恩橋 (ENB) 2005 Q2 法說會逐字稿

Good day ladies and gentlemen. Welcome to the Enbridge Inc. Second Quarter 2005 Earnings release. My name is Kate Lynn and I'll be your audio coordinator today.

[Operator Instructions].

I would like to now turn the presentation over to your host for today's call, Director of Investor Relations, Mr. Colin Gruending. Please go ahead Sir.

Well thanks Kate Lynn and good morning everyone and welcome to our Second Quarter Earnings call. Sitting with us today are Pat Daniel, President & CEO, Steve Wuori; Group Vice President & CFO; Richard Bird; Group Vice President Liquids Pipeline; Scott Wilson; Senior Vice President & Controller and Bob Rahn; Manager, Investor Relations. Pat and Steve; each will have some opening remarks and Richard, Scott and Bob are available for participating in the question period following.

I'd remind you this conference might contain forward-looking information, which involves certain assumptions, risks and uncertainties that may cause our actual results to differ from those implied by our comments. Some of these risks include weather, commodity prices, throughput volumes, interest rates, and regulatory decisions. The risks are discussed more fully in our filings, which are available publicly through the SEDAR and EDGAR systems. The call is being

This call's webcast-recorded and for those of who are listening over the phone I'd encourage you to review the supporting slides available on enbridge.com, which will accompany our remarks. A call replay and transcript will be available later today. I would also note that we have not completed our annual supplementary financial information for 2004 and it is posted on the website under "Additional Resources."

I will now turn the call over to Pat Daniel.

Very good, thanks Colin. Good morning everyone and thank you all for joining us. As you know earlier today Enbridge reported outstanding second quarter results. These results now build on what was very strong first quarter as well and position us for another full-year a very consistent and attractive earnings growth.

Reported earnings for the quarter ended for the first half were $94 million and $314 million respectively. Because of the recent change in year-end at Enbridge Gas Distribution these reported results are really not comparable with 2004 reported results. So after adjusting for this and other non-recurring items that we'd noted in the news release and these are primarily in the prior year, fully adjusted operating earnings were up 15% during the quarter and 10% for the first half so again an outstanding quarter and very good first half on the year for us.

So that's a piece that is right on our expectations and we therefore remain comfortable with the full-year guidance that we previously provided. Steve Wuori, of course is going to record on the quarter in a little more detail in a few minutes and obviously I am very pleased with this financial performance but I am even more excited about the progress that we are making to be able to profitably reinvest the free cash-flow, which the business model that we have continuously generates and of course Enbridge as you know, returns about 60% of it's earnings to shareholders in the form of common dividends and that leaves us with about 40% of the earnings to redeploy, and as you know we have a number of short and medium-term very visible re-investment opportunities within our core business.

Now we are currently completing our strategic plan, which we will discuss more at Enbridge Day this coming fall but the preview is that even probability way that these organic projects translate into a continued industry-leading growth rate and most of these opportunities have long lead-times. This is strong and organic growth plan as we've had ever in this company. During the quarter we brought two significant projects to step further, with shipper Open Seasons, both Liquids projects, at the Southern Axis Main line expansion into Chicago and then it's extension into the Wood River and the St. Louis area, and secondly the Gateway Condensate Import Pipeline.

We also announced the agreement to construct own and operate both the oil and gas laterals connecting the BHP and the joint venture partners Neptune fields in the Deepwater of Gulf of Mexico and do note that these are all organic green field opportunities, which really fall great into the center of our business in terms of our geographic and strategic focus and I have said this to you many times before - - these are the projects that really, truly add shareholder over value over time.

So while we have these very strong organic projects underway. We continue to identify and evaluate a variety of acquisition opportunities as well to supplement the organic growth. We haven't been able to find the right combination of strategically desirable and affordable characteristics recently in those M&A opportunities. It's no secret at all to you that acquisition multiples have increased driven in part hereby new tax exempt entrance in -- as competitors to us in the business. We are remaining very discipline at Enbridge and we are fortunate to have such an abundance rate of organic growth opportunities to focus on in the short and near-term. So we don't intend to get carried away with these multiples that are being paid.

We have discussed our organic project to you in some detail over the last few quarters, so I am not going to duplicate the entire roster, you will be pleased to know from top to bottom of all of those projects, but what I would like to do is to try to abbreviate my remarks somewhat and shining the spotlight on 3 geographic growth arenas that are regaining a momentum for us over the past quarter.

The first of course is the large Gateway Project, which now has been broken into two parts, the original 400,000 barrel-a-day crude export line and now the 150,000 barrel-a-day condensate import pipeline. And I think you understand the fundamentals for the crude oil export line, they are quite straightforward but to very quickly reiterate - - Alberta it's obviously long heavy oil and Gateway provides an alternate market outlet, which is independent of the refinery pricing dynamics in the US Midwest for the majority that crude is currently marketed.

