恩橋 (ENB) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Enbridge third quarter 2008 financial results conference call.

I would now like to turn the meeting over to Mr. Vern Yu.

Thank you and good morning. Welcome to Enbridge's Q3 2008 earnings call. With me this morning are Pat Daniel, President and Chief Executive Officer; Richard Bird, Executive Vice President and Chief Financial Officer & Corporate Development; Steve Wuori, Executive Vice President of Liquid Pipelines; and Colin Gruending, Vice President and Controller.

Before we begin, I should advise you during this conference call we may refer to certain information that constitutes forward looking information. Please take note of the legally required forward looking information disclaimer on our slide, which generally states that you should not place undue reliance on the statements about the future, since we necessarily apply certain assumptions to reach these conclusions with future outcome, and future outcomes are always subject to risks and uncertainties affecting our business, which include regulatory parameters, weather, economic conditions, exchange rates, interest rates and commodity prices. A more full disclosure of these risks and uncertainties is available in our securities filings.

This call is webcast and I encourage those listening on the phone lines to view the supporting slides which are available on our website. A replay of the call will be available later today and a transcript will be posted shortly thereafter. The Q&A format will be the same as the past few calls. The initial Q&A session will be restricted to the analyst community, and once that's been completed, we invite calls from the media. I will also remind you that Colin, Pat, Murray, and myself will be available for followup questions after the call, and at this point I would like to turn the call over to Pat.

Thanks Vern, and good morning, everyone. Thank you for taking the time to join us this morning. As you know, earlier today, we reported year-to-date adjusted earnings of C$474 million, which is 8% higher than last year. And we reported third quarter adjusted earnings of C$86 million, which were 9% higher than Q3 last year. This increase in earnings is primarily due to the progress that we've made on our first wave of Liquid's pipeline projects. We've now placed into service the Waupisoo pipeline and Phase 1 of our Southern Access expansion and we continue to make excellent progress on building Alberta Clipper, Southern Lights and the balance of the Wave 1 projects. Earnings contributions from these projects and the strength of the existing business allows us to be highly confident that we will realize earnings in the range of C$1.85 to C$1.95 per share in 2008 and will allow us to grow earnings per share at 10% plus per year from 2007 through 2012, and Richard is going to provide the detailed review of the quarter in a few moments.

Since we've just seen most of you at our recent investor day sessions in Toronto and New York, I'm going to try to keep my opening remarks quite brief today, but if you didn't get a chance to attend either one of those Enbridge day events, I would encourage to you review a replay of the webcast on our website and there you're going to find our take on the supply and demand fundamentals of North American natural gas and crude oil markets and detailed updates on all of our Wave 1 and Wave 2 growth projects, an update our financial projections and financing plans, and of course a description of what we consider to be the safe haven nature of an investment in Enbridge. All of that is available online.

At Enbridge Day we focused on how Enbridge is a unique combination of safety, income, and growth, and we've described it as an investment triangle. This has allowed us to significantly outperform the broader equity market and our peers in these very turbulent times. Since the start of the credit crisis in summer of 2007, Enbridge has generated a 16 month total shareholder return of 22.5% on the TSX and 7.5% on the NYSE. The weaker performance on the NYSE is wholly due to the weakening of the Canadian dollar, where we've moved close to par to $0.87 in a month. Excellent performance over a period of uncertainty.

We believe that this superior stock performance in these very trying time is a direct result of the low risk nature of the business, what I would like to do is run through those risks starting with capital cost risk, which we think is probably the most relevant today. We limit the capital cost risk by negotiating our new construction projects that limit our exposure to the capital costs. And generally what we tend to do is target a 12% return on equity, with a plus or minus bracket of 2% on our return, depending on how we manage costs. We've also, on top of that, established a major project business unit and that was done at the beginning of this year to ensure that our construction projects are now centrally controlled and managed. Secondly, with regard to risks, we have little or no volume risk on the system. Over 80% of our earnings are from cost of service or take or pay contracts and over 95% of Enbridge earnings are from regulated businesses. So once again, very low risk. Third, with regard to commodity, FX, and interest rate risk, we've got a very full hedging policy and we limit our exposure to market price to be less than 5% of adjusted earnings. So when you see the price of crude oil falling off sharply as we have recently, you don't need to be concerned about your Enbridge investment. While our second wave of growth is somewhat tied to long-term commodity prices, you will not see our day-to-day earnings impacted by commodity price. Lastly with regard to credit risk, almost 95% of our business is done with very large reputable energy and industrial companies. Our contracts with are the large multinational energy companies of the world such as Exxon, [BP], Shell, EnCana, and Suncor. We don't have any appreciable exposure to the financial counterparties, and when we work with companies of lesser credit quality, we ensure we have proper collateral in place.

