恩橋 (ENB) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Enbridge, Inc., fourth-quarter 2006 financial results conference call. My name is Cheryl and I will be your audio coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) I would now like to turn our presentation over to your host for today, Mr. Bob Rahn, Director of Investor Relations. Please proceed, sir.

Thank you, Cheryl. Good morning and welcome to the Enbridge, Inc., fourth-quarter 2006 earnings call. With me this morning are Pat Daniel, President and Chief Executive Officer; Steve Wouri, Executive Vice President and Chief Financial Officer & Corporate Development; Richard Bird, Executive Vice President, Liquids Pipelines; and Colin Gruending, Vice President and Controller.

During this call we may refer to or speak to certain forward-looking information. Statements made with respect to forward-looking information are subject to a variety of risks and uncertainties pertaining to operating performance, regulatory parameters, weather, economic conditions, and commodity prices. A more fulsome discussion of these risks is included in our Securities filings which are publicly available on both the SEDAR and EDGAR systems.

I would like to remind everyone that the audited financial statements and the MD&A will be filed on or about February 21, 2007. This call is webcast and I encourage those listening on the phone lines to view the supporting slides, which are available on our website at www.enbridge.com. A replay of the call will be available later today and a transcript will be posted to our website shortly thereafter.

When we move to Q&A, I would ask you to limit your questions to one follow-up to and then rejoin the queue. I would also remind you that I will be available after the call for any detailed follow-up questions you may have. At this point, I would like to turn the call over to Mr. Pat Daniel.

Thanks, Bob. Good morning, everyone. Very happy to report another solid quarter across all of the business segments at Enbridge and an overall outstanding year for Enbridge. Adjusted earnings per share increased 9.4% to CAD1.74, which was at the upper end of our guidance range that we provided a year ago of CAD1.65 to CAD1.75. We will be providing 2007 guidance today, and Steve Wuori will address that issue in just a moment.

Generally, we are on very solid footing to continue to deliver significant earnings growth, given the highly visible growth opportunities that we have before us today; and most of you are familiar with those. It is particularly gratifying to see a number of our oil pipeline projects moving now to the construction phase. As a number of you are aware, we have spent a good part of the last five or six years really working on these initiatives to broaden access to markets for Canadian crude oil, particularly Canadian heavy crude oil. We're now focused on execution, and it's a good feeling to actually get the spade in the ground on a number of these projects.

We've also continued to grow and to diversify the gas transportation part of the business. I am going to touch on a few highlights from the gas business as well this morning.

But first of all, on the Liquids Pipeline business, our crude oil market access plan really started to come together this year with the commencement of the Spearhead operations in March of 2006. I should say last year in 2006. This really, in conjunction with the start of Exxon's Pegasus pipeline to the U.S. Gulf Coast, validated to Canadian producers the benefit of having access to new and alternative markets. Canadian producers immediately started getting better prices for the heavy crude with the startup of those pipelines that I referred to. We're already looking at expanding that Spearhead line this year. We are going to hold an open season in the first quarter of 2007 to do that.

During 2006, we started construction of our US$1.5 billion Southern Access expansion. By 2009, this initiative will provide 400,000 barrels per day of overall system capability from Alberto right through to Chicago. So that is well underway.

The combination of Southern Access and Alberto Clipper will result in an ultimate capability to move 1.2 million barrels per day into Chicago. At that point, volumes can be dropped off in Chicago or moved further south to Cushing on Spearhead, or to the Patoka HUB on the US$0.4 billion Southern Access extension. So a series of projects, again, to broaden out and expand and extend markets.

Speaking of Alberto Clipper, it shouldn't come as any surprise that we have received CAPP support to proceed with that development. The initial phase will cost about US$2 billion and will provide 450,000 barrels per day of capacity from Alberto to Superior in late 2009 to mid 2010 time frame.

But we are by no means finished even after Alberta Clipper. We are also working on several alternatives to expand capacity to the Gulf of Mexico, and we are well positioned to move crude further east too.

We also maintain the view that producers will need access to Tidewater markets off the West Coast to receive full value for their crude. We continue to develop the Gateway Project, although as you know we have slowed the pace in response to customer request to accelerate and prioritize expansion in an easterly direction. So we have moved the timing of Gateway back to 2012 to 2014 in terms of startup. However, I would remind you that this can change very quickly if Asian refineries are able to conclude supply agreements.

So in a nutshell, all the pieces have come together quite nicely for us this year. Using scale and flexibility to our advantage, we will have in place a comprehensive pipeline network with the capability to serve diverse U.S. refinery markets throughout the U.S. Midwest, the Midcontinent, and the U.S. Gulf Coast.