Consequently, barrels moving offshore will reduce this crowding effect on pricing in the Midwest and every producer will certainly have their own view now on the price impact of pulling 400,000 barrels-a-day out of the Midwest and Mid-continent markets on 2010 production levels rather than pulling it out really we are redirecting it's not that's being pulled back from Latin America. Our own analysis yields a Netback uplift of about $1.25 per barrel on all barrels of blended heavy by having this alternate market and forecast related to oil sands production continue to be very, very bullish.

Last week I am sure many of you are aware CAPP updated and published their own Canadian oil production forecast, really incorporating production growth associated with recent and advancing oil sands project announcements, and we are actively continuing to aggregate their volumes for the Gateway crude oil export line from that.

The new or second piece at Gateway of course, is the condensate import line. And this is premised on almost the opposite supply-demand fundamentals from those that I've just talked about. There is a looming Diluent shortage; in fact, there is real Diluent shortage today in Alberta as condensate from natural gas production declines and oil sands Diluent requirements continue to expand. On the other hand, world supplies of condensate are growing particularly, water-borne supplies because of the growth in LNG liquefaction and regasification around the world.

And the fundamentals for importing condensate are much more than theoretical. In fact, in late 2004 and early 2005, condensate pricing in Alberta approached a 50% premium to WTI at times compared with a historical pricing at about a 5% premium. And shippers know that using synthetic, as their blending agent to transfer bitumen, which creates the SynBit product is a very costly proposition versus instead of blending with condensate and creating what we have referred to DilBits or Diluent bitumen.

So, although synthetic and condensate, both trade at comparable prices, roughly at par or with or a little bit above WTI, it requires only about a quarter-of-a-barrel of ultra-light condensate to meet blended barrel pipeline specs versus about a half-a-barrel of synthetic to meet the same specs. So clearly, you end up with a quarter of a barrel economic incentive shippers to use condensate over synthetic. We have been working on this condensate line and other condensate solutions for sometime now and for competitive reasons, as I'm sure you can appreciate, we have elected to broadly communicate these intentions only very recently with our Open Season launch, and that was intentional while we did the necessary background work.

So, in combination, we think that the crude oil export line and the condensate import line have the potential to improve all heavy oil Netbacks by several dollars per barrel when you combine the condensate benefit and then, the market broadening as well. And to actually, call into the market, about 200,000 barrels per day of oil sands production, which would otherwise be uneconomic without that Netback improvement. So, each of the pipelines, both the condensate line and the crude oil line could standalone and be built independent of the other. Ideally though, they would both be built together, which would reduce the aggregate construction cost by about $600 million and consequently, reduce the total making them even more competitive than they are today.

So, we sequenced the commercial phase of the condensate import line first followed by the crude export line. We plan an Open Season for the crude line later in 2005, once we have the firm commercial commitments in place on the condensate line and we are still working towards the late 2009 or early 2010 service date. So, let me now, move over and shine the spotlight on what's happening in intra-Alberta.

I think, this is an area that some market participants have forgotten about in all the excitement about the new market initiatives into the US and also West Coast. But, Fort Mcmurray continues to be an absolute beehive of activity and we are currently, constructing 3 new tanks at our Athabasca terminal, which will bring to a total of 14 tanks with a capacity of 2.3 million barrels and we have several more tanks that plan for the area. Our strikes (ph) development opportunities alone are very significant in Alberta with additional capacity of Edmonton and Hardisty likely to be required - - so excellent intra-Alberta opportunities.

Preparations are well advanced for construction of the new laterals and tankage, which will be required to connect the Long Lake and Surmont projects to the Athabasca Pipeline, including construction of a new terminal at Cheecham, which we have mentioned before and expansion of the Athabasca line and these are all targeted for completion in late 2006. We continue to progress towards completion of shipping agreements for sufficient volume to anchor our new Waupisoo pipeline from that Cheecham terminal down to Edmonton and this is currently, looking like a 30-inch line with a cost of a little over $400 million in service in 2008. And at the same time, we are now looking very seriously at a 16-inch Diluent return line from Edmonton back up to Cheecham and potentially to the Athabasca terminal. This of course, would tally into the Gateway condensate line and other condensate facilities that may occur in Edmonton over time.

So, those are some of the intra-Alberta initiatives that are the farthest advanced on our project-slate right now and there are others that are at very early stages of development. In aggregate, our 5-year plan incorporates and anticipated capital spend of nearly 1 billion in Alberta alone, which comprises just a piece of about the $8 billion in capital that we have earmarked for this liquids pipeline business overall over that 5-year plan. So, very aggressive spend expected to provide services to the oil sands.

Let me now shine the third spotlight on our Mid-Continent and our new market access strategy for the Mid-Continent. This morning you may have noticed, we announced some very positive news regarding Southern Access, which we are jointly sponsoring with our affiliate Enbridge energy partners in the US. Recall that this project essentially builds our third liquids pipeline from the Superior, Wisconsin down to Chicago or more specifically, to the Flanagan, Illinois. Our Open Season is now complete and we have received support from industry to immediately pursue all 3 phases of the expansion project costing approximately US $760 million and that's net of about a $120 million of concurrent construction savings of the partnership and some $135 million to be spent at the Enbridge Inc level.