The current state of the capital markets is a concern for all companies and especially a concern for those companies with significant growth plans. While our capital program is significant, we took early and appropriate actions to successfully finance Wave 1. If you take into account our free cash flow, the sale of our Spanish asset CLH, our dividend reinvestment plan, and the recently completed C$1.5 billion project financing for Southern Lights, our C$12 billion capital has been reduced to a debt requirement of roughly C$2 billion and an equity need of only C$600 million and that's over the next four years. The aggregate of this funding requirement is less than the C$3 billion of excess bank liquidity we currently have in place, and this ensures that for the next few years we'll have a great deal of financial flexibility.

Finally, I would like to spend a few minutes that the impact of falling oil prices may have on our expansion projects. The first point is that our Wave 1 projects as I mentioned are commercially secured and under construction and this drop in crude prices will in no way affect their inservice date or their earnings profiles once they're placed into service. The only exception to this is the Fort Hills project, and over the last few weeks you have probably read varying comments on the current plan for the project. We have been and will continue to work very closely with the the Fort Hills partnership and have provided the partners with a number of different design scenarios to accommodate shipping either upgrade [synthetic] crude or raw bitumen. We expect a decision on the project in December and we continue to work towards the mid 2011 inservice date for the pipeline.

The impact on the Wave 2 projects is probably too early to know at this point, and we believe that most, if not all of these projects will still be required for a number of reasons. Firstly, these projects are further out in the 2012 plus timeline, and although oil prices have dropped in the last few weeks, long-term crude oil price forecast has not fallen as dramatically. And just as producers didn't use the C$150 a barrel as a planning benchmark during the price runup earlier this year, they're probably not going to be using C$65 per barrel crude oil long-term.

Secondly, the bulk of the Wave 2 projects are designed to extend the market. Whether it's the Eastern PAD 2, whether it's at the PAD 1, the US Gulf Coast, off of the west coast of Canada -- and they're extending for Canadian producers to tie new oil sands production in the Edmonton and Hardisty pipeline hubs. These projects will ensure that western Canadian producers get the best possible netbacks, which will be more important in a lower price environment. So in a lot of ways these longer term projects make more sense, and of course the Enbridge economies of scale will serve our customers very well in this environment.

Finally, we believe that our phased approach to extending in these new markets is each more attractive as it requires less of a financial commitment and in some cases no commitment at all that can be built into the mainline tolling structure. So that really concludes my prepared introductory remarks. Richard will go through the financial and operating highlights for the quarter and I'll come back at the end. Richard?

Thanks Pat, and good morning, everyone. As released this morning, reported net income for the third quarter was C$148 million compared to C$78 million in 2007. And adjusting for non operating items, third quarter earnings were C$86 million or C$0.24 per share, up from third quarter 2007 earnings of C$79 million or C$0.22 per share. So, with a number of adverse external developments in Enbridge's business environment in the third quarter, you are seeing a live stress test of the low-risk safe haven aspect of our investor value proposition which Pat just spoke about. During the third quarter we experienced another hurricane and a decline in commodity prices which far exceeded the level of volatility anyone would plan for. Despite this, our adjusted earnings per share of C$1.32 for the nine months held at a 7% lift over the C$1.23 figure for last year. For sure, we were expecting a little stronger quarter and these external events will continue to affect us in the fourth quarter as well, taking a little of the icing off the cake for 2008, but we remain on track to hit our guidance range of C$1.85 to C$1.95 and our prospects beyond 2008 remain very strong as Pat indicated.

I'll now take you through a quick summary of each operating segment highlighting the major points for the quarter. Liquid pipeline increased both in the quarter and the year-to-date as a result of AEDC being accrued for Southern Lights, and within the Enbridge system on Alberta Clipper and Southern Access expansion. In addition, we're seeing the impact on the Waupisoo pipeline and other additional contract terminal infrastructure which has been placed into service throughout 2008. This was somewhat offset within the third quarter as a result of Wave 2 business development cost.