The US$1.3 billion Southern Lights Project has also been endorsed by CAPP and is targeted to be in service in 2010. Southern Lights will provide an initial capacity to transport up to 180,000 barrels per day of diluent from the Chicago region back into Alberta. Diluent, as you know, will be mixed with raw bitumen in order to enable it to flow into the pipeline -- through the pipeline.

The ability to blend and store crude oil presents numerous arbitrage opportunities for marketing companies as well. This has resulted in an unprecedented demand for contract terminal services. Up until 2006, this was really a modest component of our business. We had about approximately 16 million barrels of capacity in place.

But we're now proceeding with plans to spend close to $2 billion by 2010 to develop a further 30 million barrels of capacity; and close to one-half of this is underway with new terminal capacity being constructed at Hardisty and Stonefell in Alberta and Cushing, Oklahoma.

We also have plans to build approximately $2 billion of regional pipeline delivery infrastructure in the Oil Sands corridor between Fort McMurray and Edmonton. Again, nearly one-half is already underway with the Waupisoo Pipeline project, Long Lake and Surmont laterals, and an expansion of the Athabasca system, all of these in various stages of development at this point in time.

With over CAD8 billion Liquids Pipeline projects moving forward, we will nearly double the Company's net investment in Liquid Pipelines, as the Company now embarks on one of the most intense capital programs in its history. Our forecast for Oil Sands production suggests the need for four incremental expansions of approximately 400,000 barrels per day, each by mid 2013, keeping in mind that the current CAPP forecast is higher still than that overall requirement. Therefore, in addition to what is already proceeding, there is the potential for more. We will keep you in touch with plans to develop that additional capacity.

So with that, let me now turn and talk a little bit about the natural gas side of the business, where we also have some very interesting opportunities. Right now, we are very happy with the performance of our gas operations and with the positioning of the assets. Almost one-half of our total current earnings in Enbridge are derived from our gas-related assets. Over the longer term, this diversification will be very important to offset the cycles that inevitably come in the oil and gas business.

We continue to evaluate opportunities to strengthen our positioning in the gas business. But they must be the right opportunities at the right time and the right price.

Although not on the scale of developments in our liquids business, we have advanced a number of projects on the gas side over the past year. For example, in the Gulf of Mexico we acquired the West Cameron lateral in mid 2006. The Neptune and Shenzi projects are on schedule and budget to be completed in 2007. These are examples of adding very small increments to our existing infrastructure to better position ourselves for further opportunities. In the case of Neptune, we are constructing laterals to transport both oil and gas. We will look to expand our oil delivery capability in the deepwater Gulf of Mexico as a result of this first initiative.

Although it is early, we are very interested in the ultradeep discoveries such as [Castida] and [Jack] as well. Our assets are well positioned to capture ultradeep opportunities, and we will ensure that we work with interested parties to develop delivery solutions for them.

Enbridge Energy Partners has great exposure to the prolific gas plays in the Anadarko, the Bossier, and the Barnett Shale basins. EEP has strengthened its position with expansions in both its North and East Texas systems. The latest piece of this, of course, is the US$610 million 700 million cubic feet per day Deep Clarity project designed to move gas to markets in Southwestern Texas. The Deep Clarity service will be phased in starting the first week of February this year.

The fully contracted Alliance gas pipeline, with its low-cost expansion capability, is also well positioned to capture gas supply growth in the Northeast of British Columbia as well as Alaska gas when the time is right for that gas to come onstream.

Vector capacity will be expanded to 1.2 BCF a day in the fourth quarter of 2007. So that system continues to perform very well.

We are also encouraged with recent regulatory developments at Enbridge Gas Distribution. We look forward to incentive regulation and expect it will be in place effective January 1, 2008. Developing incremental storage on a market-based approach is also a very positive move. Between these two initiatives we see some real potential for upside to the returns that we earn in the Gas Distribution business.

We also will continue to keep an eye to the future and take a very measured approach in developing new growth platforms in the Company, such as wind power and fuel cell opportunities, which we have talked about in a number of occasions in the past.

International is another segment that we look to in order to further diversify earnings. Our two International investments in Colombia and Spain continue to be two of our very best top-performing assets. We are actively looking to add a third International investment, if we can find one that matches the risk-reward profile of the two that we already have.

So that is a very quick runthrough on the projects that we have underway. At this point, let me turn things over to Steve Wuori to have a closer look at the financials.

Thanks very much, Pat, and good morning, everyone. I will begin by commenting on the full-year and the Q4 2006 results. I will talk a little bit about 2007 guidance, and then conclude with a recap of our financial position.

