Enbridge reports $1.4-billion Q1 2020 loss, defers $1-billion spending

Enbridge Inc. lost $1.429 billion in first-quarter 2020, compared with earnings of $1.891 billion in 2019. Earnings were impacted by certain unusual and infrequent factors, including a non-cash impairment of the company's investment in DCP Midstream of $1.736 billion.

Enbridge is deferring $1 billion of planned 2020 capital spending due to the COVID-19 pandemic. It is also reducing operating costs by $300 million, including reductions to senior management and board of directors' compensation. Enbridge has a $10 billion 3-year (2020 - 2022) capital program, of which $5.5 billion remains to be spent.

The Minnesota Public Utilities Commission (PUC) in February 2020 issued its official order confirming recertification of the final environmental impact statement (FEIS), route permit, and certificate of need for Enbridge’s Line 3 Replacement Project. Minnesota’s Pollution Control Agency (PCA) and the US Army Corp of Engineers (ACE) completed public consultation periods, further advancing Line 3 permitting.

Enbridge began operating the Canadian segment of its Line 3 pipeline replacement on Dec. 1, 2019. The MPUC’s approval of the adequacy of the project’s FEIS, reinstated its certificate of need and route permit and will allow construction to begin following the issuance of required permits.

State and Federal environmental agencies are advancing the permitting process, including issuance of the draft 401 Water Quality Certification by the Minnesota PCA and completion of the relevant public consultation processes. According to the PCA permitting schedule, the next critical phase is focused on the PCA reviewing and considering public comments before making a certification decision.

Enbridge cannot determine when all necessary permits to begin construction will be issued. Depending on the final in-service date, there is a risk the project may exceed the company's total cost estimate of $9 billion. However, a significant portion of the capital spend relates to the Canadian segment of the Line 3 replacement project, which is currently in service and came in slightly below budget at around $5 billion.

The US portion of the Line 3 projects consists of replacing existing 34-in. OD pipe with new 36-in. OD pipe for 13 miles in North Dakota, 337 miles in Minnesota, and 14 miles in Wisconsin. Upon replacement, the average annual capacity of Line 3 will be 760,000 b/d.

Enbridge also filed a joint application for permits to the ACE and Michigan Department of Environment, Great Lakes, and Energy (EGLE) regarding the Straits of Mackinac tunnel for its Line 5 pipeline.

Enbridge president and chief executive officer Al Monaco said, “our operating and financial results came in better than expected because of record volumes on the Liquids Mainline, strong utilization on our Texas Eastern gas transmission system, and great progress on synergy capture within our gas distribution and storage business.”

The large and rapid decline in gasoline and jet fuel consumption brought about by COVID-19, however, has resulted in sharp cuts to refinery runs and crude oil production, impacting Mainline throughput, which was down about 400,000 b/d in April compared with average Q1 throughput of 2.84 million b/d. Monaco said the company expects similarly lower utilization rates through the end of second-quarter 2020 but recovery in second-half 2020 as travel restrictions are lifted.

Enbridge has under development $10 billion of secured growth capital projects, net of the sale of 49% of its interest in the Saint Nazaire offshore wind project. The company is experiencing a slowing of 2020 capital spending due to the COVID-19 pandemic and the health and safety measures put in place by federal and regional governments. After a review of capital execution schedules, Enbridge expects that 2020 expenditures will be $1 billion lower than budgeted. The deferred capital will be shifted into 2021 and the company anticipates that the impact to in-service dates will be immaterial, scheduling efficiencies and contingencies largely expected to offset delayed spending.

On Apr. 22, 2020, the 170-MMcfd Sabal Trail Pipeline Phase 2 expansion project received US Federal Energy Regulatory Commission approval and on May 1 Enbridge placed the expansion, consisting of two new compressor stations in Georgia, into service. The project is underpinned by long-term take-or-pay contracts. Enbridge holds 50% interest in the Sabal Trail Pipeline, and its investment in the expansion project was $100 million.