The earnings contribution from our gas pipeline segment was down slightly for the quarter, continuing the pattern from the first half of the year. For the most part, this is as expected due to gradual rate-based depreciation and for exchange effects. However, the performance of off-shore was adversely affected by Ike to the tune of C$4 million, offsetting improving fundamental performance from Neptune and Atlantis, and we expect to see another C$7 million to C$8 million impact from repair costs and lost revenue from Ike in the fourth quarter

Our sponsored investment segment continued to perform well in the third quarter. The liquids pipeline segment within Enbridge Energy Partners was a strong contributor, largely offsetting the hurricane impact on the gas segment, and we received an increased amount through the GP incentive distribution mechanism. Likewise, the liquids pipeline segment within the Enbridge Income Fund is driving growth in earnings and cash flow for the fund, supporting a 12% increase in the monthly distribution rate for 2009, which will further enhance our incentive distributions from sponsored investments. It's also notable that the fund has received shipper support for a further C$100 million expansion of the Saskatchewan system to accommodate increasing oil production from the Bakken shale play. This is the same shale formation which is driving similar expansion of Enbridge Energy Partners' North Dakota system. The potential from the Bakken is quite extraordinary.

Gas distribution and services also performed better within the quarter and year-to-date due to strong performance within Enbridge Gas Distribution under the new incentive regulation regime. This performance was augmented by improved results at Aux Sable due to stronger margins which have been locked in. Energy services was a drag for the quarter, taking back most, but not all, of the favorable year-over-year pickup achieved in the first six months. This is where we felt the impact of commodity price declines, though well within our earnings and risk parameters and more than offset on an overall basis by the other positives within the segment. International results, of course, reflect the sale of CLH in the second quarter of this year, and lastly corporate costs are also lower due to the decrease in interest expense as a result of lower average rates year-over-year and the payback of debt from the proceeds received from the sale of CLH.

Finally, we get a lot of questions on the road with respect to the impact of the current financial market turbulence on both of cost and the availability of funding to us. So I'll update you on that. Pat has already discussed our funding requirements and the flexibility provided by our liquidity position to pick our timing on capital markets funding. However, as an investment grade credit, we continue to receive indications that we could issue term debt even in the cushion market. Spreads would be wider than previously planned, but all in rates not a great deal higher. We have the liquidity to wait for spreads to improve, but we won't wait too long to issue debt because we prefer to maintain our liquidity cushion and not encroach on it very much. With respect to the impact of higher debt costs on our earnings, there would be some but not much. For nearly all of our C$12 billion of commercially secured projects, financing costs are a passthrough into tolls, and this applies to both construction financing and permanent financing. The only impact on our bottom line would be from the portion of our corporate debt which isn't allocated to a specific project but is leveraged against the overall portfolio. This is an impact which we are taking into consideration in assessing our growth outlook, but it is a small impact.

So in summary, despite hurricanes, commodity price volatility and financial market disruptions, we remain on track both to meet our full year guidance of C$1.85 to C$1.95 per share and to achieve our 10% plus average annual growth trajectory through 2012. That completes my remarks, so over to you, Pat, for concluding comments.

Thanks, Richard, to reiterate, despite a volatile third quarter in terms of financial markets and commodity markets, Enbridge remains on target for not only this year but for the foreseeable future, while we continue to make very significant progress in constructing our Wave 1 expansion projects. Finally, I think it's fair to say that Enbridge's unique combination of safety, income, and growth has allowed our stock to significantly outperform the broader Canadian and US equity markets and all of our peers, both Canadian and US peers and we're very proud on that. On that note, we can move onto to the Q&A, Vern.

Thanks, Pat and I think we're ready to take questions as they come in, please.

(OPERATOR INSTRUCTIONS). Your first question will come from the line of Linda Ezergailis with TD Newcrest. Please proceed.

Thank you. I'm wondering if you can quantify the amount of business development expenses for Wave 2 projects in Q3 and what you're expectation of a run rate going forward for, I guess the balance of the year as well as 2009 and 2010 would be?

Richard or Colin? Can you take that?

Sure, I'll take it. Q3 business development costs, I think ran us at a couple of million dollars higher than the corresponding quarter in the prior year, and I'm not sure that's indicative of what our running rate is going to be on a go forward basis, because I think we're looking at starting to manage those down to a certain degree. So it's probably a little bit more of a one-time blip we would expect to see on a go forward basis.