2006 was another year of excellent financial results, both on a reported and an adjusted operating basis, which continues our track record of consistent earnings growth. Our 10-year compound average annual EPS growth rate is 10.2%. As Pat mentioned earlier, we had solid performance across all of the business segments in 2006. Also, the year was very clean from an accounting perspective, so that is also good to see.

2006 reported earnings were CAD615.4 million or CAD1.81 per common share. This compares to CAD556 million or CAD1.65 per common share in 2005. The significant increase in reported earnings is primarily attributable to increased earnings from the Enbridge crude oil mainline system and from Enbridge Energy Partners, which experienced higher volumes in tariffs; higher earnings from Enbridge Offshore Pipelines, which had been negatively affected by two severe hurricanes in 2005; increased earnings contribution from Aux Sable -- the Aux Sable gas plant in Chicago -- through the upside sharing arrangement, which was entirely offset by the impact of warmer than normal weather at the gas distribution utility within the segment; and also a nonrecurring gain reported in Q2 from the revaluation of future income tax balances due to the tax rate reductions announced by the government in 2006.

These positive factors were partially offset by a modest impact from a stronger Canadian dollar and also early phase costs of many of the projects that we're developing. The fourth-quarter results reflect similar factors as the full year.

We have summarized on page 4 of the news release our onetime and non-operating factors. When these factors are taken into account, our adjusted earnings for 2006 were CAD592.9 million or CAD1.74 per common share, which represents an increase of 9.4% on an EPS basis over 2005 and is at the upper end of the guidance range of CAD1.65 to CAD1.75 that we provided in January of last year. The increase in adjusted earnings year-over-year was driven by similar factors as those that impacted the reported earnings.

We will look at the individual segments now, turning to Liquids Pipelines first. Full-year earnings were up by about 20% to CAD274 million. Fourth-quarter 2006 earnings increased by 17% to CAD71.2 million when compared to 2005.

Most of the increase was due to the performance of the Enbridge mainline system, which accounted for about 70% of the year-over-year increase. The strong performance of the mainline was driven by lower oil loss cost; additional earnings from the Incentive Tolling Settlement; and within the tariffs component, lower taxes as well as higher toll and surcharge revenues.

Athabasca Pipeline earnings increased on a year-to-date and a quarterly basis, reflecting positive contributions from infrastructure additions, which were partially offset by higher operating costs. The remaining increase in the Liquids segment was primarily due to the inclusion of first-year contributions from Olympic and Spearhead pipelines. Olympic performed in line with our expectations, while volumes on Spearhead surpassed the expectations that we had.

Gas pipeline earnings were up modestly over 2005, largely due to increased performance at the Enbridge Offshore segment. On a year-over-year basis, earnings at Enbridge Offshore were up CAD6 million, as the previous year was negatively impacted by the hurricanes. Throughput volumes returned to prehurricane globals in 2006. However, the increased earnings were partially offset by the impact of a stronger Canadian dollar and some throughput reductions that we saw in the fourth quarter of the year.

Alliance and Vector earnings were also adversely impacted by the stronger C-dollar. In addition Vector earnings were affected by higher operating costs in the second and third quarters of the year related to scheduled integrity inspections, which we do not now expect to recur for sometime.

Moving to the Sponsored Investments segment, adjusted earnings were up by CAD13.4 million year-over-year. Fourth-quarter adjusted earnings were higher by CAD4.8 million compared to 2005. The increase is primarily due to strong performance at Enbridge Energy Partners. After adjusting for dilution gains and mark-to-market gains and losses on derivative financial instruments, those that don't qualify for hedge accounting treatment, the Enbridge, Inc., earnings contribution from EEP improved by CAD9.8 million year-over-year and CAD3.2 million on a quarterly basis, in spite of the stronger Canadian dollar.

This increase was due to higher Lakehead System crude oil volumes as well as strong margins and increased volumes in the natural gas gathering and processing business. In addition, Enbridge increased our ownership position in EEP from 10.9% to 16.6% in the third quarter of 2006, and therefore receive a higher percentage of EEP's earnings.

Enbridge Income Funds earnings were up modestly from the prior year, reflecting solid operating performance, lower tax on distributions that Enbridge received from the fund.

In the Gas Distribution & Services segment, adjusted operating earnings increased by CAD10.7 million, while the fourth-quarter earnings are in line with 2005. For full-year 2006, Aux Sable's earnings increased CAD20.5 million over the look at the year 2005. These increases are primarily due to strong fractionation margins that we experienced at Aux Sable throughout the year.

In January of 2006, as a reminder, Aux Sable entered into an output agreement that provides a fixed annual fee plus an upside sharing on fractionation margins, which is determined on an annual basis. This agreement substantially eliminates the potential for loss; but provides Enbridge with the opportunity to participate in [attractive] fractionation markets.

