Enbridge Earnings Call Insights: Confidence in 2013 Guidance and Alberta Crude

Enbridge, Inc. (NYSE:ENB) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Confidence in 2013 Guidance

Juan Plessis – Canaccord Genuity: Some of the headwinds you have experienced on the mainline that Richard referred to in his remarks, that may flow into Q1 do you see that at all impacting your confidence on 2013 guidance?

J. Richard Bird – EVP, CFO & Corporate Development: No Juan, not at this point. We are going to continue to be below our name plate capacity in the first quarter but, not to the extent that it should significantly eat into a level of earnings that we had anticipated. So, you could continue to see apportionment occurring as crude comes at us above and beyond what we’re able to accommodate, but not above and beyond what we had provided for our guidance.

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Al Monaco – President and CEO: Richard, maybe I’ll just tag on to that. It’s pretty tight right now obviously with the capacity versus supply coming at us. We have undertaken a number of initiatives in cooperation with industry, to approve the capacity, improve the capacity that we have available that includes some things that help us with making sure that the volumes come into our system on a ratable basis. It includes some efforts downstream to make sure terminals and batches are cleared through our tanks in an efficient manner and I was well trying to look at ways from a tankage and terminal point of view to effectively increase the overall capacity and one way to do that is to comingle some of the crudes that we’re seeing. So we’re doing all we can to make sure that we have enough capacity Juan.

Juan Plessis – Canaccord Genuity: Secondly, can you quantify how much your operating cost have increased year-over-year due to the operational risk management plan and if you expect to see some additional or end cost increases in 2013?

J. Richard Bird – EVP, CFO & Corporate Development: That’s not something that I’ve got at the tip of my fingertips pulled out on a separate basis. We certainly have experienced some increase in operating costs year-over-year although even back in 2011 we were starting to ramp up, so that’s not a level of granularity that I’ve really got explicitly split out Juan.

Alberta Crude

Paul Lechem – CIBC: You spent a lot of time talking about the expansion of the system to take Alberta crude out to market. You announced in the quarter launching an open season on Southern Lights to bring diluent back in. Just wondering, what’s driving that and also, the increased interest in the open season? Also, do you have any other plans around bringing diluent back into Alberta either sourcing it from the Eagle Ford or elsewhere in the U.S. and then in Alberta to actually deliver it up to the Oil Sands?

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Al Monaco – President and CEO: I’ll start out, and then I’ll see if Steve has something to add. Essentially on Southern Lights, it’s all driven of course by the expected increase in volumes out of the Oil Sands, which is going to require more diluent and we’re in good shape and we happen to have some capacity further on Southern Lights and that’s what’s really driving it. We expect to see very good interest in that additional capacity. Anything to add Steve?

Stephen J. Wuori – President, Liquids Pipelines and Major Projects: Yeah, I think the only thing I’d add Paul is that we do expect to see some Eagle Ford condensates making their way up. They’re certainly not of high value down in the PADD III market and they’re of higher value in Alberta, so, we would expect to see some of those making their way up to Southern Lights also.

Paul Lechem – CIBC: Are you looking to make any investments to actually transport the condensate?

Al Monaco – President and CEO: We’ve looked at that. At the moment, we just take in what comes to us at the Chicago end of Southern Lights but we have looked at some possibilities, I guess it’d be upstream of that, which means south in the case of Southern Lights nothing specific at this time though.

Paul Lechem – CIBC: What about in Alberta itself?

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J. Richard Bird – EVP, CFO & Corporate Development: In Alberta I think we are working to add to the distribution system for condensates to the various oil sands operators and pursuing a project or projects to do that from the Edmonton Hub where most of the condensate pool becomes available from Southern lights and from other sources. So we are looking at ways of moving condensates up, this is apparent that lot of the growth will be from dilbit which is condensate added to bitumen as opposed to synbit which is synthetic crude added to bitumen. So the answer is yes we are looking at projects to do that intra-Alberta.

Paul Lechem – CIBC: If I can sneak one more question just on the write-down of your offshore assets in the quarter, can you talk about what the impact is going to be to results going forward and what you actually wrote-off there?

Al Monaco – President and CEO: Well I guess maybe just starting out with what drove it obviously the fact that there has been so much gas supply coming on the continental side in the U.S. market. Obviously gas drilling specifically in the Gulf is at zero level so we are only talking about associated gas moving from oil projects in the future. So that’s certainly one thing so we are running at relatively low volumes compared to the ultimate capacity of the system. We did look at some other potential opportunities to utilize that infrastructure we weren’t confident in that and that’s what led to the amount that you saw there the C$160 million pre-tax so as far as the annual effect on that in terms of the outlook for earnings I don’t expect that would be significant to the numbers, but I’ll look to Richard to provide any further detail on that.

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J. Richard Bird – EVP, CFO & Corporate Development: Yeah, I think that’s about right. As we saw in 2012, the offshore earnings or maybe losses would be a better word, look to have stabilized, so we’re going to continue to run in the red on offshore in 2013 and then as we move beyond that in some of the new projects, come into service, we should be climbing back up into positive earnings.

A Closer Look: Enbridge Inc Earnings Cheat Sheet>>