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Enbridge (NYSE:ENB)

Q1 2012 Earnings Call

May 09, 2012 9:00 am ET

Executives

J. L. Balko - Vice President of Human Resources & Administration

Patrick Donald Daniel - Chief Executive Officer, Director, Director of Enbridge Energy Company-Subs, Director of Enbridge Gas Distribution-Subs and Director of Enbridge Pipelines-Subs

Al Monaco - President and Director

J. Richard Bird - Chief Financial Officer and Executive Vice President of Corporate Development

Analysts

Linda Ezergailis - TD Securities Equity Research

Juan Plessis - Canaccord Genuity, Research Division

Paul Lechem - CIBC World Markets Inc., Research Division

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Andrew M. Kuske - Crédit Suisse AG, Research Division

Robert Kwan - RBC Capital Markets, LLC, Research Division

Pierre Lacroix - Desjardins Securities Inc., Research Division

Operator

Good morning, ladies and gentlemen. Welcome to the Enbridge Inc. First Quarter 2012 Financial Results Conference Call. I would now like to turn the meeting over to Jody Balko.

J. L. Balko

Thank you, Pam. Well, good morning, and welcome to Enbridge Inc.'s First Quarter of 2012 Earnings Call. With me this morning are Pat Daniel, Chief Executive Officer; Al Monaco, President; Richard Bird, Executive Vice President, Chief Financial Officer, Corporate Development; and John Whelen, Senior Vice President and Controller.

This call is webcast, and I encourage those listening on the phone lines to view the supporting slides, which are available on our website. A replay and podcast of the call will be available later today, and a transcript will be posted to our website shortly thereafter. The Q&A format will be the same as always. The initial Q&A session is restricted to the analyst community, and once completed, we will invite questions from the media. I would also remind you that Jonathan Gould and I, will be available after the call for any follow-up questions that you may have.

So before we begin, I'd like to point out that we may refer to forward-looking information during the call. By its nature, this information applies certain assumptions and expectations about future outcomes, so we remind you, it is subject to the risks and uncertainties affecting every business, including ours. This slide includes a summary of the more significant factors and risks that might affect future outcomes for Enbridge, which are also discussed more fully in our public disclosure filings available on both SEDAR and EDGAR systems.

And with that, I would like to turn the call over to Pat Daniel.

Patrick Donald Daniel

Very good. Thank you, Jody, and good morning, everyone. Thank you for joining us for a review of our first quarter results. Earlier today, as you're probably aware, we were pleased to announce that our adjusted earnings for the first quarter were $376 million or $0.50 a share. This represents an increase of 14% relative to quarter 1 2011, and it reflects strength right across our businesses. I'm going to let Richard provide a more detailed reconciliation of each segment in his comments in just a moment.

The results this quarter put us firmly on track to achieve adjusted earnings within our guidance range of $1.58 to $1.74 per share for the year, reaching the midpoint of that range would represent a 12% earnings per share increase over our actual results in 2011. 2011 was also a stellar year for us in terms of business development success. We added over $8 billion of growth projects across the full Enterprise. And with the upsizing of our Gulf Coast Access initiative earlier this quarter, we're now well on our way to having another very successful year in new business development. In fact, it started out very well. Our success has come at a faster pace than we’d forecast in the long-range planning process that we went through last year.

Although our overall universe of prospects over the next 10 years hasn't changed, we have won more business, and increased the probability of winning even more from when we put that forward. So we've now increased the total of our commercially secured and risk projects from $20 billion to $26 billion. Of course, this increase in our business development outlook means even more shareholder value to be added going forward. And as well, Richard will update the related funding requirements associated with that increase by -- in a minute.

Lastly, what I wanted to do is just to briefly provide an update for everyone on the status of the leadership transition from myself to Al. As you may have read a couple of months ago, I will retire on or before the end of the year this year. And I'm pleased to say that the handoff is going very well. I've started to step back from day-to-day operations of the company, focusing more on transitioning over the relationships that I've developed throughout the years. And I've said this many times before, but I believe that we have the best and the deepest management group in the business, and I'm extremely confident that this will be and continue to be a seamless transition.

We also currently have in place the strongest long-range plan in the history of the company, and we've got the team to execute on that and also to lead the company into the next stage of its development. So with that very brief introduction, let me hand it over to Al now to provide some more detail around recent initiatives that we have underway.

Al Monaco

Thanks, Pat, and good morning, everyone. Before I get into the activities, let me first outline the priorities that I and the rest of our senior management team will be focused on, given the transition that Pat referred to. First and foremost is to ensure the safe and reliable operations of our system. Now that sounds a little bit every day, but we need to keep doing that right as it's critical to our customers, the public, our staff and ultimately, it drives shareholder value. Given the massive capital program in front of us that's already been secured, our priority is execution. That goes from design, to construction, to funding it, to the resources that make it happen. We have a lot of people to hire, and we've made some good progress on that already in the first quarter. If we do that well, and we're confident we will, then we're very confident that we can generate 10-plus earnings per share -- 10-plus percent earnings per share growth over the planned horizon. I'll come back to that point in a minute. With that and with the strong cash flow generation over the next 5 years, dividend growth will follow.

At the same time, we'll continue to develop new sources of earnings that will extend growth beyond the next 5 years in other areas of our business aside from liquids pipeline. We'll maintain our disciplined approach to capital investment, that's been a hallmark of our company for quite a while. And finally, we'll have a strong financial position. And what I mean by that is well-capitalized, ample liquidity and strong credit ratings.