The increased earnings from Aux Sable were partially offset by a lower normalized contribution from Enbridge Gas Distribution, or EGD. After adjusting for the CAD36.9 million impact of warmer than normal weather in 2006, EGD earnings decreased by CAD13.2 million compared to 2005, due to a lower rate of return on equity, which is partially offset by a higher rate base. Variances from the forecast cost of service, which included operating and maintenance costs, negatively impacted EGD's earnings, particularly in the fourth quarter of the year.

It is worth noting that although we do adjust for weather in the annual rate application, the forecast of normal weather at EGD is based on a formula which includes the impact of actual weather both in the long and short run. The formula places a heavier weight on the more recent years. So given the warmer weather experienced in 2006, EGD could recoup some of the weather impacts in 2007; although I have to say we saw a pretty tough start -- that is, warm -- in early January in Ontario. But the weather has been a little bit more favorable from our perspective lately.

Earnings from the Other category increased by CAD8.3 million in 2006 compared to the prior year, primarily due to a larger contribution from Tidal Energy marketing resulting from its expansion into the U.S. at the end of 2005, and from higher earnings in the physical storage program at Tidal. Tidal is a physical crude oil and NGL marketer that is focused on creating value for long-term customers through the strategic and low-risk optimization of storage; also blending and transportation assets in the portfolio.

All of these are back-to-back arrangements; and Tidal's physical delivery commitments are backed by similar supply arrangements. Tidal also adheres to Enbridge's risk management policies that require them to maintain low-risk exposures.

In International on an adjusted basis, earnings are comparable to the previous year as CLH and OCENSA continued to deliver solid performance during the year.

Finally, corporate costs were up by CAD18.3 million year-over-year, primarily as a result of higher interest costs related to refinancing a portion of floating-rate debt with long-term fixed rate debt. We really tried to take advantage of the flat yield curve by reaching out for term on our debt financing needs.

I will now move on to our guidance for 2007. Based on our current outlook, we expect 2007 adjusted operating earnings to be in the range of CAD1.75 to CAD1.85 per share, which reflects our emphasis on existing operations and initial partial-year contributions from some of the organic growth projects.

We have excluded any acquisitive growth in developing this guidance range. Similar to 2005 and 2006, we expect 2007 growth to be sourced from modest contributions from a number of assets across our business units. We will continue to consider acquisitions where they make financial and strategic sense. However, the acquisition transaction multiples are at or close to historic highs, and we're not counting on any material acquisitive growth in our estimates.

Our balance sheet continues to be strong. Our year-end 2006 adjusted debt to book capitalization was approximately 61%, which is well within our target range. The equity offering that we announced on January 16 of this year is expected to close this Friday, February 2, and this will further strengthen the balance sheet.

We're also proceeding with a private placement of 1.5 million common shares to Noverco at the same price as the public issue. This private placement is also expected to close on February 2.

I will finally review our financing plan for 2007 briefly. Cash generated from our core businesses continues to be strong. So if you take cash from operations less dividends, that leaves about CAD0.9 billion. Then taking into account sustaining CapEx of about CAD4.4 billion leaves us with about CAD0.5 billion of free cash flow before growth CapEx.

We estimate growth CapEx for 2007 to be about CAD2 billion, just over CAD2 billion, which includes amounts for Alberta Clipper, the Line 4 Extension, and the Southern Lights project. After taking into account the proceeds from the equity offering, the amount of additional capital required to fund growth CapEx this year is only modestly higher than 2006 and is quite manageable.

So in a nutshell, I believe we're well positioned financially to pursue the growth opportunities that Pat was discussing earlier. So that concludes my review. At this point, I will turn it back to Pat for concluding comments.

Thanks, Steve. I will be very brief in my concluding remarks. To my way of thinking, there is really nothing better for shareholders than organic growth. It is transparent. It's easy to evaluate. It has relatively low execution risk.

The projects that we are advancing across all of our businesses will, on their own, support average annual growth rates in the 8-plus-% range over the next five years. This provides a very solid foundation for future earnings growth for this Company.

We will continue to pursue acquisition opportunities that are accretive to earnings to supplement the organic growth. I remain confident that we can continue to grow EPS at Enbridge at 8% to 10% on an average basis over the next five years.

So on that note, let me thank you for your continuing interest in Enbridge, and we can now move on to the Q&A.

(OPERATOR INSTRUCTIONS) Linda Ezergailis of TD Newcrest.

I guess this is a question maybe for Steve. The mainline growth that we have been seeing in 2006, can you break down the year-over-year variance between lower oil losses, favorable ITS, and tariffs?

