恩橋 (ENB) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Enbridge, Inc. first quarter 2002 earnings release conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. At that time if you have a question, please press the one followed by the four on your telephone. As a reminder, this conference is being recorded Friday, May the 3rd, 2002. I will now turn the conference over to Colin Gruending, Manager of Investment Relations. Please proceed, sir.

Thank you, Jody, and good afternoon to all of you sitting in this call. Today to discuss what's driving our business, we have Pat Daniels, President and CEO; Scott Wilson, vice president of finance; also available for the Q and A session are Karen Brooks, Vice President and Controller; and Al [Monaco], Director of Financial Services. Today we plan to cover five key areas. Pat will provide a quick overview of the quarter and discuss our progress on key strategies. Scott will recap the quarter's financial results. We'll also update our financing plan and provide an earnings outlook for the remainder of the year. Pat will then wrap up with his final thoughts. Our opening remarks should take about 20 minutes, after which we'll take questions. Before we begin, though, I'd like to remind you that this conference contains forward-looking information which involves certain assumptions, risks, and uncertainties that may cause actual results to differ from those implied by the comments. Some of these risks include weather, commodity price, [inaudible] volumes, interest rates, regulatory parameters, economic conditions, and other items. Again, this call is being disseminated live via webcast; and for those of you listening over the phone, you may view our slides on the web which will accompany our remarks. I'll now turn the call over to Pat Daniel.