Turning now to the next slide. Let me outline the progress on 3 fronts, 2 of which relate to the Liquids Pipelines business that will be the main growth driver for us in the next few years, even though the rest of the business is growing, it’s certainly being overwhelmed by the growth in the liquids side of our business. In the last 6 months, we made excellent progress on one of the most strategic initiatives our company has ever undertaken and that is establishing a new and much-needed corridor to the U.S. Gulf Coast refining market. Gulf access released bottlenecks arising from an unprecedented growth outlook for North American oil production, including the Oil Sands, and new shale oil plays. This, I think, is the new game changer in North American energy. Gulf access also reduces U.S. dependence on overseas imports.

Now after the initial Seaway and Flanagan South announcement in Q4, we were able to garner even more commitments to a point where upsizing both of those segments made sense. All in all, by mid-2014, we'll have established the path from Chicago to the Gulf, where some 800,000 to 900,000 barrels per day of capacity, with low-cost expandability beyond that. In fact, the first 150,000 barrels per day of Seaway capacity comes on stream next week, May 17, to be precise at this point, ramping up to 400,000 barrels per day by year end.

There are a few keys to this initiative, coming together successfully, certainly, having a good partner like Enterprise for the Seaway portion was important, as well as our ability to move quickly to address the Cushing glut and the resulting impact on producer prices. There is, of course, a double discount to market prices today, Canadian versus WTI, and then of course, WTI to Brent. It also illustrates the power of our large-scale system and our CTS toll structure, which allowed us to offer competitive fixed tolls for customers. Importantly, we've utilized existing right-of-way and infrastructure to minimize the impacts.

Just finally on this point, our Gulf Coast Access initiative is impactful at $5 billion plus of capital invested. An linking that back to my initial comment around investment discipline, Gulf Access fully meets our investment criteria with low double-digit full life return on equity, and it comes down to a long term take-or-pay commitments as well, supporting the project.

Moving to the next slide, another important initiative that we are pursuing is Eastern Access, which is also driven by evolving supply and demand fundamentals. The biggest factor on that front is the significant increase in light oil, both from the Bakken and Western Canada. At the same time, we've seen refinery capacity conversions too heavy, now that's in the PADD II area, which means the light barrel needs to find a home to retain its value. And a good spot for that is certainly Michigan, Ohio and then of course, the Ontario refineries. And lastly, refineries are clamoring for alternative feedstock to Brent-based crudes.

We've commercially secured the first step of our strategy by expanding Line 9 and reverse -- sorry, Line 5 and a reversal of Line 9 from Sarnia [ph] into Westover, which should be in service next spring. Now no new pipe is required for this expansion. And once again, we capitalized on the CTS toll structure.

There are several other initiatives under development to fill out the strategy, namely, increasing capacity on Line 6B, expanding Line 17 and accessing the Québec market. The toll investment by Enbridge and Enbridge Energy Partners here could total some $2-plus billion. So this would also result in a meaningful impact to our company. We're making very good progress on commercial discussions, so please stay tuned on that front.

Also this quarter, we announced $200 million investment in the 50-megawatt Silver State North Solar facility in Nevada we just opened up. This marks our first entry into solar in the U.S., and the project aligns very well with our renewable business model. That facility was essentially operations ready, so there was no construction or permitting risk. The solar resource in this part of the U.S. is very strong and we have a 25-year PPA that underlies the investment, pretty much then dead center of the Enbridge investment triangle that you're all familiar with. Along with our Cedar Point Wind investment in Colorado and our recently announced Lac Alfred project, we have successfully diversified our renewable portfolio and opportunity set. We've now reached about 1,000 megawatts of capacity in operation or construction.

Moving forward, I mentioned earlier that a key priority of the management team was the top-notch execution of the capital program and that's simply because when you're putting this kind of capital into the ground with the magnitude that we have, it's critical that we get that part of the equation right. Our major projects execution function has resulted in success so far, and has been an important factor in helping us win new business.

We currently have shovels in the ground for about $14 billion worth of projects in inventory. And the slide that you see here is just outlining some of our liquids projects under construction with in-service dates before the end of next year. And as you can see here, we're very much on-time and on-budget with the program. In fact, below budget in most cases.

Looking beyond the projects with in-service dates 2 years out to 2014, we have a Walker Ridge and Big Foot and the offshore Gulf, procurement continues on that and planning is on track to put the pipe into service at the end -- near the end of next year. We're also underway with Flanagan South, where land optioning is proceeding well and engineering is underway, and Enterprise is beginning work on the Seaway twin. Further out, we filed our regulatory application this March and execution planning is underway now with the $1.2 billion Athabasca Twinning Project that are secured for 2015. We'll continue to keep you up-to-date on the progress of the program, given, as I said, the size and importance of the capital we have in front of us.

I’ll conclude my section by illustrating the earnings impact of the capital project inventory that Pat mentioned on our 5-year plan horizon and beyond that, at least at a high level here. It’s pretty much the same as you've seen before except with I'd say a positive bias now on our longer-term outlook. To reiterate, because of the additional secured investments we have, which now totaled $14 billion, we're very confident in achieving a long-term EPS growth rate of 10% plus through 2015.

One of the things that gives us confidence is the structure of our CTS agreement, which is bearing fruit as you've seen on the mainline and liquids throughput born out over the last 3 quarters. And the advantage it provides in extending our system, as you've seen with both the Gulf Coast Access and Eastern Access. These projects contribute nicely to mid-decade EPS growth, but their contribution builds as additional volumes come and revenues continue to grow. So I would say a relatively stronger EPS pickup in the second half of the decade.

