Enbridge Reports Second Quarter Adjusted Earnings of $328 Million or $0.40 Per Common Share

CALGARY, ALBERTA–(Marketwired – Aug. 1, 2014) –

HIGHLIGHTS

(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

Second quarter earnings were $756 million and six months earnings were $1,146 million, both including the impact of net unrealized non-cash mark-to-market gains and losses
Second quarter and six months adjusted earnings were $328 million and $820 million, respectively, or $0.40 and $1.00 per common share, respectively
Enbridge Inc. and Enbridge Energy Partners, L.P. announced an equity restructuring involving the General Partner’s incentive distributions rights within Enbridge Energy Partners, L.P.
Enbridge Inc. continued to execute its long-term funding plan and raised approximately $3.3 billion since the end of the first quarter through a combination of debt and equity issuances
Marathon Petroleum Corporation named anchor shipper and equity partner in the US$0.9 billion Southern Access Extension Project, and will fund 35% of the project
Ontario Energy Board approved Enbridge Gas Distribution Inc. five-year incentive rate application
Northern Gateway Project approved by the Government of Canada, subject to conditions

Enbridge Inc. (Enbridge or the Company) (TSX:ENB) (NYSE:ENB) – “Earnings for the first half of this year are in line with our expectations and our full year adjusted earnings per share guidance of $1.84 to $2.04 per share,” said Al Monaco, President and Chief Executive Officer. “More broadly, we are keenly focused on the implementation of our strategic plan and on our key priorities of safety and operational reliability, execution of our growth projects and extending and diversifying our growth beyond 2017. The plan, which now includes a growth capital program of $42 billion, of which $37 billion is commercially secured and expected to be put into service by 2017, gives us continued confidence in delivering average annual earnings per share growth of 10-12% through 2017, and there are a number of factors that bode very well for post 2017 growth.

“In Liquids Pipelines, our largest business, our strategy is driven by our customers’ need for incremental pipeline capacity and new market access to accommodate the continued strong growth of North American supply,” said Mr. Monaco. “Market access remains a strategic imperative and we are making good progress. Construction of the Seaway Twin is now mechanically complete and we expect to complete the Flanagan South project this fall, adding an incremental 600,000 barrels per day of heavy crude capacity to the key refining hub in the U.S. Gulf Coast. By the end of 2016, we expect to bring into service projects that will open up approximately 1.7 million barrels per day of incremental capacity.”

Enbridge remained active in the capital markets. Since the end of the first quarter, Enbridge has raised approximately $0.5 billion through a public common share offering. Proceeds from the offering will be used to fund the incremental capital required for the Line 3 Replacement Program and other general corporate purposes. In addition, the Company raised approximately $0.9 billion in cumulative redeemable preference shares, US$1.5 billion in senior notes and $0.3 billion in medium-term notes.

Effective July 1, 2014, Enbridge and Enbridge Energy Partners, L.P. (EEP) restructured the equity in EEP under which Enbridge as the General Partner (GP) of EEP will permanently waive its existing incentive distribution rights (IDR) in exchange for Class D units and new incentive distribution units (IDU). The GP share of incremental cash distributions will also decrease from 48% of all distributions in excess of US$0.4950 per unit per quarter down to 23% of all distributions in excess of the EEP’s current quarterly distribution of US$0.5435 per unit per quarter. The restructuring is intended to enhance the economics of EEP’s investment projects and growth opportunities, while at the same time re-establishing EEP as a strong sponsored vehicle and as an effective source of funding for Enbridge via future drop downs.

“This restructuring builds upon steps we initiated last year to re-establish EEP as a cost effective sponsored vehicle for Enbridge,” said Mr. Monaco. “A stronger EEP supports Enbridge’s strategic priorities of executing our growth capital program and extending growth beyond 2017.”

On July 1, 2014, EEP completed a drop down of additional interest in the natural gas and natural gas liquids (NGL) midstream business to Midcoast Energy Partners, L.P. (MEP) for cash proceeds of US$350 million, the first drop down of additional interests since the initial public offering of MEP units. As a new low cost funding vehicle, these drop downs to MEP improve EEP’s funding effectiveness and are another step to re-establishing EEP as a strong sponsored vehicle for Enbridge.

On June 17, the Canadian federal government approved the Northern Gateway Project (Northern Gateway). This approval comes after the most comprehensive review of a pipeline project in Canadian history and is subject to Northern Gateway meeting the 209 conditions issued by the Joint Review Panel (JRP).

“The federal government’s approval supports Enbridge’s view that the project can be built and operated safely, and that opening up new markets for Canadian energy is in our national interest,” said Mr. Monaco. “That said, we still have a lot of work to do. We will continue to focus on three priorities: meeting the JRP’s conditions; working with the Province of British Columbia on its five conditions for supporting oil pipelines; and continuing to engage Aboriginal communities to build further trust and support.”