Thanks, Colin, good afternoon. Hello again to those of you who attended our AGM earlier this afternoon. First of all, as Colin mentioned, Scott Wilson is joining us today replacing Derek Truswell. Derek was away attending his son's wedding, so we've excused him from today's call. I can tell you all, though, that Derek is just as pleased with this quarter as I am and as the rest of the Enbridge management team is. So let me address our performance first before I update you on some of the strategic progress that we've made in the company. First of all, we've continued to deliver very strong earnings. Reported quarterly earnings of $113 million increased significantly from $84 million last year while recurring or normalized earnings increased in a similar fashion to $105 million or 65 cents per share on the quarter. This came ahead of our guidance range of 57 to 62 cents per share. We're very happy to get off to a strong start, and the rest of the year looks positive as well. Our normalized earnings for 2002 is in the $2.60 to $2.70 per share range. Scott will get into some of the segmented comments in a minute in the segment the results, but I want to highlight three very relevant points concerning the nature of our performance in the first quarter. The first point is that our core franchises continue to generate very strong, predictable, and highly transparent earnings, I think a feature that many of our peers cannot replicate. Secondly, our three core platforms have inherently lowered business risk in their own right, but I think more importantly their large earnings contributions really anchor our overall portfolio diversification as we expand our geographic scope. I just would like to remind you that we are an asset manager and in excess of 95 percent of our earnings are derived from recurring E-based business with no or very minimal direct exposure to commodity price risk. Thirdly, and equally important, is the fact that we're achieving this performance under relatively flat liquids and natural gas supply environment. We fully expect that when supply from the Western Canadian Basin improves, this will provide an added catalyst to our financial performance and to our growth rate. I would like to emphasize that while we've been very active on the acquisition front in recent months, we certainly haven't neglected our core businesses, and I think you can tell that from the results we've achieved. We do focus on operations, and I think this quarter's results underscore that and internal growth generated from our core franchises is very strong. In terms of a strategic update, we've been extremely busy closing out recently announced initiatives and positioning for more growth. There really are four key initiatives I'd like to use. The first of those is the fact that we're very well positioned for oil sands development. The Alberta oil sands which literally lie in our backyard attracted global scale investment. Our earning move into this area allows us to be a dominant transporter of oil sands volumes and without investing significant incremental capital going forward. We currently have take-away capacity in both our Peter pipeline and our main line systems to meet several years of increasing supply. On that front, we have just completed our annual survey of producer-production forecasts which, of course, really drive many of the announced projects. And those of you on the webcast can see on your screen at this point that oil sands development significantly more than offsets declines in conventional light production in this forecast. The dotted line is the producers' forecast of 3.5 million barrels per day, which we've conservatively scaled back the total forecast to 2.8 million to reflect market demands and constraints. Whichever of those production scenarios comes to fruition, we stand in front of the large earnings catalyst on Enbridge on this front. We are progressively position to exploit our competitive advantage here; and as you know, we moved about two-thirds of all liquids moved in western Canada increasing volumes drawn by income statement in three different ways: through the Athabasca Peter pipeline, through the main line system, and to the U.S. portion of the main line. And by the way, the partnership itself posted a very strong quarter as well increasing its net income to $18 million from $10 million, so a very good result from them. In respect to the Athabasca pipeline specifically, we are pursuing additional shippers and in addition to Petro-Canada at MacKay River and EnCana at Christina Lake, which we'll tie-in this summer, we are discussing arrangements with all of the major oil players and expect to fill up the Athabasca pipeline by 2005. And I should mention, although this is still a relatively new project for us, that Athabasca earnings now represent about 10 percent of our quarterly earnings. And now while we're now in discussions with customers regarding a new [hot pitchman] pipeline, that proposal from Fort McMurray as well. That new line would bring [hot pitchman] to Edmonton refinery starting in 2005. In part this would really address the reduced supply of [inaudible] Normally required to move [pitchman], and in addition to this hot bed line, we're also confident that additional pipeline infrastructure will likely be built over time. And these opportunities include new pipe to take away oil sands volumes from the deposits, expansions of our main line post the Terrace III expansion and then extensions of our main line further south into pad two of the U.S., the southern refineries that currently rely on Gulf Coast crude or Gulf crude, at least; and also to find new markets other than pad two and pad four in the U.S., which may eventually become saturated with Canadian heavy. So in a nutshell, that outlines our very significant leverage to the oil sands. Secondly, in terms of significant issues on the quarter, we posted the CLH acquisition on March 1, which gets Enbridge a 25 percent interest in Spain's common carrier refined product network. This assets fits right in with our existing portfolio and really exhibits investment attributes which very closely mirror our North American liquids franchise: very dominant market share, very ample supply, very strong demand, which has doubled the rates in North America, both the mid teens return and very little risk. We consider this investment of a blue chip complement to our existing base similar to our only other international investment, the one we have in the Columbia in the [Osenza] pipeline. The terms of the CLH deal were a bit more favorable than we discussed last October. We have restructured the deal to include the deferred payment arrangement, and the up-front consideration is now $425 million while the remaining amount which is at most $125 million is payable over time through March 2006, depending on the achievement of systems put through each of the year through 2002 and 2005. So with this [inaudible] mechanism, we believe we have further reduced our risk profile on an already low-risk project by introducing an incentive mechanism which really has become an Enbridge trademark. CLH earnings for the first quarter of $6.4 million are right in line with our expectation and in fact a little ahead of budget at this point. We continue to expect about $25 millions in earnings contribution for 2002 including some second half weighted seasonality in that forecast. Although we would consider making new international investments if they meet our investment criteria, we don't at this point foresee any other international large investments in the near future, as this acquisition really puts us in the comfort zone that we have of 10 to 15 percent of our total earnings. So again, although the role of international investment is to very selectively supplement our North American growth platform going forward. Third key item I'd like to mention with regard to positioning is with regard to the sale of our retail services business, which is right on track to close in the next couple of weeks, and in fact we expect next week. The sale in the value achieved are very positive, and we're eager to put that billion dollars of proceeds to put more optimal strategic use and also to pay down some debt. Fourth, and as I said many times before, we wish to give this company a continental footprint. We continue to emphasize this particular strategy and during the quarter we post the acquisition of the [sulphur] river and gas gathering system. This system is contiguous with the east Texas system which was recently purchased by the partnership. And our quarterly earnings include one month of [sulphur] River earnings as the closing was in early March. And finally this brings me to the ML peace strategy. We're diligently working toward moving available assets into the partnership. And as you will recall, this is a key objective that we have for us this year, and we remain very committed to making that happen. I would also add one final item before I turn things over to Scott Wilson and that is that I have a comment with respect to the gain on marketable securities that we recorded during the quarter. That gain relates to the disposition of the short-term investment we made in the common shares of West Coast energy. The price appreciated meaningfully and we sold our shares during this past quarter, and I'd underscore that this was a an opportunistic investment for us and we do this very infrequently. So with that, I'll turn it over to Scott.