Richard, do you want to -- well, maybe have Richard address that, Linda.

Okay.

The improvement coming from all ITS sources is in the order of magnitude of about CAD10 million. That is split roughly equally between the cost savings component of the ITS agreement, the cost sharing component, and the performance metrics component. Performance metrics includes -- sorry, cost savings includes within it oil loss costs. We have done well on that, so that is making a significant contribution to the cost savings component.

There is another small component of oil losses, revaluation losses, which fall outside the ITS. That would be a couple million, and the balance is all from tariffs.

Going forward, how might we think about any further growth? Or is this sustainable, especially on the tariffs side?

Well, I think there is potential for further growth from tariffs moving forward. It is driven by surcharge revenue, which is volume sensitive, which is starting to kick in now. It is also driven by average tolls; so to the extent that average tolls move ahead, Tariffs income moves ahead.

You do have to be mindful of tax effects on tariffs, though, which follow a somewhat unusual pattern. We got into that a little bit with our Databook disclosures last year in 2006. That went in our favor. It won't always go in our favor.

And the ITS, what sort of programs or processes have you put in place to further benefit from that?

Well, consistent with our original description of the ITS, it does have provision for larger bonus possibilities moving into the future. And also, larger penalty possibilities, because it is both a carrot and a stick system. So far we have been consistently on the bonus side, both on the performance metrics and the cost savings.

I think there is still a fair bit of room to run on the performance metrics side, but that will depend on us being successful. As you have implied, we have added new processes and systems to try and capture that as we move ahead; and I believe we will be successful in capturing a significant piece of it.

So when we look at the overall Enbridge system earnings, would you say they might be flat or higher in 2007, or --?

Yes, I don't think we're going to get into that level of detailed guidance, Linda.

Okay, thank you.

Thank you.

Bob Hastings of Canaccord Adams.

Aux Sable, you said some comments around that, Steve. Just sort of looking out to -- sort of looking in the fourth quarter, was there much catch-up that sort of came into that quarter? Just so I sort of know how to annualize that.

The next question is I was wondering, looking out to 2007 and your earnings guidance, are you looking sort of at a flat or up or down performance from Aux Sable?

I think 2006 was clearly an outstanding year at Aux Sable. The frac margins were favorable through virtually the whole year. There was some catch-up in the fourth quarter. The way the agreement works is that it is an annual measure that we look at; and so we have now fully booked the performance of Aux Sable through the year.

For 2007, there is a lot of year to go yet. There is a lot of runway still. So it's very hard to say where frac margins are going to go. I think suffice it to say that we are not anticipating quite as good a year as we had in 2006 at Aux Sable. But it is just too early to predict anything beyond that.

Okay, so you would have some lift from but not as much as last year?

Yes, at this point, I would say so. It looks that way. Margins have not been as favorable in January yet as they were in '06. So we are certainly not expecting quite the performance that you see in the reported results.

As you know, Bob, we're seeing a little bit of a tightening up of those margins as crude oil prices have come off. Really, that is the best overall way to evaluate Aux Sable, is really on the crude oil to natural gas price spread.

Right, I was just kind of wondering what was in your forecast there. So recognizing that. And again, the way that you account for that on a quarterly basis is probably the same this year as last year. You're going to be very conservative as the year progresses, and if it looks like there is something then you will bring that in later on?

Yes, it's really going to derive from the degree of certainty that we have of collection.

Right, okay. Thank you very much.

Matthew Akman of CIBC World Markets.

Pat, you talked about the terminal spending, CAD2 billion by 2010. I wonder if you could just update us on some of the timing of that spend over the next couple few years, and whether most of that is in Enbridge or EEP. Update us maybe on the kind of return expectations you anticipate on that capital.

Sure. I will do that, and I am going to ask Richard to add to my response on it as well, Matthew. The spend is spread geographically all the way from For McMurray to Cushing, Oklahoma, and including Fort McMurray, Stonefell, Hardisty, Chicago, Hartsdale, Cushing, Oklahoma.

The split I'm going to leave to Richard as to how much would be EEP and how much would be Enbridge. But of the CAD2 billion, we have probably close to half of that underway in one form or other, primarily at Hardisty and at Cushing, right now. But Richard, what is the split between Enbridge and EEP on that?

I don't have exact figures at my fingertips, but it would be primarily Enbridge within EEP. Apart from terminaling on the mainline regulated system, the bulk of it is Cushing. Everything else that isn't Cushing is pretty well all Enbridge.

In terms of returns on capital, Richard, what would you anticipate on that kind of investment?