So, we will now take these letters of support from the Open Season to CAPP and we will work together to advance the entire project to be in service by Quarter One, 2009. And as you know, our approach is to work all of these projects through CAPP so that we can facilitate the regulatory process when we get to the NEB. So, the next step now, is to sit down and work through CAPP whose very members have been so supportive in the Open Season. We are also pleased with the response on the extension program from Flanagan to Wood River and Patoka on the Open Season associated with that. So, we are going to keep you updated on both of these fronts and others in the Mid-Continent area over the next while where we are extremely pleased with this first Open Season.

So, those are a few highlights of the growth initiatives that we have and again, I haven't gone through all of the projects this morning, I just tried out to pick out the three areas that I thought you might be most interested in, but before I hand things back over to Steve, I just want to make you aware of a few changes that we have had in the company on people side.

And first, as per the news release, you will see that we have asked Don Taylor our former chair of the board to rejoin the board for a 2-year term. As you know, Don retired reaching the mandatory retirement age of 70. He was asked to come back on to provide continuity and advising counsel for a 2-year period and he had agreed to do that. So, we are very pleased to have Don back on the board. We have also added some significant financial augment to the board in the audit financial acumen to the Board and the Audit Finance & Risk committee with the appointment of David Leslie, the former CEO of Ernst & Young, Canada.

We have recently implemented a few senior management portfolio responsibility changes as well primarily in the spirit of focusing and better aligning our senior human and capital resources and being efficient in that area is very important to us over the next while. Richard Bird is going to now devote a 100% of his attention to the crude oil pipeline segment and I think you can all tell why from the slate of projects that we have underway we need Richard full-time on those. So oversight of the gas pipeline operations is going to move over to Steve Letwin and we announced back on May 17th with regard to the Enbridge Income Fund as that Steve Wuori has replaced Richard Bird as President of the Income Funds. Steve's responsibility of course is to see it's overall otherwise unchanged. So, this is an addition to his responsibilities.

Now Mel Belich who has led our legal department and our international segment has indicated his intention to retire, mid-year, next year and given the many stakeholder matters that we are going to be facing on project like Gateway and Waupisoo, Southern Access, the Alaska gas pipeline, I have asked Mel to focus over this next year before he leaves entirely on legal issues and help position us for a success on those fronts. So, accordingly, we have moved the international reporting function over to Steve Letwin and that will report that way for at least the next year. Bonnie DuPont and Dan Tutcher as many of you know their responsibilities remain unchanged in these shuffles. So, that's a very quick run through some of the changes we had made.

Let me stop there and hand it over to Steve to go into a little more detail on the quarter.

: Okay, thanks very much Pat and good morning. Before I discuss the results of the quarter I would also like to communicate some people-changes within my group.

Scott Wilson who is currently our Senior VP and Controller will be leaving us this week to become CFO at Canfor in Vancouver. Scott has been a defining personality and a significant contributor at Enbridge and Scott, I really want to extend our sincere thanks and best wishes to you and your family as you make this move. We do have a very active succession planning process at Enbridge and Colin Gruending who you know from the years in Investor Relations will now be our VP and Controller. He is a chartered accountant and chartered financial analyst and has significant influence with our businesses and numbers.

We also continue our long standing commitment to investor relations and I am pleased to advice this morning that Bob Rahn who is currently Manager of IR will step up to the role of director of IR to lead the investor relations function going forward. Bob holds the CMA designation and has 28 years of experience at Enbridge primarily with an Enbridge Gas Distribution and Consumers Gas when Bob was with it and International. Supporting Bob will be Anu Phatak Manager of IR. She is been with Enbridge for eight years most recently in the corporate finance function and really knows the capital markets and credit rating agencies and their issues very well. So we continue to have a deep bench broadly at Enbridge and in the finance area in particular.

Moving to the quarter then the second quarter of '05 is quite clean and in line with our expectations. Variances from the prior year are outlined in the news release. As Pat mentioned at the outset reported quarterly earnings are optically down from the prior year due to the Enbridge Gas Distribution change in the year-end and the related shift in the earning seasonality or to put it in another way in 2005 we are reporting the results of EGD operations from April to June which has a very modest spring gas send-out, whereas in 2004 we have reported the winter period from January to March, which is naturally colder and the send-out is much higher. So it's much more meaningful to look at it on a adjusted operating earnings basis and when you look it at that way and compare calendar quarters end of June, adjusted earnings were $0.28 a share versus $0.25 in 2004. On a similar basis year-to-date Enbridge has earned $0.89 per share versus $0.82 in 2004.

Among the variety of smaller positive variances this improvement is largely attributed to lower interest cost and the addition of the Enbridge offshore pipeline system. So instead of repeating what's in the release I will just focus on a few things that stand out. First of all in Gas distribution to help illustrate our quarterly progress that reflects the comparisons for the 2004 calendar year we've shown the four quarters of 2004 of the gas utility on the slide. This better synchronizes calendar quarters following the change in the year-end and the association of quarter lag reporting at EGD, Verticle and other utilities and it also reflects the seasonal rate design changes that EGD that we had implemented with the 2005 rates. If you see this first and second quarter 2004 reconciliation in our news release and the full-year 2004 reconciliation on this webcast and as posting on our website under "Additional Resources."