Okay. Thank you, Pat. I'd like to begin by emphasizing our desire to be highly transparent to the financial community in terms of our strategic direction, but particularly with respect to our financial results. We've always viewed this as important, but it's critical in view of recent events in the sector and in the broad market. In this we've published four pieces of supplementary information which are posted on our website. First, our usual quarterly supplementary financial analysis of quarter over quarter results. Second, an itemized list reconciling our normalized versus reported earnings. Third, a five-year annual summary of additional financial information; and fourth, a five-year restated quarterly segmentation that reflects the carve-out of discontinued operations and a few other 2001 reclasses that you might find helpful. Turning now to earnings in the quarter, reported earnings from continuing operations increased sharply in the quarter to $105 million or 66 cents per share compared with $80 million or 51 cents per share in 2001. As Pat noted at the outset, these results reflect another strong quarter. After normalizing for unusual items, which relate primarily to weather shortfalls in the distribution segment, the MLP dilution gain and the investment gain Pat just referring to recurring earnings to the quarter were 65 cents per share compared with 49 cents last year. The key drivers of the significant rise in recurring earnings for the quarter were as follows. I'll start with Transportation North. In this segment, earnings increased substantially due to the triggering Phase III of the Terrace expansion in July, 2001. Athabasca also increased, which reflect the building of new lateral pipeline and connect new shippers and our cables performance improved markedly over last year giving [fact] spread over when we were still negative. In this regard we continue to expect our table to roughly break even for the full year. Looking to Transportation South, despite flat throughput, partnerships earnings were up a bit due to the East Texas and North Dakota acquisitions. The frontier was higher, given our increased ownership stake effected in December. The Midcoast contribution of 1.5 million, while on the surface appears disappointing, reflects a $5.7 million expense that relates to 2001. Otherwise Midcoast would have been on track for about $6 million for the first quarter or about $25 million for 2002. Turning to distribution, earnings for distribution were affected by another warmer than normal winter. We earned approximately $22 million less than last year or $15 million less than normal. This weather impact dwarfed improvements from customer addition and cost-incentive savings. We expect this next quarter will be impacted similarly by another $24 million while the annual shortfall to normal is expected to be $39 million net of mitigation action. On the bright side, the definition of "normal" for regulatory rate setting purposes is becoming notably warmer giving formula reading considerations to more recent years. I know we've said this before, but we are hopeful of getting this weather back soon. In the corporate segment, normalized corporate costs were higher than last year due to higher debt balances. Also last year included a nonrecurring Florida half million foreign exchange loss, while this year we enjoyed a $17.8 million after-tax gain on the sales of marketable securities as Pat referred to earlier. Given the gains in frequent and nonrecurring nature, we have normalized our earnings guidance for it. Finally, retail energy services earning which are reported as discontinued operations increased mainly due to growth from the water heater rental program. Switching gears to the future, I'll remind you of our financing plan and then summarize our earnings guidance. I want to assure the investment community that Enbridge intends to maintain its strong financial position. While our current capital structure reflects strong fundamentals and unparalleled core franchises, we will nonetheless reduce target balance sheet leverage to between 60 to 65 percent by year end. To this end, we are right on track. The preferred security issuance in February and the imminent closing of the energy services business transaction demonstrates our commitment. The smaller up-front CLH investment actually puts us a little ahead of schedule. We fully expect to get there, though, with another year of record earnings and an asset transfer to the MLP. During the quarter we may progress on both these fronts, however, the exact timing of a rolldown is subject to the financing capacity of the partnership. As you know, one financing alternative includes a nonshare equity structure, which provides access to the much wider institutional market. Of course, the retail market may also be available for smaller [trenches] of equity. As you're aware, we raised $90 million of equity at the partnership during the quarter, which resulted in the dilution gain of $5.9 million. When we do execute this rolldown, we expect the MLP transformation to a growth vehicle and the balance sheet improvement will provide two additional catalysts for Enbridge. Indeed this is taking a little longer than we thought, but we are confident we will continue on this promise absent market events outside our control. Once we accomplish this, we believe S&P will remove the negative outlook on our A- rating. Meanwhile, Moody's and DBRS continue to rate us A mid. Turning now to annual guidance, as Pat said, given the strong first quarter and our expectations for the remainder of the year, we expect 2002 recurring earnings to be in the range of $2.60 to $2.70 per share. To be clear, that's normalized for weather, dilution gains, investment gains and discontinued operation. The drivers of this growth are similar to those driving the first quarter's earnings. For the second quarter, we expect recurring earnings to be in the range of $1.35 to $1.45 per share. Pat, back to you.