So with that, Richard is going to take you through the financial results and the funding position, and a little bit more detail around the EPS profile longer term.

J. Richard Bird

Thanks, Al. Good morning. I'll start on Slide 14 with a review of the segmented earnings. Liquids Pipelines had a strong quarter, both relative to prior year and even a little stronger than we were expecting. That strength is primarily from the mainline under CTS and the reason is higher volumes.

In terms of full year implications, we don't see mainline volumes remaining as strong as Q1, but stronger than expected at guidance time. So for Liquids Pipelines, as a whole, the very strong year-over-year uplift anticipated at the time of our guidance call is on track and trending even a little stronger.

Next, we come to Gas Distribution. Our guidance for the full year was flat for this segment. EGD's first quarter was consistent with this picture with a small increase from prior year, which is largely timing effects that will likely reverse in subsequent quarters. The unusual result is the big increase in Gas New Brunswick. On a full year basis, we expect earnings will decline to about 40% of the $20 million we earned last year at Gas New Brunswick, and that's due to the rate reductions imposed on us by the provincial government. We anticipated part of this in our guidance but not all of it. However, one of the consequences of the government's actions is that we no longer account for this business under rate-regulated accounting. And as a result of the quarterly profile of rate revenue, we actually earn more in the first quarter than we will in the full year. And in fact, $6 million more than in the first quarter of last year, so this first quarter effect will more than reverse out in the remaining 3 quarters.

Gas Pipelines, Processing and Energy Services is tracking consistent with our expectation that it will be slightly down from 2011 on a full year basis, largely because we don't see a repeat of the exceptional Energy Services location arbitrage opportunities that characterize the early part of last year. The new renewable assets in this segment are making up for those transferred to the income fund, as expected. Sponsored Investments are showing a good year-over-year growth, as expected, with the income fund contribution up strongly due to the drop down of the renewable assets last year. And Enbridge Energy Partners contribution benefiting from increased earnings from both its Liquids Pipelines and the gathering and processing business. The Corporate segment started off the year consistent with expectations. So altogether, as Pat indicated, we are firmly on track with our full year guidance.

Turning to the next slide. As I indicated on our last call, we have continued to be active with both equity bolstering actions and other liquidity building actions in support of our large suite of attractive investment opportunities. On the equity side, we placed over $1 billion of preferred shares in the first quarter though the U.S. $200 million issue hadn't actually settled by March 31. And we're also expecting a little over $300 million from our share of the proceeds from the sales by Noverco of $22.5 million Enbridge shares.

We issued $500 million of medium-term notes out of the Enbridge Income Fund, which was used to repay the temporary loan from Enbridge related to the 2011 renewables drop down. And we closed $1.25 billion expansion of our bank credit facilities and expect to close a further $1 billion in the next few weeks, which will bring our total general-purpose corporate lines to $11 billion with corresponding available liquidity of approximately $8.5 billion.

The next slide is an update to our Enbridge Inc. funding requirements picture to reflect the very successful business development quarter, which Pat and Al have already discussed. And as I discussed on our last call, although at that time we were still working from a $17.7 billion 5-year capital plan, it was beginning to appear increasingly conservative, and we had already begun building flexibility to accommodate a significant upsizing of the plan and we've continue to build additional flexibility since. The tipping point was the successful Gulf Coast open seasons driving the upsizing of Flanagan South and the twinning of the Seaway system, together with further progress on a number of other projects as well. In the normal course, our 5-year capital plan is good for about a year, and it's updated in conjunction with our strategic plan in our annual Enbridge days review. This year, because we've been so successful with business development, we've done a mid-cycle revision to the plan, and that's what's depicted on the slide.

We've increased the total secured growth capital at Enbridge Inc. to $11.8 billion as a result of the most recent project announcements. However, based on what is in the wings, we have also revised the risk growth capital. We now expect to invest over this time frame to $8.5 billion, up from $3.7 billion on our last call. So the total expected funding required has grown from the $17.7 billion figure at Enbridge days to a current estimate of $23.5 billion. And just to be clear, these numbers are for Enbridge Inc. alone. That's a subset, it's most of, but it's a subset of the enterprise-wide capital figures that Pat showed earlier that included the portion of the investment within our sponsored vehicles.

This translates at the equity level to a gross equity requirement over the 5 years of $3.6 billion to $3.8 billion. Most of this is already taken care of, but we have moved back into a small net equity requirement position compared to the surplus we have previously built up. The equity requirement is quite small and well within the capability of the supplementary equity sources available to us. So even though we substantially upsized our expected capital program. We're very comfortable we can fund it, given the balance sheet capacity and bank liquidity we've already put in place.

I'll finish up on this next slide with some information on the economics of our $5.2 billion Gulf Coast Access initiative and how it factors into the long-term EPS growth outlook, which Al has already touched on. The starting point is to clarify that the base contribution from the CTS excludes any barrels which could be pulled through by market access initiatives. As we indicated, when we first discussed the CTS, the agreement reinforced our confidence in achieving a 10% average EPS growth rate through mid-decade, but the real gravy for the CTS will be in the second half of the decade as base volumes grow.

With regard to the $5 billion Gulf Coast Access initiative, when we provide guidance on the return on this capital, it includes the mainline CTS pull-through volumes. In particular, it includes the benefit both of the increased in-line throughput above our base CTS assumptions, and it also includes the international joint toll discount we provide on the full trip. It is the incremental mainline revenue, which makes the Gulf Coast initiative financially attractive, which is why we have been saying that the CTS facilitates new market access projects.