Generally on the contract terminaling, the returns are in the midteens, bearing in mind that there is a higher degree of risk on that. Because typically, we have got contract coverage somewhere between five and 10 years, probably averaging seven to eight, and we are typically not on full cost of service.

So midteens is obviously an ROE-type metric?

Yes.

In terms of how you make money on those -- and this kind of goes back to Tidal -- is there commodity risk in those, in terms of spreads on different commodities over seasons or types of crude oil? Or is it generally fee-based type of revenue?

Those are fee-based, Matthew. But that is a very important point, that we -- I mentioned in my remarks that there are great arbitrage opportunities for marketers. But we are in the fee-for-service business with regard to tankage.

Okay, thanks a lot. Those are my questions.

Winfried Fruehauf of Fruehauf Consulting Limited.

In what way has Enbridge factored in or disregarded the Keystone project and you mentioned the in its expansion plans, both in Canada and the United States, between now and 2010?

As you know, when we indicated that there could be four to five tranches of 400,000 barrels a day of capacity required, we have underway about 1.2 million barrels a day of expansion. We recognize that there is a possibility that Keystone will go; and I guess the regulatory decision is yet to be made on that.

So by factoring guidance, I think it is fair to say, as we indicated before, that we are very confident that the market would require Alberta Clipper even if Keystone went; and vice versa. That even if Clipper went that there may be a demand for additional services through Keystone. So there is definitely room for both systems to coexist.

Thank you. The other question I have is regarding Alberta Clipper. Do the capital costs for the Canadian and U.S. sections include or exclude AFUDC? And if they include AFUDC, what is it for each of the two segments?

Richard?

Yes, I will answer that. The amounts that we have indicated for that project -- well of course, being preliminary estimates at this point in time, don't include either escalation to as-spent dollars or AFUDC.

Okay. Thanks very much.

Maureen Howe of RBC Capital Markets.

This is just a little bit of clarification, and I hope I don't confusion the issue here. But with respect to the earnings booked on the Enbridge system, and we have talked in the past about the tax effect on essentially the difference between, I guess, the cash coming in and the taxes collected in rates.

But this quarter, it looks like volumes were up. So you would have expected taxes to reflect the cash associated with higher volumes. Yet, it looks like the there was also further tax savings. I am just wondering maybe, Richard, if you could elaborate on that.

Well, the tax going in a favorable direction for us was a full-year effect. I am not sure that I have the figure for that for the fourth quarter (multiple speakers) handy, so I better not run the risk of confusion on the subject.

Okay. Just coming back to a previous question in talking about the improvement on the Liquid Pipelines segment, which for the year I think was CAD274 million compared to CAD229 million last year. But I guess it is the Enbridge system, when you were talking to Linda, it is the Enbridge system where the year-over-year -- so that would be the CAD202 million compared to the CAD170 million -- where CAD10 million was really directed at the performance metrics; and then the balance would have been tariffs?

Yes, CAD10 million from the ITS segment, which is a combination of the cost savings sharing component of that segment and the performance metrics piece of that. Most of the rest of it is tariffs. There is one small piece of oil loss performance, which is revaluation (multiple speakers) losses which falls outside that.

Right, and you said that was about CAD3 million?

A couple.

A couple million? Okay, thanks so much.

Daniel Shteyn of Desjardins Securities.

First question is with regard to the Ontario market-based storage returns, and the size of the investment opportunity there. I was wondering if you can shed some color on that.

Daniel, this is the gas storage in the Distribution business?

Right.

Yes, very difficult to tell at this point in time what the potential opportunity might be. As you know, we have worked for some time to be able to do future gas storage developments on a market basis and outside of the regulated entities. So we are very pleased with the decision.

But at this point, a little difficult to assess exactly what opportunities may be there. A little early in the game. But we will be looking at a number of new market-based initiatives over the next number of months.

I see. Quickly, with regard to your stake in Enbridge Income Fund. From what I understood Enbridge to have said previously, that stake was considered for -- at least a portion of that stake was considered for monetization instead of the common equity issue which was actually done.

Now that common equity has been issued, what are your plans with your, call it for lack of a better word, the excess portion of your stake in the Enbridge Income Fund on a go-forward basis? Is that still possibly a potential source of equity capital for you next year?

Well, a little early to say. I am going to ask Steve Wuori to supplement my response on this, because he has been very involved with the Income Fund over the last little while, Daniel. But a little early to say, once again.

As a result of the changes that we have seen in a income trust market, there are a number of opportunities that may exist for the Enbridge Income Fund. We think relatively speaking, that it is in a strong position as a sponsored fund, and therefore with access to support -- financial and otherwise -- from Enbridge, Inc., that may allow it to be a consolidator in this changed income trust environment.

