Enbridge Enters The LNG World With Continued Returns

Summary

• Enbridge has invested in its first LNG plant for more than $1 billion while adding additional midstream opportunities.
• The company has continued to invest heavily against its business priorities and is one of the largest investors in the renewable industry.
• Enbridge has a massive $10 billion capital program that will support continued growth in the company's cash flow.
• Putting this together, Enbridge has the ability to continue generating market-beating returns.
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Enbridge Inc. (NYSE:ENB) announced just a few days ago that it would be investing $1.5 billion in a new LNG project in British Columbia. The company, as a midstream company, has seen a more volatile share price. As we'll see throughout this article, the company's impressive share price will enable massive shareholder returns.

Enbridge Understands The Future

The world is changing and midstream companies are struggling to adjust.

Enbridge Investor Presentation

From 2019 to 2050 global population is expected to increase by more than 25%. However, more significantly, urbanization is expected to increase by more than 50% with a more than 65% growth in the middle class. That's expected to lead to a substantial increase in fuel demand. Wind and solar especially are expected to see demand increase massively.

That massive increase will mainly come from a rapid decline in coal demand as emissions decrease. Natural gas demand is expected to increase slightly while oil demand and supply decreases slightly. The decline rate means that the company's existing assets won't go down, but it does mean that the company needs to readjust.

Enbridge Business Performance

The company has continued to execute on its business operations, which will enable increased opportunity.

Enbridge Investor Presentation

Among the most important of the company's assets is the Mainline pipeline which is on track for volumes to average almost 3 million barrels / day. The company transports 30% of North America's oil through its liquid pipelines, and it's continuing to perform well despite refiner and producer turnarounds. The company is also advancing a low carbon portfolio.

The company's gas transmission includes 20% of consumed natural gas with export deliveries hitting ~3 Bcf/day. The company has a massive $6.8 billion in growth capital execution here across a multi-decade time period. The company's assets are integrated. The company is on track for >40K new customers in 2022 and serves 75% of Ontarians.

Lastly is renewables. The company has 2.2 gigawatt in renewable energy serving ~900 thousand homes and is spending billions in growth. This is a smaller segment but one that other companies aren't investing in as heavily, giving the company substantial growth potential.

Enbridge Woodfibre LNG

North America LNG exports are going to be one of the fastest sectors of fossil fuel growth globally, and Enbridge is beginning to enter that. Natural gas demand is expected to remain strong as an alternative fuel for coal, and Europe is working to move off of reliance on Russian natural gas. North American natural gas represents a great way to do that.

Enbridge Investor Presentation

The company made a massive investment in Woodfibre LNG and it has the ability to outperform as a result. The company is expanding pipeline capacity to support the project, and T-South Pipeline capacity is expected to increase by a double-digit % with a 300 million cubic feet / day expansion requirement. The pipeline is expected to be in-service in 2028.

At the same time, the company is also looking at potential expansion opportunities in the market. The company now has a 30% preferred equity interest in Woodfibre LNG. The company's investment is $1.5 billion although $600 million will be project financing. The project is 70% contracted and will have 2.1 mtpa in production.

To Asia, where LNG demand is massive, the shipping costs are 50% lower than from the United States Gulf Coast.

Enbridge Continued Growth

Enbridge isn't a company to skimp on growth, and the company is continuing to invest heavily.

Enbridge Investor Presentation

The company's total secured capital program is a massive $10 billion USD. Long term, the company has $5-6 billion in annual investment capacity, of which it sees $3-4 billion as ratable organic growth. The company has started several new projects and the company's projects are expected to be in service from this year until 2027.

Out of this, the company is spending roughly 25% of its capital program on renewable power and new energies. That will enable additional and reliable long-term growth.

Enbridge Shareholder Returns

ExxonMobil has generated strong financial returns and has the ability to generate massive shareholder returns.

Enbridge Investor Presentation

Enbridge is growing its free cash flow ("FCF"). The company's debt to EBITDA ratio is massive at roughly $70 billion in long-term debt, which costs the company billions in annual interest expenditures. However, that spending has supported continued growth for the company and its impressive assets. The company's discounted cash flow ("DCF") has consistently increased by mid-to-high single digits.

The company's commitment to both growth and direct shareholder returns makes it a valuable investment.