The all-in return we expect, including the mainline benefit, is our typical low double-digit full-life DCF return, though recognizing that this is not a cost of service model, so the return profile has an upward tilt from high-single digits in 2014 ramping up to the full life return by 2020. The key point here to double count the project benefits by including incremental CTS benefits in addition to the return on the capital. With the 2014 in-service date and an upward tilted return profile, the investment will be modestly accretive by mid-decade. Hence, we're now indicating 10% plus in terms of growth. But like the base CTS, the real juice from the Gulf Coast Access initiative will come in the latter half of the decade.

And that's it for me, back over to Pat.

Patrick Donald Daniel

Thanks, Richard. So maybe I can just, very quickly, summarize. Firstly, we're very pleased with the start of 2012, well on our way to achieving our earnings guidance target for the year. Secondly, we've continued to have exceptional business development success, and we're also increasing our overall expectations for future success going forward. And very importantly, we're positioned -- positioning our funding capabilities accordingly.

Lastly, we remain very confident that we can achieve an annual growth rate in EPS averaging 10-plus percent through 2015, and we're increasingly confident in being able to continue that growth trajectory into the latter half of the decade.

So that concludes our prepared remarks for this morning. I'd now ask the operator to open up the phone lines to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Linda Ezergailis with TD Securities.

Linda Ezergailis - TD Securities Equity Research

I have some questions with respect to -- follow-up questions with respect to your Slide 16 funding requirements. When I look at the $4.8 billion growth in risk capital since your Enbridge Day and your latest Q4 guidance on that, where might we expect or where do you think most likely we will see any announcements over the next 12 to 24 months with respect to geography, whether it's Canada, U.S., the international or a business segment, whether it be power liquids or maybe gas midstream? And then how might we think of your views on the attractiveness of building assets, borrowing assets or potentially doing a corporate transaction?

Patrick Donald Daniel

Well, that's a very broad question, Linda. Let me take a quick run at it and, Al, feel free to step in and supplement it. And I'm going to be cautious because I don't want to preannounce because you're asking us to kind of look forward and say where the growth will be coming. As we indicated in the script, we are working right now on Eastern Access and improving access to both existing Montréal refineries and possibly to the East Coast at that some point for Canadian crude oil. So I think you can expect that to continue to be a strong area of development and growth for us. We are very active in the corridor from Fort McMurray down to Edmonton, both in terms of crude movements out and diluent supply in. So I think you could expect some new business development through there. At this point, based on what we see, we have announced everything in the foreseeable future for Gulf Access. So that kind of covers off the liquids side of the business. There will be some ancillary, possibly storage and other initiatives associated with that. When we turn to the gas side of the business, we continue to be very aggressively pursuing other midstream opportunities in Canada, as a result of the successful win on the Cabin project, so you could potentially see something there. Our Anadarko area continues to grow very significantly in the U.S., so gathering and processing associated for those liquids-rich streams. And the renewables side, I think it's fair to say that our focus is primarily in the U.S. right now. But I think it's quite possibly you're going to see something coming along there. And Al, what have I missed?

Al Monaco

Well, that pretty much covers it, Pat. I think maybe just to emphasize what you said about Eastern Access. As I said in my remarks that the first couple of steps in our strategy there have already been announced and there's a few more shoes to drop, so probably to emphasize that. We've got good focus on the Oil Sands corridor, which Pat mentioned. Maybe just add on a couple of things on the gas distribution front as well. I think that's probably the only one that you missed there, Pat. We've got some good opportunities there in terms of enhancements to the system, so that continues to be favorable. Might just make a comment, I think one of your questions, Linda, was around any potential for Corporate transactions. I think, pretty clear that we look at absolutely every opportunity out there. We've got everything modeled up and we're very focused on keeping track of what's out there. I will say though that every time we look at the opportunities in that area where you're looking at a corporate deal, it becomes very difficult for us, simply because the base plan that we have is so robust in terms of our growth rate that most things that we look at would end up diluting that growth rate. So we're very cautious on that, not to say that we're not always on the lookout for good opportunities that might come up. But very hard to make some of those larger deals work without diluting our growth rates. So I think that addresses what you're getting at in the second part.

Linda Ezergailis - TD Securities Equity Research

Yes. Also -- so does that mean that the probability of a mainline expansion would be lower for the liquids business over the next 24 months? And I guess maybe you can also comment on international?

Al Monaco

Well, first of all, with regard to mainline expansions, those will be kind of in proportion to the extensions that we do. As we extend to the Gulf, we have to expand the mainline to accommodate the volumes similarly Eastern Access. And then sorry, what was the second part of that question, Linda?

Linda Ezergailis - TD Securities Equity Research

International?

Patrick Donald Daniel

International. The only reason why I didn't mention international is that we wouldn't see anything imminent. Your question implied something a little more short term. But we are very pleased with the way things are going on this project we're evaluating in Colombia that we've mentioned before, looking at moving production from the Llanos area out to the Pacific Coast via pipeline. We're working with a consortium down there, sharing the development costs, but there's nothing imminent. There's a fair bit of work yet to be done on that project.

Linda Ezergailis - TD Securities Equity Research

Okay. Just a quick follow-up just to close off on this slide. How would you rank the attractiveness of your various financing options for your equity over the next a little while in terms of your rate reset preferred shares, asset monetizations or common equity?

Patrick Donald Daniel

Richard, you want to rank those?

J. Richard Bird

Yes. I don't know that I would rank them in any particular order, Linda. They're all tools that are available to us. I think given the very attractive opportunities that we have in front of us, any or all of them could make good economic sense.