We will have to evaluate along the way the extent to which we could monetize on that. As I am sure you can appreciate, there are a lot of trusts going through this kind of evaluation right now, determining what the best way forward is. We just happen to think that relatively we are in a pretty strong position there.

But this definitely would not be the right time to monetize, as you know. It is trading well below where it was at Enbridge Day when we spoke of that as being an excellent monetization opportunity for us.

I see. Thank you.

I would just add to that, Daniel, that it is kind of interesting. In many ways there is an uncertain environment; but at the same time there is a lot of certainty. The business is strong and growing at EIF. All of the businesses that are in there are very solid, so we are quite happy with those.

The uncertainty, I think, around what is going to happen with the trust legislation and so on really just means that it is not a very time feasibly to think about monetizing the interest. But we have always said that it is not our intent to hold an effective 72% of the Income Fund, so we will look at that in the future. But there is sufficient uncertainty in the market right now that we won't be making any moves on that in the near term.

I see. Thanks.

Zaheer Khan of Baker Gilmore & Associates.

Just looking at the funding for the 2007, and Steve, could you please elaborate? Like given that the free cash flow is somewhat declining going forward, and with increased CapEx, then uses of cash flows are increasing, how do you propose to fund it while maintaining a strong financial position?

Sure. Well, I think, it starts with the free cash flow generation. Of course, we have now done the equity issuance, which I think is an important piece of the overall picture going forward. We have good access to the debt capital markets as needed.

Actually, the spend profile is probably more important than the gross amount of spending that is planned for the various projects that we have underway. So we are watching very closely to see how that spend profile ramps up through 2007 and 2008. So rather than trying to understand what it would be like to fund these projects all at once, we look at how that is going to blend in.

We generally do not think that it is proper to prefund the equity requirement for these. We feel that they should be -- the permanent funding should be put into place closer to when you have FFO coming from the project. So we will be looking at that also.

But I am quite comfortable with where we are as we sit today. Looking at what we have to spend, which as I mentioned is just over CAD2 billion in the year 2007 looking at our access to debt capital markets and where the balance sheet sits right now. So I think -- and obviously that is something that, with a program like we have in front of us, that is something that we are watching all the time and adjusting.

Do you foresee any more equity coming in 2008 then?

We have no plans to issue any additional equity at this time.

The cash flow (indiscernible) that what is developing, that is increasing to your overall debt [net] to cap ratios?

Yes, that is something that we are certainly in contact with all of the rating agencies over. One of the things that is difficult is in looking at FFO metrics for credit, for projects where the FFO doesn't appear for two or three years, it is not possible to maintain the same credit metrics as an operating project would have.

So that is why it is really necessary that, as we have pointed out in the past, that we recognize our credit ratios and metrics will weaken during this build period. But the results then are tremendously strong metrics going forward as these projects start to produce positive cash flow. So certainly, the credit metrics weaken a bit during the period that we build.

Great, thank you so much.

[Raphael Corry] of Salman Partners.

Just a quick question on the 8% to 10% growth that you discussed. Is that accounting for the 4.5% dilution that this equity issuance is going to end up causing? Or is that pre this equity issuance share numbers?

That is an overall average over a five-year period. We would expect to average 8% to 10% growth.

I guess to kind of rephrase that, is that 8% to 10% growth averaged on five years on your actual earnings, or on your earnings per share?

That is EPS.

EPS?

Yes, it is.

Okay. Thank you.

Maureen Howe of RBC Capital Markets.

Just on that issue, and I guess looking at slide 9 where you go back to 2003, if we took the high end of the 2007 guidance of CAD1.85, that gives us a four-year compound EPS growth rate of 6.8%. To hit that 10% target over five years, I guess you're going to have to have a bump to CAD2.30 in 2008, which is a 25% over the CAD1.85, which we haven't seen for -- I don't know if we have ever seen it. But it is that reasonable?

Well, we are talking about the going-forward five years, here, Maureen, where we would expect to have that 8% to 10% growth. As you know, that is somewhat back-end loaded, because we are making the major capital expenditures this year and next year on these projects. We will see significant benefit from that kicking in, in the latter part of that five-year horizon.

Well, I guess that is fair. But I mean the 8% to 10% has been, I think, the targeted growth rate with acquisitions granted; and then there has been acquisitions for some time now.

Well, I think in the past we had indicated that we would expect to maybe get 5% to 6% organic growth. We certainly have revised that upward because of this program. So I think what you are seeing is the outcome, if you are looking back over the select five-year period that you have taken, of about that 5% to 6% growth rate.

