiencies achieved by Alliance pipeline. Enbridge Offshore Pipelines' Heidelberg oil pipeline, which was placed into service in January, 2016, and Canadian mid-stream's Tupper Main and Tupper West gas plants, which were acquired on April 1, 2016, also contributed to the year-over-year increase in the gas pipelines and processing segment's adjusted EBIT. The positive effects were partially offset by the impact of lower volumes on U.S. mid-stream facilities due to reduced drilling by producers.
The green power and transmission segment adjusted EBIT decreased year over year as a result of disruptions at certain Eastern Canadian wind farms in the first quarter and fourth quarter of 2016 due to weather conditions which caused icing of blades, as well as weaker wind resources experienced at certain facilities in Canada during the first half and fourth quarter of 2016. These negative effects were partially offset by stronger wind resources at the company's United States wind farms during the second half of 2016.
Within the energy services segment, a decrease in adjusted EBIT in 2016 reflected weaker performance from Energy Services' Canadian and United States operations during the first half of 2016. The compression of certain crude oil location and quality differentials and the impact of a weaker NGL market drove a year-over-year decrease in adjusted EBIT. This decrease was partially offset by positive contributions from increased crude oil storage opportunities which also resulted in a lower adjusted loss before interest and income taxes for the fourth quarter of 2016 compared with the corresponding 2015 period.
Within eliminations and other, a higher realized foreign exchange derivative loss related to settlements under the company's foreign exchange risk management program, as well as higher operating and administrative expenses, resulted in an increase in year-over-year adjusted loss before interest and income taxes. The realized loss in eliminations and other serves to partially offset the positive effect of translating the earnings performance of the U.S.-dollar-denominated businesses to Canadian dollars at the prevailing exchange rate, which averaged $1.32 in 2016, and which is reflected in the reported EBIT of the applicable business segments. Operating and administrative expenses, which were higher primarily due to an increase in depreciation expense resulting from investment in new information technology assets, and lower recoveries from other business segments, also contributed to a higher fourth quarter adjusted loss before interest and income taxes, when compared with the corresponding 2015 period.
Adjusted earnings
Adjusted earnings for the year ended Dec. 31, 2016, were $2,078-million compared with $1,866-million for the year ended Dec. 31, 2015. Adjusted earnings for the fourth quarter of 2016 were $522-million compared with $494-million for the fourth quarter of 2015.
The year-over-year increases in adjusted earnings reflected the operating factors as discussed above in adjusted EBIT. The impacts of extreme wildfires in northeastern Alberta in the second quarter of 2016 on adjusted earnings and adjusted earnings per share for the year ended Dec. 31, 2016, remained unchanged at $26-million and three cents, respectively.
Partially offsetting the adjusted earnings growth discussed above was higher interest expense in 2016 resulting from debt incurred to finance asset growth and the impact of refinancing construction debt with longer-term debt financing. The amount of interest capitalized year over year also decreased as a result of projects coming into service.
Also partially offsetting the adjusted EBIT growth was an increase in adjusted income taxes expense which resulted from higher adjusted earnings. This was partially offset by increased tax benefits associated with certain financing activities as well as a higher benefit from the effect of rate-regulated accounting for deferred income taxes.
Adjusted earnings attributable to non-controlling interests and redeemable non-controlling interests decreased in 2016 compared with 2015. The decrease was driven by a full year of a lower public ownership interest in the fund group (comprising the fund, Enbridge Commercial Trust, Enbridge Income Partners LP (EIPLP), and the subsidiaries and investees of EIPLP) following the execution of the Canadian restructuring plan in the third quarter of 2015. Adjusted earnings attributable to non-controlling interests were higher in the fourth quarter of 2016 when compared with the fourth quarter of 2015, due to stronger operating performance at EEP primarily as a result of a stronger contribution from its liquids business.
Available cash flow from operations
ACFFO was $879-million, or 95 cents per common share, for the three months ended Dec. 31, 2016, compared with $876-million, or $1.03 per common share, for the three months ended Dec. 31, 2015. ACFFO was $3,713-million, or $4.08 per common share, for the year ended Dec. 31, 2016, compared with $3,154-million, or $3.72 per common share, for the year ended Dec. 31, 2015. The quarter-over-quarter and year-over-year change in ACFFO was impacted by the growth in adjusted EBIT as discussed in adjusted EBIT above, as well as other items discussed below. The comparability of the company's ACFFO per common share is also impacted by the increase in the number of common shares outstanding resulting from the March 1, 2016, issuance of 56.5 million common shares.