Operator

And your next question comes from the line Juan Plessis with Canaccord Genuity.

Juan Plessis - Canaccord Genuity, Research Division

Richard, you talked about having bolstered the flexibility on the debt and equity sides of the balance sheet. And you have a small equity requirement over the next couple of years. Is it safe to say that you'll be looking still to strengthen the balance sheet or the equity side of the balance sheet in the near term? Or have the actions you've taken so far this year been sufficient to make you comfortable?

J. Richard Bird

I think it's fair to say that you will see additional equity bolstering actions and additional other liquidity bolstering actions as we move ahead. We do need a little more equity as the chart indicates. We've got lots of alternatives to source that, but you can expect to see us move ahead on that. And we won't wait a long time for that, we'll continue to try and move ahead with that on a measured pace.

Juan Plessis - Canaccord Genuity, Research Division

Okay. And just as a follow-up here. The cost estimates for the Montana-Alberta tie line went up a little bit. Can you comment on what's going on there?

Patrick Donald Daniel

I don't think the cost estimate there has gone up by any material amount that I'm aware of. What are you referring to in particular?

Juan Plessis - Canaccord Genuity, Research Division

I believe that the CapEx went up from $0.3 billion to $0.4 billion.

Patrick Donald Daniel

Oh my goodness, that's probably just a rounding thing. So it's pretty -- there's been virtually no change in the capital cost estimate of that project. It might have moved up by a very small amount just in the normal course, but nothing significant.

Operator

Your next question comes from the line of Paul Lechem with CIBC.

Paul Lechem - CIBC World Markets Inc., Research Division

I believe in the opening comments it was mentioned that the mainline volumes sort of the balance of the year might be down slightly from Q1. Can you give us some thoughts about what the drivers of the volumes are for the balance of the year? Well, that's the first question. I'll come back -- follow-up on that.

Patrick Donald Daniel

Richard, are you sure you'd like to comment on that?

J. Richard Bird

Yes, yes. Well, I think in the beginning, in the first quarter, we had a bit of the perfect storm in terms of refineries pulling strongly in PADD II because of differentials and much more crude being sucked down our system and also some refinery turndowns in Western Canada that meant they weren't processing crudes, so they were sending it along. So we expect to see some of that actually reverse and go in the other direction with those refinery turndowns coming later in the year -- I'm sorry, coming back up and therefore, chewing up that crude in Western Canada. So it's just really a number of anomalies in the first quarter that will reverse in subsequent quarters.

Patrick Donald Daniel

I think it's fair to say that overall volumes on the year are up. It's just that we wouldn't want you using the first quarter as the run rate for the full year, Paul.

Paul Lechem - CIBC World Markets Inc., Research Division

Okay. Got you. And longer term, can you talk about the potential impact of increasing U.S. crude production, how that might impact? Do you have any concerns that, that might impact the ability to grow the volumes coming out of Western Canada going into the U.S. Gulf Coast? Is that a concern of yours?

Patrick Donald Daniel

No. I wouldn't say it's a concern, Paul. As a matter of fact, it's probably an opportunity as much as anything. Growing U.S. production and the various sources of that growing production require infrastructure in order to direct it to existing refining markets. And we don't expect the rate of growth of U.S. production, whether it's from the Bakken, Eagle Ford, Niobrara, even the Permian and West Texas now would in any way push out the Canadian crude. The U.S. requirement for crude is still strong, although not growing as rapidly as it once was, that we don't expect any pushback with regard to Canadian crude. So I think it's probably more opportunity in terms of infrastructure development for us.

J. Richard Bird

And just to tag on to that, I think, Paul, certainly with the size of the Gulf Coast refining market at 8 million barrels a day, that certainly bodes well for Canadian volumes. And particularly, when about half of that is related to heavy oil refining capability, which as I said earlier, the U.S. Gulf Coast refiners are scrambling for. So that, as Pat said, bodes well for Western Canadian crude.

Paul Lechem - CIBC World Markets Inc., Research Division

Okay. And the last question on this line, there's been some commentary in the industry about the potential for reversing the cap line in 2Q [ph] to access the Eastern Gulf Coast. Is that an area of interest? Is that a project of interest for you? If you were to buy it, or if you want to acquire it and reverse it, could you benefit from such a reversal?

Patrick Donald Daniel

Well, we're watching that very closely, Paul. And, yes, we definitely could benefit from it because we think we are -- our Southern Access project -- our Southern Access extension project from years ago will be a logical feed to our reverse cap line. So there are issues to be resolved around existing refineries along cap line and where they get their crude from, but we're watching and monitoring that one very closely.

Paul Lechem - CIBC World Markets Inc., Research Division

And would that be a potential project of interest for you to acquire?

Patrick Donald Daniel

To participate in, yes. It definitely could be. That allowing access of Canadian crude to the Eastern Gulf is something that we have looked at on a number of occasions and so, yes, it would be.

Operator

Your next question comes from the line of Ted Durbin with Goldman Sachs.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

I'm trying to understand a little bit more sort of this 517 and how to model the Gulf Coast Access. Should we think about this as a slower ramp in volumes based on the commitments that you've actually received and therefore, a financial ramp? Or you said that the pipeline capacity is fully contacted out. I'm just trying to understand financially if you're also going to be receiving the full tariffs and the full volumes immediately or if there's a ramp because of -- as oil sands production comes online?

Patrick Donald Daniel

Richard, you want to refer to that?