Moving to Liquids Pipelines the segment earnings remained flat for the quarter and comparable to the first quarter. Enbridge System's quarterly earnings were slightly down to 39.5 million versus 41.5 million in 2004. The principal reason for the decline is the lower earnings base under the new incentives holding settlements as expected. The results for the ICS Silo and the overall segment are tracking in line with our expectations.

I will now talk about Enbridge offshore our newest asset, which earned $6.6 million for the quarter. This is better than the $6 million recorded in the first quarter but still lighter than we expected this asset to generate. During the quarter we continue to encounter some production wrap-up delays from certain producers. We do expect additional volumes from the continued ramp-up the new production from the Deepwater development at Holstein, Mad Dog and Magnolia, which were all placed in service in the December-January timeframe. We also expect additional development building and rework on other connected developments to help boost throughput volumes by the end of the year.

In terms of new production sources the Rigel and 17 hands developments are sources, which will then begin delivery in the fourth quarter and of course the Thunder Horse development is the largest with it's production start-up delayed by the recent problems with the platform. Additionally another major new production source called Atlantis is expected to be connected and producing by mid 2006 and as Pat mentioned we now have the Neptune Oil and Gas volumes committed beginning in September 2007.

I will now turn to corporate cost. This continues to be another bright spot for us as we go forward. There were 16.5 million during the quarter versus 15.1 million in Q1 and similar amounts in Q3 and Q4 of 2004. Clearly a prior year comparable of 26 million in the second quarter of 2004 was a bit of an outlier - - due in part to higher business development cost in that quarter and we also incurred higher interest costs in 2004. As you can see in the segmented income statements, interest cost have improved both due to a lower debt balances outstanding and lower interest rates. The redemption of the 2 preferred securities traunches in December of last year contributes meaningfully to this interest rates and interest cost outcome.

Enbridge continues to carry just over 20% of it's consolidated debt portfolio at floating rates and Enbridge shareholders have benefited in the declining rate environment as we have favorably refinanced our maturities. Just to comment on foreign currency translation and it's impact on our earnings, the weakness to the US dollar continues to mildly weaken our earnings in respect of our US pipeline assets and some of you know though we do have a robust cash flow hedging program which locks in project economics with long term net investment hedges. As we disclosed in our press release during the first half 7 hedges generated incremental cash flow of about $5.4 million and that is not unfortunately reflected in our GAAP earnings.

So I think those are my comments on the quarter Pat , and I will now turn it back over to you.

Great thanks Stephen. So let me conclude by simply reiterating my overall message primarily and that is that our existing businesses continue to perform very well in this company and we are making strives in finding innovative solutions for our customer needs and which is very important to Enbridge. Our model is based on in-depth fundamental analysis and then communication with our customers in ways in which we can improve the Netbacks and profitability This combination we feel, would continue to translate into many opportunities and attractive growth projects and insurance that continued earnings and dividend growth for Enbridge investors.

So that really concludes our much and Colin we will turn it back over to you.

All right thanks Pat, Kate Lynn, we will now take question and I should mention upfront that, we try to end the call promptly at the 1-hour mark as our Board meeting reconvene at that time, and to that objective we'd ask you please limit your questions to one follow-up. We'll take the first question now.

[Operator Instructions].

Your first question is from Linda Ezergailis of TD Newcrest.

Thanks so much. Certainly I noted the lower business development expenses which is positive in the short term but it does beg the question as to you know, long-term - - the M&N opportunities don't seem to be coming as quickly as all of us expected, are you Pat, are you still connected to an overall 8% to 10% EPS growth rate and if so has the composition changed because historically we've kind of looked towards a breakdown of what was it a 5% to 6% organic growth and 3% to 4% M&A driven growth?

Yes Linda that's right. First of all yes we are still committed to that 8% to 10% growth rate over a 5-year period and we realize, we have always said that it may be somewhat lumpy from year-to-year depending on the availability of organic growth projects and acquisitions. I think it's fair to say that as we look at our 5-year plan going out that if anything our organic growth is going to be on the strong side of the 5% to 6%, we've indicated and based on today's multiples the acquisition growth maybe on the like side of that but on balance we are comfortable with the range that we have provided and I don't think that this "frothy" market on the acquisition side is going to stay with us forever but we certainly don't intend to blow our brains out going after things at some of the prices today. But, we are still very comfortable with the 8% to 10% growth rate.

Now, when you say, frothy market on the M&N side, are you referring to both assets and corporate transactions or just the asset side and if so, do you see potentially, incremental opportunities on the corporate side?

Well, I was speaking primarily to the asset side where many of the transactions have been lately, as you know, there don't appear to be a lot on the corporate side and again, even on that front, I think I would consider the pricing to be a little rich on many thing that might be available today. But, I was thinking primarily asset side when I made the comment.