Contributing to the year-over-year increase in ACFFO were lower maintenance capital expenditures in 2016 compared with 2015. Over the last few years, the company has made a significant investment in the continuing support, maintenance and integrity management of its pipelines and other infrastructure and in the preservation of the service capability of its existing assets. Maintenance capital expenditures decreased in 2016 as higher expenditures in the company's gas distribution segment were more than offset by lower maintenance capital expenditures in the liquids pipelines segment. The lower spending in liquids pipelines reflected a shift in the timing of maintenance activities to 2017 on certain leasehold improvements as well as scope refinements to certain planned maintenance projects resulting from continuing communication with regulators. The company plans to continue to invest in its maintenance capital program to support the safety and reliability of its operations.
ACFFO also includes cash distributions from the company's equity investments. The company's distributions from such investments in 2016 were higher compared with 2015 and reflected improved performance of such investments, as well as distributions from assets placed into service in recent years.
Other non-cash adjustments include various non-cash items presented in the company's consolidated statements of cash flows, as well as adjustments for unearned revenues received in each year.
Partially offsetting the items discussed above, which created period-over-period increases in ACFFO, was higher interest expense as discussed in adjusted earnings above.
The increase in ACFFO was also partially offset by increased distributions to non-controlling interests in EEP and to redeemable non-controlling interests in the fund group. A higher per-unit distribution and the effects of a strengthening U.S. dollar versus the Canadian dollar resulted in greater distributions to non-controlling interests in EEP during the first half of 2016. Higher distributions to redeemable non-controlling interests in the fund group were a result of a higher per-unit distribution and increased public ownership in the fund group.
Conference call
Enbridge and ENF will hold a joint conference call on Friday, Feb. 17, 2017, at 9 a.m. ET (7 a.m. MT) to discuss the 2016 fourth quarter and year-end results. Analysts, members of the media and other interested parties can access the call toll-free at 1-866-215-5508 or within and outside North America at 1-514-841-2157 using the access code of 44103871 followed by the pound key. The call will be audio webcast live. A webcast replay and podcast will be available approximately two hours after the conclusion of the event and a transcript will be posted to the website within 24 hours. The replay will be available at toll-free 1-888-843-7419 or within and outside North America at 1-630-652-3042 (access code 44103871 followed by the pound key) for seven days after the call.
The conference call will begin with presentations by the company's president and chief executive officer and the chief financial officer, followed by a question-and-answer period for investment analysts. A question-and-answer period for members of the media will then immediately follow.
Enbridge operates the world's longest crude oil and liquids transportation system across Canada and the United States and has a significant and growing involvement in natural gas gathering, transmission and mid-stream business, as well as an increasing involvement in power transmission. Enbridge owns and operates Canada's largest natural gas distribution company, serving residential, commercial and industrial customers in Ontario, Quebec, New Brunswick and New York. Enbridge has interests in approximately 2,500 megawatts of net renewable and alternative generating capacity, and continues to expand into wind, solar and geothermal power.
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share)
Three months ended Year ended
Dec. 31, Dec. 31,
2016 2015 2016 2015
Revenues
Commodity sales $6,436 $6,074 $22,816 $23,842
Gas distribution sales 703 672 2,486 3,096
Transportation and other services 2,199 2,168 9,258 6,856
9,338 8,914 34,560 33,794
Expenses
Commodity costs 6,445 5,878 22,409 22,949
Gas distribution costs 459 485 1,596 2,292
Operating and administrative 1,165 1,152 4,360 4,152
Depreciation and amortization 564 541 2,240 2,024
Environmental costs, net of recoveries (8) (19) (2) (21)
Impairment of property, plant and equipment 384 80 1,376 96
Goodwill impairment - - - 440
9,009 8,117 31,979 31,932
329 797 2,581 1,862
Income from equity investments 106 116 428 475
Other income/(expense) 792 (72) 1,032 (702)
Interest expense (412) (371) (1,590) (1,624)
815 470 2,451 11
Income taxes recovery/(expense) 32 (94) (142) (170)
Earnings/(loss) 847 376 2,309 (159)
(Earnings)/loss attributable to non-controlling
interests and redeemable non-controlling interests (406) 76 (240) 410
Earnings attributable to Enbridge 441 452 2,069 251
Preference share dividends (76) (74) (293) (288)
Earnings/(loss) attributable to
Enbridge common shareholders 365 378 1,776 (37)
Earnings/(loss) per common share attributable
to Enbridge common shareholders 0.39 0.44 1.95 (0.04)
Diluted earnings/(loss) per common share
attributable to Enbridge common shareholders 0.39 0.44 1.93 (0.04)We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.