J. Richard Bird

Sure. Yes. There is a ramp in both volumes and in tolls. So in some cases, those commitments are for the full amount. Day one of the commitment in other cases, the commitments to ramp up over time and the combination of those and of just normal project economics for an unregulated project is what produces that ramp up in the annual returns. It doesn't really look much different than the -- the steepness of the ramp doesn't really look much different than it would in many of our Alberta oil sands regional projects. So it's sort of from the high-single digits to the low double-digits over a course of 4, 5 years.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

I'm sorry, that's on the returns itself?

J. Richard Bird

Yes.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Yes. And on the volumes, I guess, are we 60% full to start going to 90% or kind of ballpark what kind of volumes are you seeing?

J. Richard Bird

I don't have that detail at my fingertips, but I think as granular as we get with the disclosure on a commercial project like that is returns in the high single-digits to start with.

Al Monaco

I think if I got your question right, Ted, you may be referring to the Seaway segment, which we do see pretty much running full. The 60%, you may be referring to what's initially committed in the first year. But of course, the commitments ramp up significantly after that. I'm not sure if that was what you're getting at, but that's a part of it.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Yes. That's fine. We can just do it after the returns, I was just more curios on the volume side. That's fine. And then how do you think about -- because there is this ramp in the sort of earnings, how do you think about that in terms of the balance sheet and credit metrics? I mean do you feel like the agencies will give you some credit towards a bunch of upfront capital for, call it, a ramp in earnings and EBITDA over time?

Patrick Donald Daniel

Well, I think, just to answer very generally, Ted. In the past, there has been a certain amount of forbearance from the rating agencies. But remember, we now have significant cash flow from the big waves of invested capital from the past, such that our FFO to debt metric is much more favorable than it was back at the time that we went through that first round of reinvestment. But Richard could maybe comment more specifically on rating agency discussions.

J. Richard Bird

Sure. So we go through the numbers with the rating agencies on a pretty regular basis, Ted. Not necessarily project by project, but in terms of the aggregate picture. And even at low -- high-single-digit returns when those projects come into service, they're accretive to the credit metrics right out of the box. So there's no real issue from a credit metric perspective with that return profile.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Okay. And then my other question was on just some of the changes on some of the pipeline permitting processes, this Responsible Resource Development Act. I'm wondering, any impact do you see from that in terms of the process with Gateway? Maybe comment on that. And then would there be any increased maintenance capital we should be thinking about in terms of more inspections and whatnot?

Patrick Donald Daniel

I don't know, whether Richard or Al, whether you were able to comment on the Responsible Development Act and impact. At this point, I don't think we see there being a significant impact as a result of that.

Al Monaco

Yes. I think that's right, Pat, generally. And then to get to your point around Gateway, I think the process there has been pretty much defined, which we're, as you know, right in the middle of. So I think we’re very transparent on what we need to do there. We don't see any impact on that particular project. As far as the maintenance side of the equation, I think we've taken everything into account that we see from regulatory point of view. More importantly though, our own initiatives to put the required capital into maintenance for the systemwide is being done. So I don't think we see anything that's material to affect the profile that we had already in our plan.

Operator

And your next question comes from the line of Carl Kirst with BMO Capital Markets.

Carl L. Kirst - BMO Capital Markets U.S.

A couple of questions if I could on the Gulf Access Flanagan South. And the first is, is it possible are you able to split out on the initial 590,000, 600,000 barrels a day of capacity, how much of that is actually being taken out by Bakken volumes versus Canadian crude?

Patrick Donald Daniel

I don't think we've got the data to do that, Carl. As you know, we work from shipper commitments and they don't tell us necessarily what they are going to be shipping. So I don't think we've got a good breakout on that.

Carl L. Kirst - BMO Capital Markets U.S.

Okay. I appreciate that. And the second question on that, and nice to see sort of the mid-2014 timeline reaffirmed. But if there is any one critical factor we should be looking at as potential friction point, I know there's a host of approvals that the standard course need to be done, but I didn't know if there was any one thing that stuck out more than anything else as potentially something to watch?

Al Monaco

Maybe I'll take a shot at that one. As you mentioned, there's nothing really, from a regulatory point of view, that is unusual. Along that route, its core of engineers that's required for permitting, as well as state approvals. And we'll obviously be focused on getting those nothing unusual on either of those fronts. So I think we're proceeding along. The other part of it, of course, is most of the routes for Flanagan South is an existing rights-of-way. There's a couple of areas where we're diverting from that, which we're optioning up. But on the whole, I think we're pretty comfortable. Did that help you, Carl?

[Technical Difficulty]

J. Richard Bird

So if there's anybody that can hear me, the Enbridge end, we're going to hang up and we're going to dial back in on the call number.

Patrick Donald Daniel

Yes. Al was in the process of responding to Carl's question. And Carl, did you get that full response?

Carl L. Kirst - BMO Capital Markets U.S.

No, Al, that was very helpful on the critical path forward on Flanagan South. I was just trying to make sure there wasn't any one particular item that, that might come up to work, so I appreciate the other color on that. The other question I had was just looking more towards the Eastern Access and understand this is all being evaluated and negotiated today. There was a number thrown out of potentially $2 billion of capital. And what I didn't know if there was any way to sort of parse that between Enbridge and EEP at this point? And ultimately, what the final capacity or targeted capacity is to get to Montréal?

Al Monaco

Yes. Maybe I'll take the first shot at it. No, I think that the $2 billion-plus number that I referred to was for the combined projects. So there really isn't a split at this point that we're going to talk about. As far as the capacity, I guess maybe the best way to think of it is ultimately into the Ontario market. Line 9, initially, would have commercial volumes under Westover in that 100,000 barrels per day range. But ultimately, Line 9's capability’s in the range of 250,000 barrels per day of capacity.