Okay. And then, just with respect to the chunkiness of your long-term growth, this year previous guidance for EPS has been a $1.60 to a $1.65 are you still comfortable with that or any --?

Yes. Yes, we are Linda, yes, we are comfortable with that guidance range.

Great, thanks Pat, I will jump back into queue.

Thank you.

Your next question from Karen Taylor of BMO Nesbitt Burns.

Not sure which question to ask - - Noverco, it's a 2 part question. Can you talk about the movement of cash and dividend and the increase in future income tax, what that was in the second quarter, how much did it, if at all, adversely affect second quarter performance in that segment and then, can you talk about the transaction and revaluation of the I guess, payments and the, I'm trying to find notes here, that would have increased retained earnings by 50 million for you, relating to the Noverco transactions?

Okay, I think --.

Against evaluation of all of the accounting on the reciprocal interest - - can you explain why you did it, what the motivation was and what you correcting market to market?

Well, effectively, Karen, just taking the second part of your question first and in regard to the 51.2 million, effectively since we formed Noverco in 1997, Enbridge dividends that have gone to Noverco which is typically owned between 89% of Enbridge are in effect, partly paid to ourselves and so, we found that and have decided to make that true up now in terms of the adjustment to retained earnings. So, that's what does and naturally, we will account for that in that fashion now, going forward from that.

Sorry, why did you not do that for this, you have owned it, you said since 1997 and this is not anything that's new - - what change in the entry line accounting rules, staff or point of view has generated the change as of today?

I think we have found that now, Karen. Effectively, it's one of those nuances that you almost have to sit and think through and it becomes very obvious when you see it, but not necessarily in advance and so, effectively, we have some very good accounting people that sat thinking one day and realized that we were effectively paying dividends to ourselves which everybody has known, but the specific accounting for it as you know needed to be trued up.

Okay, and just very quickly, the follow-up on the increased income - - future income tax expense for this segment, was there a hedge in the second quarter, how big is the future income tax change that you've now incurred and how about amortize itself into income going forward?

Karen, it's Colin, maybe I can address that. As Steve mentioned, the one part of it is to be roughly $50 million balance sheet re-class entry if you like, writing-up or debiting the carrying value in our equity investment in Noverco and credit to the shareholders equity account, increasing both. So, it's not unlike - - kind of an AR, AP type of re-class. So in itself it doesn't have any direct income statement impact, but it does have an indirect income statement impact during the quarter because the change in the carrying value of the Noverco investments now decouples from the tax base for the Noverco investment trading on future income tax liability, which is then offset by like effect resulting from the special dividend from Noverco. So, I think where you want to go is part of the bottom line net Q2 impact of both of these items is a $3.6 million after-tax by definition, negative in the Noverco quarter. Now, that will be offset --.

...that was just Q2 '05? Okay.

That's correct and then, the other half of the Noverco dividend disclosed will occur in July of the third quarter we've got an anticipated offsetting impact in Q3 that looks to be about $5.5 million of income, again, all related to future income tax calculations.

So, I just want to reiterate and then, I will get off the call. Q2 effect was 3.6 million after tax negative, that will be offset then some in Q3 '05 by $5.5 million after tax positive?

Correct.

And both of which are one-time items because it's the change in rebalancing of how you are doing all of this accounting on Noverco?

Right, non-cash, yes.

Non-cash - - was the dividend payment cash?

That's correct.

So, okay, thanks very much.

Okay, then thanks.

Thank you.

Your next question from Sam Kanes of Scotia Capital.

Good morning. I guess this is for Colin, now, that you are officially, Vice President, Controller that was quite an answer to the last question. Could you try on from my rusty accounting background, the $5.4 million cash-flow impact on foreign currency and why that was not in earnings and whether or not, there is a balance building up I guess the cash and what's the other side of the accounting for that, if you have realized hedges that relate to long term currency effects?

Thanks for that question, Sam.

Well, you went so well so far, so I will try and hit a second one.

Well, and I'm glad you asked it and under GAAP earnings we are - - given the nature of our hedging and recall we hedge to lock-in economics on these projects. So, on the asset by asset side of things here you are going to see the negative impact of currency swings, largely in this case, the weakening of the US dollar. So an Alliance and (inaudible) for example --.

We are all off a bit, yes.

They are off, yes. So, we have hedges build-up to lock those in place and as they settle, we are recording those cash flows that come into offset those negatives, but they are not reported on the income statements. So, we are just noting it for you in case you care.

Well, I do care that's why I'm asking a question. So in real life terms, that 5.4 million should have in real life terms the operational income should have not offset the balance sheet adjustment.

Absolutely.

That's what I'm trying to get to.

Yes, yes.

Thank you.

That's what's frustrating, Sam.

I understand, maybe just leave that at that for now. Steve, this is for you because you mentioned all these different modest delays of production and platform listings and so on in the US Gulf, if everything was to have come together how you initially expected it, could you quantify somehow what your contribution could have been on those lines or conversely, talked '06, '07 if everything that you know today now, does come on time as expected as of today, what the impact would be on your US Gulf pipeline in contribution?