Thesis Risk

The company has reliable cash flow, meaning that its thesis has much lower risk than other companies. The company has a diversified portfolio of assets and it's continuing to invest in a changing market which will position it better for the future. However, the company has substantial debt and is investing heavily, which makes it susceptible to a market downturn.

Conclusion

Enbridge is one of our favorite companies in the midstream sector. The company has a dividend yield of 6%, which costs it $5.4 billion annually and is something that the company can comfortably afford. Outside of that, the company is also investing massively in growth capital and is looking at other forms of shareholder rewards.

The company also has a share buyback program worth more than $1 billion. The company's DCF yield is expected at 12%, and, however the company spends the money, we expect substantial shareholder returns. This makes the company a valuable investment for any portfolio. Let us know what you think in the comments below.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ENB either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[892]

As a current ENB shareholder, i realize that the company makes money by volume of product shipped..be it gas or oil. One long term risk not mentioned is the possibility of declining supply. One possible long term upside is the partial substitution.of some natural gas for hydrogen. Nancy Southern of Calgary based Atco has had some thoughts along these lines with up to 20pct hydrogen content mentioned. Another.Alberta company, Proton Energy (private).is experimenting with producing cheap (they claim) hydrogen from an abandoned oil.field.in Saskatchewan.

[892]

I think you ought to visit the OECD website as your population growth number looks off given that most countries in the world.outside of Africa and the Middle East have birth rates <2.1 kids per couple.. Chinas former..one child policy for example, left it with a large population of young men who have difficulty.finding female mates due to their lower numbers. Result...less.kiddies.

[Desert Wolf]

ENB Div payday September 1st

[Desert Wolf]

What the Reference to ExxonMobile about? Under Shareholder Returns

[Glenayr]

"Among the most important of the company's assets is the Mainline pipeline which is on track for volumes to average almost 3 million barrels / day." The Governor of Michigan has not given up on stopping the replacement line for the Mainline pipeline , Line 5:
" The state Public Service Commission voted 3-0 (July 7/22) to seek further details about the potential for explosions and fires involving electrical equipment during construction of the tunnel beneath the Straits of Mackinac.
The commission’s approval would be required for Enbridge to replace two existing Line 5 pipes in the straits, which connect Lake Huron and Lake Michigan, with a new segment that would run through the proposed underground tunnel.

Enbridge and the state of Michigan are mired in legal battles over Line 5."

Any analysis of Enbridge is not complete without an update and review of the status of the replacement of line 5. The present governor and Janet Granholm, the former governor and present Secretary of Energy for the USA have both turned themselves inside out in an attempt to block the replacement for the Mainline, which is 60 years old and needs replacing.

[William Frey]

@Glenayr They need Mancin to make a side deal for them

[Desert Wolf]

@Glenayr Gov Whitchner will end up writing a Check to Enbridge for her Political Greenstanding.
Overturning the Treaty that Line 5 falls under would be a Historic Failure between neighboring Nations.

Xiden will also end up compensating TRP $20 Billion for his Political Greenstanding on Keystone XL.
This money will come from USA Taxpayers.

Meanwhile he continues to Beg OPEC to increase production then Empties the Strategic Reserves and Sold Most of it to China at a Discount.

[Desert Wolf]

@William Frey Looks like Manchin Drank the Kool Aid and SOLD Out for a little pipeline in WV

[Divvy Lover]

What if they didn't pay dividends for the next 3 years and just used all that cash to pay down debt, and then resume the dividend at a higher per share rate.
Wouldn't that be nice. It would weed out all the income investors thereby suppressing the stock and people like me would buy it, only to enjoy a double digit yield 3 years later.

[piterectus]

@Paki Investor not dividend but shares buyback. It will take longer time but would be smoother for all, and so, more easy to swallow

[Divvy Lover]

@piterectus Nah, that would only cause the share price to rise. I don't want that. I'd like them to pay off most of the total debt, and then a few years from now, when there are no more interest and principle to pay, all that cash can be just paid out in divvys! Yay!

[piterectus]

@Paki Investor that is the conservative ortodox way of doing business and life.
I have ever owed a dollar in debt (more than the time it takes for the credit card to send me the monthly bill). However, it is not the usual way of doing business in the Usa, where owing is seen as good & trusfully and not having debts means have no credit and dangerous.