Okay, thanks, Scott and maybe just to conclude, I'd like to remind you that while we've got an awful lot going on at Enbridge right now to liquid pipeline development to new acquisition and major divestiture and the transformation of the partnership in the U.S., just to name a few, the purpose really of all of this is to transition Enbridge into a very significant continental energy delivery company. Our vision is to become a larger and a continually unique investment opportunity by providing shareholders with an even better risk reward proposition. We hope that we differentiated ourselves from our peers over the years as evidenced by our EPS growth track record, the multiple opportunities before us and our low-risk asset manager approach. Five years from now we will have a much more extensive North American presence in scope, but we're not going to achieve this simply by becoming the biggest or trying to be the biggest. We want to be the most profitable along the way. That's our real objective. That concludes our formal remarks, and we're now prepared to take your questions.

Thank you. Ladies and gentlemen if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please lift your handset before listing your request. One moment, please, for the first question. Our first question comes from Karen Taylor from [BM Burns.

Good afternoon. I have four very quick questions, probably easier than the once you got at the AGM, but here we go. The shares of West Coast in the short-term acquisition of the shares, that is a fairly unusual thing for a company to do. Can you just explain for me, please, how long those shares actually were on your books and the decision process that you undertook to actually acquire? I mean, if I assume that the shares were sold at the acquisition price at Duke it suggests you had somewhere in the order of 2 1/2 million shares. That's a sizable piece, and I'd like to understand, if I may, the thought process that went behind that. And then the follow-up question is whether you've taken any other sort of speculative positions in the other stocks that you may or may not have an interest in other than global thermal and things like that.

Let me try to address that's questions in reverse. The answer to your final question, no, we have not taken any speculative position in our securities. We have held the shares for approximately seven months. You're right, it was about 2 1/2 million shares and we purchased the shares for investment purposes expecting a significant return on that investment, which we're very pleased to have realized.

Okay. If we could move on, perhaps, to the Midcoast segment, can you please just describe for me what this prior period adjustment was that reduced segment performance, and I see that you have backed it out on Slide 15 of the presentation, but I'm wondering if that's what it is and is that the right treatment.

Okay. I'm going to ask Scott Wilson to comment on this, Karen, and as you may know, these are one-time corrections, and I'll just ask Scott to elaborate a little bit further on that.

Thank you.

Okay. Thank you, Pat. Karen, these really are errors in accounting that we term as cutoff errors. We substantially accelerated the timing of year end for Midcoast to confirm more with Enbridge's timing requirements and unfortunately in conjunction with that, there were a couple of frankly just missed accounting entries that caused the problem. There -- one's related to a gas cost that we just simply missed and on another case we recorded a gas cost or a gas receipt that hadn't been actually received. They're fairly standard transactions. As Pat said, these don't in any way reflect on the equal of the operations and integrity of the Midcoast operations. They are process related issues and we we've corrected those problems and we're working to ensure that they don't happen again.