Carl L. Kirst - BMO Capital Markets U.S.

Okay. That's helpful. And then last question, if I could, and this speaks -- it was partly, I think, to Linda's question earlier just on overall M&A and appreciate that you guys are looking at everything. And specifically, I was wondering did you guys take a hard look at the Cayman project in the Marcellus? And I only ask because I'm trying to get a sense of, as we look at midstream as one of the potential growth legs going forward, are projects of that magnitude very much in play?

Al Monaco

Well, maybe I'll take a first attempt at that one. We did have a look at that opportunity. As you know, it was very large and it was located in, obviously, the Marcellus, which is very attractive generally. So the answer is we'd certainly like to build out the NGL footprint. That opportunity really didn't fit that well given its profile for our partnership in the U.S.

Operator

And your next question comes from the line of Andrew Kuske with Credit Suisse.

Andrew M. Kuske - Crédit Suisse AG, Research Division

I guess this question is for Al. And in part because, Al, a few years ago you held the title of being the head of major projects. And obviously, the skewer projects have changed over the last few years. You still have some multibillion-dollar projects but in general, projects are a lot smaller from a dollar value standpoint and obviously a lot more numerous. So how do you manage that process? Should you have someone responsible for really the multitude of more minor projects, as opposed to the major project role you had a few years ago?

Al Monaco

Yes. It's a very good question, Andrew. I think most people would sort of think about major projects execution in this multibillion-dollar project categories. But you're right, the projects are a little bit smaller. But on the other hand, we still run those through the major projects group in most cases, except maybe for the smallest ones. And those smaller ones add up. So I would say that we're very focused as we always have been on execution even on the smaller projects. And when we say small, these days, I guess, for us that sort of in the $500 million to $750 million to $1 billion. But it's very important to get those right. As you know, the execution really drives, ultimately, the return on these projects. So we more or less have treated them the same way as in the past from a focus point of view.

Patrick Donald Daniel

And just to make sure, Andrew. I just want to make sure that I understood your questions well, Andrew. We do still manage all of those projects through our major project management group even though you might categorize them as not as major. I think our threshold now is around $50 million. Anything over $50 million is handled through that group. So this is obviously all clear that hurdle.

Andrew M. Kuske - Crédit Suisse AG, Research Division

That's helpful. And then more...

J. Richard Bird

And Andrew maybe just to add a little more to that. We follow exactly the same process with respect to executive oversight. So once a month, Pat and Al and really all of our ELT sit down with the head of our major projects group and we go through project by project, status issues. It's a continued full meal deal for every project the same as it was with the last wave.

Andrew M. Kuske - Crédit Suisse AG, Research Division

That's helpful. And then, I guess, on something that could be an area for a major amount of capital be allocated. Just pushing crude volumes to the East, what would the ultimate end game be? Could you foreseeably see crude volumes winding up, not just Montréal, but really beyond Montréal and targeting, say, something like Irving?

Patrick Donald Daniel

Well, I think it's fair to say that we could foresee that. That is probably a little bit further out. But the attractiveness of both Western Canadian crude and Bakken crude is such that, I think, it's fair to say that Eastern refineries, not just Montréal possibly Québec City, possibly New Brunswick possibly around the Philadelphia would see some significant advantage of being able to assess those crudes. So we certainly will be looking to see where there's sufficient support to expand the project even further east.

Andrew M. Kuske - Crédit Suisse AG, Research Division

And just as a follow-up on that. If you were to target, say, something like Irving, would that be the old Trailbreaker project, I think it was called a number of years ago? Or would you look to lay actually new pipe through Canada and that's avoiding issues of crossing into the U.S.?

Patrick Donald Daniel

Well, that is, I guess, it's probably in the category of yet to be determined. But yet if you go back to Trailbreaker, I think we were actually, at that point, planning on putting crude on Portland and possibly moving it all the way around into the Gulf as a short-term solution to the Gulf Access issue. And that's not as likely in this scenario now with our Seaway project starting up shortly. But still access to the other East Coast refineries could make sense in the longer term.

Operator

[Operator Instructions] And the next question comes from the line of Robert Kwan with RBC Capital Markets.

Robert Kwan - RBC Capital Markets, LLC, Research Division

Just coming back to funding. The capital programs -- it seems to be much heavier in, say, the front-end of the 4-year period. Just wondering the $400 million to $600 million, is it fair to say that, that's maybe a little bit more of an immediate need versus something that's more evenly spread out over the period?

Patrick Donald Daniel

Richard?

J. Richard Bird

Yes. Well, I think it's fair to say, Robert, that we like the picture that we had before where we didn't have an equity requirement in front of us. So it's something that we would expect to try and address soon rather than waiting until the end of the 5 years.

Robert Kwan - RBC Capital Markets, LLC, Research Division

Okay. And then just in terms of addressing that, wondering if you can elaborate on the asset monetization side and whether that something where you followed -- maybe following on the transaction with ENF or maybe an increased drop-down activity in EEP? Or do you envision just flat-out asset sales?

J. Richard Bird

I don't envision material flat-out asset sales. We're always looking to trim nonstrategic and/or underperforming assets. But that's not what we mean by asset monetizations in any case. And really, we have the 3, what I would call 3 existing funding vehicles EEP in the U.S., the income fund in Canada and the vertical was really in that category as well although, we don't report it as a sponsored investments. So any or all of those 3 with the caveat that EEP has its plate full at the moment with funding its organic opportunity, so it's not really a candidate in the near term. And there are possibilities and we have had discussions with interested partners with respect to separate funding vehicle outside any of those 3, which is something we are examining as well.