I think Sam, that is we have analyzed that '06 and forward looks good. The problems have been in ramp-up in 2005 as I mentioned. We haven't had any hurricane damage to date and yet, we have had some modest delays in production due to one of the two hurricanes that moved through, but that's not really been a big factor at all. In terms of Thunder Horse, which of course is garnering the press lately, we really want that those questions would go to BP. It's their platform, we are not yet connected to it, we will connect our (Indiscernible) pipeline riser to it when it's appropriate. I know BP has been pretty active in the press with disclosures about Thunder Horse.

We understand the platforms have been righted, it's displacement; it's freeboard or normal and yet, exactly when it's going to come on is something that we would really like BP to handle. So, it has been a ramp-up issue. There is some of the developments that are any way between a quarter and half of the '05 expected exit rate, we would have thought they would be up to the full exit rate much sooner in the year. But, as I say, looking at '06 and forward, we think that things look very good and then of course in '07 we have got Neptune coming on. We are not in a position yet to guide with regard to '06 for that segment or any other yet but it looks like '05 is the year where these production delays are really affecting us.

Is there any rough rule or sum up matrix for a 100 million cubic feet a day that we should start think about or is that premature for that too?

That's, yes that's I will be afraid to try to put a rough rule of thumb out Sam I really wouldn't at this point.

Okay, I look forward that later this year then, thank you.

Sure thanks.

Your next question from Maureen Howe of RBC Capital Markets.

Thank you very much. Just wondering about the expenses in Enbridge Gas Distribution. There is a note in the package that talk about $5.4 million of earnings so I assume that that's after tax. Primarily it sounds like it's a timing different since and I am wondering does the entire increase, which would be the 5.4 million come out in Q3 or Q4 or is it spread over those two quarters?

Maureen it's Colin, are you talking about the delta in adjusted earnings per --?

No on the page 6, it talks about this 5.4 million increase in earnings reflecting the timing of various expenses compared to the forecasted cost of services. So I am assuming that that's just expenses that helped all and may be I misinterpreted it but that will be moved forward?

Well that is I think it's meant to be an explanation for the second quarter and as Scott mentioned it reflects rate-based (inaudible) in utility as a higher rate-base in 2005 over 2004.

Well that's certainly not how it's worded. It says it's reflects the timing of expenses as compared to the forecast cost of service.

Yes, as you know there is year-over-year the - - depending on the (inaudible) and other things and other you know, versus budgets and rates filed components, they do varied from quarter to quarter but it's probably a bit of both Maureen.

Yes, I think as you know Maureen the cycle for applying through the regulator is the one that works well in advance so it's often difficult, it's the time that we are submitting to the regulator to give an accurate quarter-over-quarter number, I guess what this is indicating is that we are ahead where we had expected to be and that's probably on assigning it within as you can see 18 months ago or at least a year ago.

Okay. So I am just a little confused. So I mean when I read this I thought okay well they had certain expenses of this quarter that weren't incurred, they'll be incurred over the next couple of quarters?

Yes, I think some of the benefit will follow (inaudible) but your rate-base is up so expect some (inaudible).

Well I guess that's at least my follow-up question and maybe it is up but the ROE is down so you know, if we were to back out this 5.4 million, EGD would have been flatter - - in fact it would have been a little bit down year-over-year based on your normalizing adjustment, what are you expecting for the year from EGD then?

I don't think we have a number for you today Maureen on that as - - I mean it's not as wide a dispersion as you know with that asset but --.

Okay.

I am not (inaudible) calculation to see if the ROE impact overwhelms the rate-base in fact but - - if I recall the step-up in the rate-base was quite - - it's actually 2-years worth, right?

Right.

Because we had the '04 rates built off of an index of '03 rates.

Okay, thanks very much.

Thank you.

The next question from Dominique Barker Credit, Suisse.

Hi, just following on Sam's question on the Gulf of Mexico assets you'd guided just 30 million to 40 million contribution for 2005 earnings, are you still comfortable with that range?

Based on the start-up delays that I talked about Dominique, no I don't think we are going to quite get there but remember that was also offset by a interest cost charge in the corporate line and we have had very favorable experience with regard to that so the top line we expect will be lower but also the interest cost drag in the corporate line is a little bit lower as well. So but in terms of the original guidance for '05 we don't think we will quite yet we would be on the light side of that.

Okay thank you and just one another question for Pat. The Honorable Greg Melchin has always said that he was reluctant with heavy bitumen leaving Alberta - - is that a challenge for expert pipelines at Alberta or is that something that can be dealt with?