Okay. The comments that were made at the AGM regarding leverage, again, they were made here in this presentation. But the wording in the press release suggests something slightly different, again, and that was brought up in this call as well and it talks about the redeployment of this cash particularly from the energy services segment and sale, the redeployment of that amount and at least for some period of time that you would repay debt. Has there been a subsequent conference with Standard & Poor's that suggests that you have that incremental flexibility to if you want to call it that, divert the repayment of this debt without affecting the time line? In particular, there was an investor lunch in Toronto in late February where we ran through a schedule of what S&P arguably expected you to do, and it didn't seem there was much wiggle room in that. Can you please expand on how the redeployment of that cash fits with what S&P expects and how much flexibility you have.

Karen, I'm going to ask Scott again to address the specific part of your question with regard to the proceeds of ESI in a moment. One of the things that we've mentioned in previous calls and I would like to repeat is that we have talked to S&P about the going forward plans for Enbridge and the fact that we expect that if there are good opportunities and good investments available to us that we will make those and we're not constrained by the balance sheet concerns to the point where we wouldn't proceed, and they understand and accept that. They accept the plan that we have in place to restore the balance sheet to the rolldown of assets. So just so that you understand, that's the broad context of discussion with S&P. With regard to the proceeds of ESI, maybe Scott can comment.

Karen, we're right on time with our plan. The proceeds will be received next week and over a period of time they will be used to repay debt. We don't have a billion dollars of repayable debt on the first day of receipt.

No, no.

But we've sort of prudently managed that over a period of time and we're right on track to achieve the leverage targets that we agreed with S&P, if you will, and at Pat said, in the intervening period if there's -- if there's something that requires us to expend capital, that isn't in our current plan, we would finance that appropriately with the target mix of debt and equity.

Target mix being 60-65 debt?

That's correct, Karen, in and around that range.

So I want to make sure I understand. Let's say the cash comes in, you're redeploying it to reduce debt over time, as maturities and opportunities avail themselves. How big an acquisition do you have -- I guess what I'm trying to get is the degree of scale before you have to appropriately finance something at 60 to 65 percent. If you understand what I mean, at what point.

I understand what you mean. I think our relationships with the credit agencies remain extremely good, and they understand that the day after that something might be done, and that we don't have to be in the capital markets. We can use our existing liquidity and in good faith raised appropriate equity and debt capital that would be appropriate for the investment, whatever that ratio might be. You know, in a reasonable period of time. So I'm not concerned about -- about us needing to be, you know, absolutely concurrent with anything we might do.

Okay. And finally, if I may, if Midcoast and the Northeast Texas system had been sold down to the partnership at year end 2001, what would be contribution from the partnership have been during the first quarter of 2002? So the argument that we have heard relating to the usefulness of [EEP] to Enbridge is that you would reduce the on-balance sheet capital requirements to support the assets, that would partially offset the loss of direct income from the assets and that loss coming, if you will, will be fully made up and then some through the contribution of the incentive payment for being the GP as well as just the pro rata interest in income.

Again, I'm going to ask Scott to comment on that to the extent he can. Scott, have you got some approximate numbers? We're just doing some rapid calculation here, Karen.

Okay.

Karen, I think there would be some equity pickup, but we're not sure just what the scope of the reduction in financing costs related to it would be.

So the guidance range -- if we're talking about a mid-year Midcoast potentially sell down, the guidance range will not move materially once that transaction is complete?

We are anticipating that in the event that such a transaction is successfully done that it would be [accregious] to Enbridge but at this point we haven't provided guidance on that.

I think the guidance does not assume the rolldown, and you know, the impact back to Enbridge would depend on if the partnership increase in distribution certainly we would intend it to be accretive to the partnership which would make it [inaudible] in terms of the GP incentive back to Enbridge, but it does depend on their distribution policy. So I guess to be clear, the guidance may change if that happens, but at this point we are not assuming that in our guidance numbers.

Let me ask the question the other way since you yourself just mentioned that would -- would the distribution policy change at [EEP]?

I guess what I meant was whether or not they would decrease the distribution would depend on the accretiveness of the transaction which has a lot of functions built into it, unit price issuances, price paid, et cetera. So it's pretty tough, I think, to speculate on what the exact amount would be, but if it's an accretive transaction for the partnership in all likelihood they would like seriously as a distribution increase which would be positive for Enbridge.

Okay. Thank you very much.

Thank you.

Thank you.