As you know we have done very few acquisitions. The only thing that we have done of significance has been the Gulf of Mexico, primarily because prices have been so high and we just simply have been staying away. When we see the multiples being paid for some of these assets, and the low level of accretion being achieved for very, very significant investments, we just don't think it is the right environment to be out doing acquisitions; and have not been very active in the market over the last five years.

So I think basically what you have seen is the impact of our organic growth, and that is only going to improve going forward.

So the 8% to 10% that is targeted in this slide presentation, Pat, is that -- it says 8% to 10% EPS growth on average over five years. That doesn't say anything about acquisitions. So is that the growth target irrespective of whether you go out and buy something or not?

Well, as I indicated, we expect 8% organic over that five-year period, and then we would hope to be able to top that up with acquisitions to bring it to the 8% to 10% range. That, though, will depend an awful lot on what -- the level of competition for acquiring those assets and the pricing. As you know we are pretty disciplined when it comes to our positions.

Thanks very much for that clarification.

Andrew Kuske of UBS.

Pat, you gave some commentary on Gateway, and I would just like to get a bit of an update on that project. Obviously, the announcement in the fall of the time line on that has been pushed out. But given all the interest in the Midwest from some of the refiners there and all the pipelines that are proposed to being pushed into the Midwest, have your volumetric expectations and really thresholds for Gateway changed at all?

Not really, Andrew, nor has our level of commitment to the need for Gateway in order to maximize pricing. As I indicated in my introductory remarks, we still think to maximize the value of Canadian crude we are going to have to be able to get to Tidewater on the West Coast.

We still see a 400,000 barrel a day threshold as being necessary in order to make it go, and feel that that is the level of throughput that we really are going to need in order to get the kind of pricing effect that we want as well.

So in order to bring these differentials back into the range where we feel they should be, so that heavy crude is trading more on a quality discount basis rather than a market discount basis, then we are going to want to be able to get 400,000 barrels a day off the West Coast.

You would still view 350,000 as the number of really firm commitments that you need of that 400,000?

Yes, I would say that that is quite reasonable, yes.

Then if I may ask a question just for Steve on Aux Sable. If you could you give us a breakdown of really your fee arrangement on that facility, and then really the upside on the CAD25 million of earnings you booked over the course of the year, what is the breakdown behind that number?

I would like to be able to give that to you, Andrew, but really, I think the agreement that we have with BP is confidential. Therefore we really can't dig into detail that far.

Okay. Could you tell us the cash flow that you will be receiving from Aux Sable, or have received from Aux Sable?

Yes, Andrew, it's Colin here. We have received cash in excess of the 25 or CAD26 million we recorded as earnings. Obviously cash flow would exceed earnings. There's some ownership costs associated with the asset, so more than 100%.

Could you give us a sense of how much greater than that CAD25 million?

I think it is approximately CAD40 million, 35 to CAD40 million.

Okay, that's great. Thank you.

Winfried Fruehauf of Fruehauf Consulting Limited.

I asked you earlier about the Keystone project and you mentioned the various increments of supply. What about TMX? Assuming the three expansion phases of TMX are built within the planned time frame, Keystone goes ahead. Does it affect in any way your capital expansion plans between now and 2010?

I'm going to let Richard respond to that because I know that we have at least one increment on TMX in our base plan; and I am not sure about subsequent TMX expansions. Richard?

Yes, TMX Phase 1 is kind of built into what we view as being the existing capacity. So of the four to five 400,000 a day tranches that Pat referred to previously, if the full TMX program went ahead it would look after one of those tranches. We are not planning on the expectation that that will happen.

Okay. Thanks very much.

(OPERATOR INSTRUCTIONS) Linda Ezergailis of TD Newcrest.

I am looking at your corporate costs in the quarter. They were a little bit higher than I was expecting. Now the explanation in your MD&A cites higher interest expense, higher business development activity, and the impact of a strong labor market. Can you first of all break down the kind of year-over-year variance in the quarter by those factors? And then give us a sense understanding of should we be looking at a run rate of CAD19 million a quarter, which is what we have seen in the first three quarters of this year, or CAD24 million, which is what we saw in the fourth quarter?

I think first of all, I'm not going to try to break down those components. Those are what basically fed in, and there are a number of things that are in the corporate line. I think in terms of run rate, we would probably look at the full-year '06 and expect it to be similar in 2007 as we look at it right now. So as you look forward, that is probably what I would suggest.

Okay, thank you.

At this time, there are no further names in queue. I would like to return the floor to management for any closing remarks.

Bob?

No, nothing further here. I just remind you that I will be available after the call. Pat, do you --?

No. Thank you very much, everyone, for your attention, and we look forward to talking to you again at the end of the first quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Good day.