Dominique, I think that definitely is something that can be dealt with and we have spend considerable amount of time with Minister Melchin explaining that many of Enbridge's projects involved upgrading in Western Canada further refining in Western Canada in fact we are looking at alternatives right now - - do we have to move refined products further East and than just (Inaudible) and we are involved in far more projects to do the upgrading and value-add in Alberta than we are to move the Diluent or un-Diluent bitumen out of the province. With regard to the project into China the economics are definitely in favor of doing the refining in China rather than here that's true when you get involved in long-distance transportation of most liquid hydrocarbon should better off moving the crude products rather than refined products where you can potentially have contamination issues with different levels of refined products. We have looked that through with the ministry, he has indicated to me that he supported with the concept of Gateway and the very significant impact that will have on Netbacks for Canadian producers and we will continue to work with them to make sure that all Albertan's are very much aware the positive benefits of the project.

Thank you very much.

Your next question from Matthew Akman CIBC World Markets.

Thanks. One or two to explore the expansion of the pipeline in the Midwest and congratulations upon success that I guess -- I am just wondering first if there have been any changes in the routing of that at all, the initial proposal was I guess of the extension was from a point called Flanagan now your talking both from Chicago, Wood River. Is that a change or that's a sort of semantics?

: No it's a - - try to qualify it and I'm Stephen here - - it really is Flanagan that we are talking about so there is been no change at all in that matter, no.

Okay and (inaudible) for the capital cost in the release on that you talked about US $135 million spending in Canada, is that the full extent of what you have approved for capital in Canada at this point.

: And I am going to ask Richard Bird to speak to that Matthew.

That is the Canadian component of the expansion plan that you although at this point we don't have actual approval for that capital. We have to put that in front of the board but that would be now for Canada.

And to spend more capital in Canada through Enbridge Inc you will have to have the extension project approved, is that correct?

That's right, the extension project which would be undertaken by Enbridge Inc. is US $320 million that's over above the 135 and that 135 by the way was US dollars as well.

So it's really -- it's not larger project, the extension that really would deliver some bigger organic growth or investing opportunities for Enbridge Inc. for the corporation, is that fair?

Yes of course the Enbridge will benefit from the growth within the partnership as a result of the partnerships capital as well.

I agree with that and then and I guess this is my follow-up then, that's the big chunk for (Inaudible) to finance or like you said Us $100 million and I can see Enbridge benefiting from that but what Enbridge finance side or healthy finance side or if it's a big chunk for an LLP to do so what would you look out Richard in terms of financing that.

Well our in general Mathew would be have to that finance within the partnership and in no way Enbridge as you know, likes this investment a lot and could consider participating in the financing either pro-rata with our interest or at some different rates but we do fully expect the partnership to be able to finance that is you know, it's a very strong market right now and we don't do it as any difficulties are going to market for that but an average portion like that behind our partnership.

Okay, thanks very much. Those are my questions.

Your next question from Bob Hastings of Canaccord Capital.

Thank you. Steve you mentioned about that you had 20% of your total consolidated long term debt floating at this point. Do you see that changing with interest rates? What do you expect to do on there and how much of that is not original set of regulation?

: Generally, Bob we operate in a range of 15 to 25%, that's our internal policy, floating and we are just over 20% right now, close to 22. I'm quite happy with where we are there, we have allowed that to creep up very modestly, probably a year ago, we were around 19 or 20 and so, it has crept up just a little bit and we have taken advantage to that extend of the interest rate environment, but we are not going to go much further because we have got the 25% policy limit and I don't expect to run to the pin there. So, I don't see a lot of change, we let it drift off modestly and it's worked out really well. I don't have a snap answer for you in terms of how much of that is outside of regulation. I think Scott might have a thought there.

Bob, we keep the regulated business as primarily stands with fixed rate debt. So, the vast bulk of that floating rate is at the average income regulating level.

Yes, let's hope so. And congratulations on your move to sunny Vancouver. Pretty (inaudible).

Well, you have one of babes out there do you Bob?

Yes, otherwise I won't have mentioned that. And just on the - - I guess going back to the question of how good is the right percentage. Is it, if interest rates look like they are moving up a little bit, you have a lot in your debt that is going to come about if you are successful in these new projects, wouldn't it make some more sense to start moving that rate down because you can always with new debt go floating as well for some portion of it?

Yes, we are obviously looking at that really actively in terms of locking in and so on. So, I think obviously, we are very sensitive to the fact that we are at the - - what must be the continuing extended bottom of the interest rate cycle and we are positioned for a moves-up in rates as we look at financing the projects on the front line.

Okay, thank you very much.

Thanks Bob.

Your next question from Andrew Kuske of UBS.

Thank you, good morning. Pat, you mentioned that if the (Inaudible) goes forward, that certain projects that is largely been viewed as uneconomic might actually go forth in the oil sands. If that is actually, true, to what extend do you want to revisit going to California via an overland pipeline? And I bring forth the question primarily because Holly Corp. has made it known that they want to do a bit of a study to get Canadian crude, that would involve your frontier line and that, if you look at the partner of your frontier line, you get a pretty good access point really into Pad-4 (ph) and then, potentially into Pad-5 overland. So, do you just have any thoughts and comments about revisiting that?