Our next question comes from Sam King, [Skosha] Capital. Proceed.

Couple. Your MLP rolldown efforts when you get your institutional side locked in to be able to tap the wider U.S. institutional base, in an ideal world, is there a size you would like to ideally do at this stage?

Yeah, there is, Sam, and it's very closely related of course to the assets that we're looking at rolling down, and Scott, can you just elaborate just a little bit further on that?

Sure. Sam, there's not a lot of precedence for institutional fund-raising by MLPs other than [Kinder Morgan] Which set out to do $600 million and ended up doing over a billion, I believe. The amount that we would like to tap from the institutional market would be very dependent on the actual size of the transaction. You know how we do finance the partnership, it's pretty well a 50-50 debt equity split. So I think you've got a pretty good feel for these potential assets that might go down and from there you can pretty well run the numbers. But the one thing I'd add to that would be that a certain amount of liquidity is desirable for an institutional transaction such as that, so you probably wouldn't want to be doing, you know, a number that's too small.

Okay. Thank you. One other. On sales securities in your statement of cash flows actually shows 21.4 million as if you've had a gain on something else for 3 million or 4 million or so. What was that?

Sam, the 21.4 is a pretax number.

Okay. Just wanted to double-check. So that was just one West Coast transaction. Last question for me, and you may not be able to get back to me today on, or maybe you can. Year over year, energy transportation delivery is actually down 2 percent, $2.8185 million versus 2.212. As time rolls forward and you see Athabasca filling up and you know what your schedule is pretty much through 2005 now, is there a kind of an accretion number per incremental 100,000 barrels of say, Alberta crude that comes through your network that you kind of extrapolate out as to what you might be able to capture on a per share basis?

Sam, I'm sure we can do that calculation. I don't have that at my fingertips, and looking around the table, I don't think we have that available but that is an interesting way to look at that and I'm sure we can provide that. As you know, we've got a pretty well-defined formula with regard to the returns on the [liquid] pipeline system, and as the volumes step up, particularly on the U.S. side and the ratcheting up of returns. So I'm sure we can calculate that and make it available.

It might be helpful for sensitivity. Okay. Thanks.

Our next question comes from Maureen Howe of RBC Dominion Securities. Please proceed.

Thank you very much I have a couple of questions. I want to start with again just going back to this adjustment related to prior periods on Midcoast. I know you answered a couple of questions on it, but if we look at that $5.7 million adjustment and you say it relates to 2001, so just to make sure I understand it, and it seems obvious but instead of booking $9.5 million last year you would have booked only $3.8?

Scott, can you respond to that?

That's correct, Maureen.

This seems like a very large cost to miss even relative to the earnings in relative to this year's expected earnings. You know, how do you miss a gas cost of that magnitude?

Actually there were multiple contributing factors there and it wasn't one entry, as Scott indicated. There were two or three corrections and you know, we can break those out a little further for you if you'd like, Maureen.

I just think in terms of an order of materiality you can appreciate that if you expedite a cutoff process you might miss something, but this is so material to the operation of the company it's surprising, I guess.

Well, to be fair, Maureen, we were disappointed with it as well, and we're using our best effort in conjunction with the staff in Midcoast and in Houston to ensure it doesn't happen again.

Okay. Just another -- and I know these are issues that have already been addressed, but going back to the gain on the sales of the West Coast shares, the $17.8 million, you mentioned you'd held them for about seven months. Were there any other sales or profits taken from sales maybe smaller amounts but in previous quarters or were they purchased seven months ago and all liquidated this quarter?

As you've just described it, they were purchased not at one precise point, seven months ago but in approximate time frame and also in this quarter. They were not disposed of in stages.

And was there any markings to market any paper gains in previous quarters?

No, there weren't.

Okay. And the segmented note as well, under the corporate there is $43.4 million in investment and other income. Is that entirely the West Coast shares, or are there other things in there?

It is not entirely the West Coast shares, Maureen. 17.8 million of it would be.

I think the 43 was a pretax number, I think.

You're correct. We may have to get back to you on that, Maureen.