Effective July 28, 2014, the Enbridge Board appointed as a director Marcel R. Coutu. Mr. Coutu is the past Chairman of Syncrude Canada Ltd., an integrated oil sands project, and the former President and Chief Executive Officer of Canadian Oil Sands Limited. He is currently a director of Brookfield Asset Management, Power Corporation of Canada, The Great-West Lifeco Inc. and IGM Financial Inc., as well as the Calgary Exhibition and Stampede Board, a non-profit organization.

Also in the second quarter, Enbridge announced that J. Richard Bird, Executive Vice President, Chief Financial Officer and Corporate Development, will retire by the end of the 2014. Upon his retirement, Mr. Bird’s role will be split into two roles: Chief Financial Officer and Chief Development Officer. In the interim, effective July 1, 2014, John Whelen has been appointed to the role of Senior Vice President, Finance, and Vern Yu has been appointed as Senior Vice President, Corporate Development.

“Richard has been a force at Enbridge for more than 20 years and has made a significant contribution to the Company’s success. While he will unquestionably be missed, our leadership succession process ensures that we have highly qualified individuals who are ready to fill critical senior roles in the Company,” said Mr. Monaco. “Richard will be supporting John and Vern in their new roles for the remainder of the year and we’re confident that his disciplined approach will carry forward.”

Results of Operations

Enbridge second quarter adjusted earnings increased by 5% to $0.40 per common share and remained at $1.00 per common share for the first half of 2014 compared with the respective 2013 comparative periods. The results were in line with management’s expectation, matching the prior year’s exceptionally strong first half. The Company remains on track to achieve its 2014 full year adjusted earnings per share guidance range.

Second quarter adjusted earnings growth was primarily driven in Liquids Pipelines and bolstered by strong supply from western Canada and increased downstream refinery demand leading to higher throughput on the Canadian Mainline. Likewise, higher throughput was also achieved on the Athabasca mainline in the Company’s Regional Oil Sands System, which also benefitted from contributions from new projects coming into service, in particular the Norealis Pipeline.

Another key driver to the Company’s second quarter growth was contributions from the Company’s sponsored vehicles, as both EEP and Enbridge Income Fund (the Fund) delivered a second consecutive quarter of strong performance. EEP adjusted earnings growth was supported by higher throughput and tolls across the majority of its liquids pipeline assets. Earnings from the Fund also reflected strong results from its liquids business, in particular, the Saskatchewan System.

Enbridge Gas Distribution Inc. (EGD) continued to contribute to Enbridge’s reliable business model although the second quarter results were lower than the comparable period due to an increase in depreciation expense from an increased asset base and higher interest expense. EGD operated in the first half of 2014 under interim distribution rates pending approval of a five-year customized Incentive Rate (IR) application by the Ontario Energy Board (OEB). With the approval granted in July 2014, the difference in revenues under the interim rates and rates under the customized IR application will be adjusted as part of EGD’s October 2014 Quarterly Rate Adjustment Mechanism process.

Energy Services second quarter adjusted earnings were unfavourable compared with the exceptionally strong second quarter of 2013 and reflected narrowing location spreads and less favourable conditions in certain markets accessed by committed transportation capacity, with associated unrecovered demand charges.

The adjusted earnings discussed above excludes the impact of unusual, non-recurring or non-operating factors, the most significant of which are changes in unrealized derivative fair value gains and losses from the Company’s long-term hedging program, gains on the disposal of non-core assets and investments, as well as certain costs and related insurance recoveries arising from crude oil releases. See Non-GAAP Measures.

SECOND QUARTER 2014 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 at www.enbridge.com/InvestorRelations.aspx.