Andrew, it's a good question and it's one that we revisit on a fairly regular basis because if you just pull out a map, it looks like it should make sense, but the challenges really come in when you start trying to work through the right of way issues on the overland road and it's at least five years ago, that we have first started looking at this when we were starting to work on the Gateway concept and concluded that even though it looks so simple to describe outline on the map, and get overland into California, but the challenges around that in this day and age were just going to be overwhelming, particularly the pipelining in California. Hence, the initiative to move off the West Coast. I think though that your basic premise is bang on in that, this will only improve the odds of Western Canadian production and some of that reaching California, but we would suggest the best way to do it is by (Inaudible) down the coast. That would be much easier than an overland route.

Okay. And then, if I may just ask a question on another portion of your crude business and just in Columbia, if we look at the throughput in Columbia and production of Columbia, it's declining at a pretty steady rate and there is some thought that they might actually, have to start importing oil in 2011. So, what does that really mean for your asset down there at this stage and what's your outlook over the longer term?

Well, you are right, there has been a significant decline in through put. I think we are running at approximately a little over 50% of what we initially were, when we started that line up. We are going to be dependent on future exploration success and as you probably know, a lot of the light crude in (Inaudible) is now being replaced with heavy and Equipetrol (ph) is quite involved in some of that heavier crude development. And we are kind of in the earlier stages of that place. So, we are anticipating an increase in those volumes. I think we are currently running around 260,000 barrels a day and we expect to see an increase in the heavy volumes overtime. So, I think it's a little early to say in light of some initiatives within Columbia to try to asperse some further development over (Inaudible) and in surrounding area.

Do you see any potential from potential pipeline coming in from the Western field in Brazil, it really just developmental at this stage?

We haven't looked closely at that (inaudible) current liquids production from Brazil and Columbia. We haven't looked at that really closely, yet it's often the challenge there when you are crossing international borders, but it certainly would be the easiest way to get that Brazilian crude out. Again, if you just take a look at a map and draw a line. So, that's something that we will look at overtime.

That's great, thank you.

Thank you.

Your next question from Winfried Fruehauf of National Bank Financial.

Thank you and good morning. We have had some serious disruptions of our IT service this morning, so, I only received the material text about 10 minutes before the conference call started. I have right now, only one question regarding slide 12. The reported second quarter 2005 earnings of $94 million, does that include or exclude the adjustment for temperature at Enbridge gas distribution or weather?

It's on a reported basis Win.

It's reported, okay.

Right.

And likewise, the 96 million?

That's adjusted for weather only, yes.

So, what do we take out there, 3.7 million out of the 96?

Weather in the quarter Win was $2 million warmer than normal. So, that's 93.6 you add 2 million to that on an adjusted basis. And for the 6 months ended, it was a net of 1.7 million colder than normal. So, you deduct that from the reported earnings of 314.2.

Okay, thanks very much, I have to get back to Colin with respect to other questions, thanks.

Thanks Win.

Your next question from Andrew Fairbanks, of Merrill Lynch.

Good morning guys.

Good morning Andrew.

Just on the international side, you have always discussed the possibility of adding a third asset. I was wondering if you seeing the same kind of evaluation challenges for acquisition opportunities outside of North America as you see here on this continent?

Andrew, we haven't seen so much a multiple evaluation challenge. There is, we have just an absence of opportunity and there have not been a lot. We have looked at two or three opportunities in Europe and having quite unable to make them work, it's not quite as (inaudible) as it is in North America right now, but it's been more an absence of opportunities where the majority of the assets we are interested in are owned by the majors and the major integrated oil and gas companies and our challenge right now is to try to pry more of those assets loose from them and to get them to conclude, strategically, they don't need to own the asset in order to accomplish their goals. And that's been the bigger challenge rather than evaluation at this point.

Well, great, thanks Pat.

Okay, thank you.

And your final question, gentlemen, comes from Zahere Kahn of Baker Gilmore & Associates.

Hi, good morning gentlemen how are you?

Hi Zahere, just fine, how about you?

All right, thanks very much. Pat, just on this issue, I mean definitely we as born investors I think you are always happy to see the cost coming down and that (inaudible) figures coming down now have you reached that stage that this is what you prefer (inaudible) basically near 60% or something like that, I mean if you move with any kind of acquisition, what will be your target on that side?

Yes, I'm going to ask Steve to comment on that, but generally speaking, yes, we are comfortable and the rating agencies are comfortable with us being in that 60 to 62% range, but Steve, you may want to elaborate on that?

: Yes, I think that's exactly right. We are seeing today at an adjusted, that the cap of 59. So, we are actually, just under the target range right now. And I'm quite satisfied with that. And as we look at modeling growth opportunities going forward or acquisitions, we always look at it through that prism and not only just the debt cap numbers, but the financial ratios that underpin the credit matrix are really what are also very important. So, we were quite satisfied right at the moment.

Okay, great, thanks very much and the income regulations to all the moves, I hope they are successful and my congratulations to Scott, especially heading to Vancouver.

Thank you Zahere.

All right, take care.

Okay, gentlemen, I will hand the call back to you for your closing comments.

All right, thanks everyone for joining us, we appreciate your interest 3in Enbridge and that concludes our call for the day, good-bye.