Robert Kwan - RBC Capital Markets, LLC, Research Division

Okay. Just the last question I have is on acquisition growth. And Al, you had mentioned earlier that you obviously look at everything but you’ve, at times, had trouble making the numbers work that dilutes your pretty strong kind of core oil pipeline growth profile. Just wondering as well, how much do you think about the impact on acquisition or even just a new business development might have on your premium multiple? And specifically, if you're venturing into whether that's lower growth or even just lower multiple businesses than the core oil systems such as building out just pure natural gas infrastructure?

Al Monaco

Maybe I'll give that the first go. Certainly, what you referred to there is the impact on P/E. I think that's another way of looking at the dilution of growth that we often see with bigger transactions in that -- a ramp down in the growth rate from a large combination could have an effect on our P/E. And frankly, that's one of the concerns we have. Now that's for larger-sized acquisitions. Certainly for more bite-sized acquisitions where we can identify good synergies both on the cost and revenue side, and it could very well be that, that would be neutral or accretive to the P/E as well. And when I say bite-sized, I'm thinking more somewhere in the range of the $1 billion, slightly more type of magnitude.

Operator

And the next question comes from the line of Scott Haggett with Reuters.

Scott Haggett

I'm wondering if you could give a bit more detail on how the issues with the reversed cap line could be solved, particularly with Marathon and their refineries. Are there ways to overcome their opposition to reversal?

Patrick Donald Daniel

Al, do you want to comment on that?

Al Monaco

We're not really going to comment too much on that. I think, first of all, we don't have a position in that project. I think the question before referred to the general strategy around accessing the Eastern Gulf, and I think it would make sense, as Pat mentioned earlier. But at this point, as you point out, there are challenges. At this point, I don't think we want to comment too much on how we could solve those, given we're not involved in the project.

Operator

The next question comes from the line of Pierre Lacroix with Desjardins Capital.

Pierre Lacroix - Desjardins Securities Inc., Research Division

My question was again along the lines of the access to the Gulf Coast and all the proposals that are going on right now, especially with the latest cap line potential projects. A lot of barrels were moved down the coast. And I was kind of wondering over the longer term, I know that in your Seaway, you have commitments for 5 years, you have 10 years, you have 15 years. But when you think about the 5 to 10 to 15 years longer term and the spot volume that you have on this line, what portion of your target return could be at risk over a certain period of time, especially as the Eastern options and also the Western options develop eventually?

Patrick Donald Daniel

Well, I'll maybe try to answer that generally, and then Al you may -- Rich, you might want to be a little more specific. But Pierre, I think it's fair to say that we have been able to take advantage of the strong growth in production in the Bakken and Western Canada and the uncertainty around the Gulf Coast Access to get in place long-term shipping commitments that give us, obviously, the comfort that we needed to proceed with the developments that we have. And hence, are comfortable with the length and the term on those agreements, and earning our return of recovery of capital over that period of time. So we don't see any major exposure there. It's not that these are such short term that as other infrastructure projects come on, they're going to in any way endanger our investment. Al or Richard?

J. Richard Bird

Yes. I think that's right. We are pretty bullish on the outlook for 2 things. Obviously, oil sands production and as well, more recently, the uptick that we've seen in the U.S. shale side, not just in the Bakken but obviously the Permian, the Niobrara. Well, a good chunk of these barrels will be pointed to Cushing, so that will help for the longer term. So we're pretty excited about the future in terms of just the overall oil outlook for North America. So that bodes well for our projects, I think, both for the Gulf and Eastern Access.

Al Monaco

And maybe I'd just add that the volumes flowing on the Gulf Coast Access project, those originating at Flanagan are 10- to 20-year commitments. The 5-year commitments are only a part of those that are originating at Cushing. So even some of those originating at Cushing are for longer terms, 10-year terms. But there are some for 5 years that are originating at Cushing. That's a relatively small part of the overall project economics.

Pierre Lacroix - Desjardins Securities Inc., Research Division

Okay. So basically there's not much risk on your return even on longer term whatever happens?

Patrick Donald Daniel

That's right.

Operator

And your next question comes from the line Rebecca Penty with Calgary Hill.

Rebecca Penty

I just had a question regarding East Coast Access or Eastern Access, I should say. I think there is a $2 billion figure or more than $2 billion figure that was quoted earlier in the call, and I was just hoping if someone could elaborate on the cost that you foresee to get to Montréal and beyond potentially through the coast for that kind of a project?

Patrick Donald Daniel

Al, do you want to...

Al Monaco

Yes. I think just to clarify then, what that $2 billion-plus figure covers would be enhancement of our Line 6B. That's the U.S. portion of the project. They would include expansion of Line 17, which runs into Toledo, and it would include access to the Québec markets. So that would be the second part of the reversal of Line 9 that would go into Montréal. But there's nothing beyond that as far as further expansion of Eastern Access projects beyond Montréal, in figure.

Operator

And with no further questions in queue, I would like to turn the call back over to Ms. Jody Balko for closing remarks.

J. L. Balko

Thank you, Pam. We have nothing further to add at this time, but I'd remind you that Jonathan Gould and I are always available for any follow-up questions. Thank you, and we remind everyone that our Annual General Meeting will take place in Toronto later this afternoon. It will be webcast live and available for replay on our website shortly thereafter. Have a good day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.

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