We can follow that up, actually, later. Just one last question, and it has to do with the effect of tax rates with the quarter, which was very low. It was low last year but it's even lower this quarter. Can you give us a sense for is that reasonable for the year? I think it's under percent. I think it's about 18 percent. Is that sort of the [run rate]?

Karen, would you like to respond to that?

The tax rate does appear to be very low. That a combination of the tax rate reductions we've seen in prior years as well as a large portion of our operations used the [TOPS] payable method for accounting purposes because that is how rates are set. So to see a rate between 18 and 23 percent isn't unusual. And it does vary a bit quarter by quarter depending on the timing of construction programs.

Okay. So there might be a little variation, but nothing largely, you know, not any wild swings?

That's right.

Okay. That's great. Thank you very much.

Thank you.

Our next question comes from Matthew [Ackman] with Credit Swiss First [inaudible]. Please proceed.

Thanks, a couple of counties on the oil production and then gas distribution. On the oil pipelines with Athabasca there was a really good improvement there over last year. Could you just maybe sketch out where that comes from, I mean, part is a rising return there over time but obviously some new investment. Can you break that down a little bit?

There were multiple factors and I don't have the quantifiable amounts associated with each, but the factors that contributed to it were the added investments associated with Petro-Canada, MacKay River and the investment associated with EnCana at Christina Lake. And I think that's -- I don't think we've got a quantitative breakdown for you on that, Matthew but those are the contributing factors.

Okay. But that kind of contribution is something we can expect as sort of a run rate quarterly?

Yes.

And then on the Enbridge system, you know, big result there, but I'm wondering, there's a comment on an oil revaluation gain in there. Is that significant?

No, it's not. It's not significant, Matthew, it's in and around a million dollars.

After tax?

Right.

Okay. And then just on the gas distribution segment, you know, if you look at the supplementary information, the operating and administration costs have gone up a lot quarter over quarter or year over year, I should say from $85 million to $105 million. Not something you'd expect from a utility in a [inaudible] that's looking for operating cost savings, but I guess maybe some of that's attributable to restating customers works and there's a comment that said that there's some third- party activity in customer works that that's attributable to. So I'm just kind of wondering whether that third party activity, can we expect to see some earnings growth in customer works as a result of that or, you know, maybe if you could expand on what that activity might be.

Okay. Karen is going to respond to that, Matthew.

The increase in the O &A costs in the distribution segment is as you suggest because of customer works. It's really a bit of an accounting anomaly, which I think would be too technical for this particular conversation, but if you want to go through it, we can certainly go through that later. But the reason is customer works.

Matthew, there would be a light increase on the revenue line as well, but you can't see it as readily given the size of that line.

Okay. Any comments on sort of what the third-party activity might be and is that wrapping up and can it lead to any earnings growth in that business?

Well, in general terms, we think that there will be some significant third-party opportunities for customer works, and in fact that's part of the rationale for rolling it out and establishing this relationship that we have with BC gas on it. We think there's very good potential, very high demand, right across the continent for customer care services like this, Matthew, so we do expect medium to longer term to see some very good numbers from customer works as they start to grow and seek third-party clients.

Okay. That's -- great. Those are all my questions. Thanks.

Thank you.

Our next question is Peter [Cates] From CIBC World Markets. Please proceed.

Thank you. I think pretty well all of my questions have been answered. But let me confirm, Scott, when you were talking about guidance for the year from $2.60 to $2.70 and you used the word "normalize." So you are using excluding from that any contribution from the discontinued operations?

That's absolutely right, Peter.

Great. Thanks very much.

Mr. Gruending, there are no further questions at this time. I'll now turn the call back to you.

Thanks, Jody. That, I guess, that's it for the call. As you know, we're in today, and we will be available for calls, so you can either leave me a call at 231-5919 and we can get back to you tonight yet, or you can try Al's line at 231-3970. And as always, everything's on the website. So we'll try and address all your concerns before the weekend.

I call Al so often that I know you just gave the wrong numbers. 231-3973. I wouldn't want your calls to go to aviation.

All right. Thanks, everybody. Good-bye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.