Earnings attributable to common shareholders increased from $42 million in the second quarter of 2013 to $756 million in the second quarter of 2014. The Company delivered strong quarter-over-quarter earnings growth, however, the magnitude of this growth and the comparability of the Company’s quarterly results are impacted by a number of unusual, non-recurring or non-operating factors, the most significant of which is changes in unrealized derivative fair value gains and losses. The Company has a comprehensive long-term economic hedging program to mitigate interest rate, foreign exchange and commodity price exposures. The changes in unrealized mark-to-market accounting impacts from this program create volatility in short-term earnings, but the Company believes over the long-term it supports reliable cash flows and dividend growth. Other non-recurring factors impacting quarter-over-quarter comparability were remediation and long-term stabilization costs of approximately $40 million after-tax and before insurance recoveries recorded in the second quarter of 2013 related to the Line 37 crude oil release which occurred in June 2013.
Enbridge’s adjusted earnings increased from $306 million in the second quarter of 2013 to $328 million in the second quarter of 2014. Liquids Pipelines adjusted earnings reflected higher contributions from Canadian Mainline and Regional Oil Sands System. Canadian Mainline adjusted earnings reflected higher throughput partially offset by the absence of revenues from Line 9B. Within Regional Oil Sands System, higher adjusted earnings were primarily attributable to higher throughput on the Athabasca mainline and contributions from the Norealis Pipeline. In Gas Distribution, EGD’s lower adjusted earnings reflected a gas transportation cost adjustment related to the first half of 2013 which was recorded in the third quarter of 2013 and higher depreciation expense due to the growth in asset base and higher interest expense. Energy Services adjusted earnings declined in the second quarter of 2014 compared with an exceptionally strong comparative 2013 period due to narrowing location spreads and less favourable conditions in certain markets accessed by committed transportation capacity. Both the Company’s sponsored vehicles, EEP and the Fund, contributed to the adjusted earnings increase and reflected strong results from their core assets. EEP adjusted earnings reflected higher contributions from the majority of its liquids business through higher throughput and tolls as well as the positive contribution from new assets placed into service. Adjusted earnings for the Fund also reflected higher earnings from its liquids business, in particular the Saskatchewan System.
On July 17, 2014, the OEB approved EGD’s five-year customized IR application, with modifications. The customized IR application establishes the methodology for establishing rates for the distribution of natural gas over a five-year period from 2014 through 2018 and will allow EGD to recover its capital investment amounts, as well as an opportunity to earn above the allowed return on equity. The OEB decision also allows for final 2014 rates to be implemented with the October 2014 Quarterly Rate Adjustment Mechanism with an effective date of January 1, 2014. EGD is currently operating under OEB approved interim distribution rates. The difference in revenues under the interim rates and rates under the customized IR will be adjusted as part of the October 2014 Quarterly Rate Adjustment Mechanism process.
On July 1, 2014, Enbridge and EEP completed the equity restructuring, which was agreed to on June, 18, 2014, under which Enbridge Energy Company, Inc., a wholly owned subsidiary of Enbridge and the GP of EEP, irrevocably waived its then existing IDR in excess of its 2% GP interest in exchange for 66.1 million Class D units and 1,000 IDU (collectively, the Equity Restructuring). The Class D units carry a distribution equal to the quarterly distribution on the Class A common units. The third quarter 2014 distribution on the Class D units will be adjusted to provide Enbridge with an aggregate distribution in 2014 equal to the distribution on its IDR as if the Equity Restructuring had not occurred. The IDU will not be entitled to a distribution initially, but will in the future be entitled to 23% of any amount in excess of EEP’s current quarterly Class A common unit distribution of US$0.5435 per unit. In the event of any decrease in the Class A common unit distribution below US$0.5435 per unit in any quarter during the next five years, the distribution on the Class D units will be reduced to the amount which would have been received by Enbridge under the existing IDR as if the Equity Restructuring had not occurred.
Also on July 1, 2014, Enbridge and Marathon Petroleum Corporation (MPC) reached an agreement to admit MPC as a 35% equity interest partner in the Southern Access Extension project (Southern Access Extension). MPC will also make additional cash contributions in accordance with the Southern Access Extension spend profile in proportion to its 35% interest. The Southern Access Extension was announced as part of Enbridge’s Light Oil Market Access Program in December 2012 and will involve the construction of a new 265-kilometre (165-mile) 24-inch diameter crude oil pipeline from Flanagan, Illinois to Patoka, Illinois, for an initial capacity of approximately 300,000 barrels per day, as well as additional tankage and two new pump stations. Subject to regulatory and other approvals, Southern Access Extension is expected to be placed into service in mid-2015 and Enbridge’s share of the project is expected to be approximately US$0.6 billion.
On June 18, 2014, Enbridge announced that J. Richard Bird, Executive Vice President, Chief Financial Officer and Corporate Development, plans to retire by the end of 2014. Upon Mr. Bird’s retirement, his responsibilities will be split into two separate roles of Chief Financial Officer and Chief Development Officer. Enbridge also announced the appointment of John Whelen as Senior Vice President, Finance and Vern Yu as Senior Vice President, Corporate Development, effective July 1, 2014.
Since the end of the first quarter of 2014, the Company completed the following financing transactions:
1. On July 17, 2014, Enbridge completed an offering of 14 million Cumulative Redeemable Preference Shares, Series 13 for gross proceeds of $350 million.
2. On June 24, 2014, Enbridge completed an offering of 7.9 million Common Shares for gross proceeds of approximately $400 million and on July 8, 2014 issued a further 1.2 million Common Shares pursuant to the underwriters’ over-allotment option for gross process of approximately $60 million.
3. On June 4, 2014, Enbridge issued senior notes of US$500 million with a three-year maturity, US$500 million with a 10-year maturity and US$500 million with a 30-year maturity.
4. On May 22, 2014, Enbridge completed an offering of 20 million Cumulative Redeemable Preference Shares, Series 11, for gross proceeds of $500 million.
5. On April 22, 2014, Enbridge issued medium-term notes of $300 million with a three-year maturity through its subsidiary EGD.