Thank you. If you can just clarify your revolving credit agreement with EEP of C$500 million, would you expect that to -- the magnitude of that agreement to grow and for how long is that agreement in place?

That's a three year term facility and when we display Enbridge's available liquidity, we lock that amount off the top because that is set aside for EEP. At the moment there's no plans to extend additional liquidity to EEP over and above that. We believe what it has in place will be sufficient, but we do have the ability to do so if that were necessary.

Great, thank you.

Thanks, Linda.

Your next question will come from the line of Andrew Fairbanks with Merrill Lynch. Please proceed.

Good morning, Pat. I guess we see potentially the mix of oil sands projects, and raw bitumen from synthetic of crude oil -- how would that affect your capacity plan going forward in your [plans] and the overall system's ability to deliver volumes where they (inaudible) sbu's from US refineries.?

Well, just in general terms, first of all, if all of the projects went as scheduled but stopped at the bitumen phase, that would result in a need for more pipeline capacity ex Alberta, because you're transporting bitumen diluted one-third/two thirds with condensate and hence takes more pipeline capacity if it were taken through the upgraded stage. Potentially stopping at that phase could be beneficial for pipeline capacity, and of course that's one of the beauties of the Enbridge system -- as you know, we transport over 100 different types of crudes from refined products right through to heavies. So we're able to accommodate no matter what the market does, whether it's upgraded crude, whether it's refined products or it's bitumen, we're able to move it.

That's great. Thanks, Pat.

Thanks, Andrew.

And your next question will come from the line of Carl Kirst with BMO Capital Markets. Please proceed.

Pat, you mentioned in your comments you're working with the shippers of the Fort Hills under perhaps different designs. Do any of those varying designs, do they radically change the scope of the C$2 billion proposed projects or should we think of that right now as more of tweaks to the design change?

Well there are various different alternatives that we've been looking at depending on whether the project proceeds as originally designed, whether it stops at phase one and I guess either Steve -- Steve, why don't you take that because you've been most closely involved in that. And we can't tell you everything at this point, Carl because we're working in confidence with them as you know. We've been selected as their pipeline provider and are working in confidence with them and have to wait for their December announcement but Steve can tell you some of the things that we've looked at.

Sure. As you know, the discussion in the market has been whether or not the upgrader will be built in conjunction with the Fort Hills project on the same timeline that it was originally planned for and really all of that would do is change the design of the system at the southern end where the upgrader would be sooner if they move ahead on the original timeline, and so the base design of the project to move diluted bitumen south from the mine site down to the Edmonton area and condensate moving back for diluent is unchanged. It's a matter of the plumbing in the Edmonton and north of Edmonton in the Sturgeon County area that would change.

Okay, thank you and then just a quick followup. Obviously, ENB terrifically positioned from a liquidity standpoint; EEP needs a little more equity near term. Can you update us as far as perhaps what the status of that is and here's the MLP market has recovered somewhat from pretty dismal lows. Is this something where if need be ENB might look to take additional units from EEP if necessary? Can you just give us the status update of what we're thinking here.

That's one of our considerations, but I'll let Richard speak to the various alternatives we've looked at on EEP liquidity.

First of all, I guess EEP does have an adequate liquidity position itself. Not quite as robust as Enbridge does, but certainly between their facilities and cash they have got in hand and the facility they have with us, they've got reasonable amount of room to run. They will, as you've indicated, need to raise equity at some point to carry on with the capital expansion which they've got, which is a very attractive and favorable capital program. EEP's looking at a number of alternatives to fund that program, including asset sales and asset monetization in addition to issuing equity. So we're -- our preference would be through some combination of those actions that it would be successful in achieving the level of equity that requires Enbridge could as it has in the past put additional equity into EEP. Wouldn't rule that out, but neither would I say that's our preference.

Understandable, but should we still think of that as roughly something that may occur by or around year-end?

An equity action by EEP?

Well, something to address the credit rating agency's concerns, whether it happens to be a small asset monetization or a combination of things. I guess is it something that we should think of as sooner rather than later or something that perhaps might be spring or later even?

I think we will need -- we'll need to see some actions being undertaken by spring or before the spring. I wouldn't pin it down to as soon as year-end, but between now and then, and probably as you're suggesting it would be a number of things as opposed to just any one.

Appreciate the color. Thank you.

Thanks, Carl.

Your next question will comes from the line of Bob Hastings with Canaccord. Please proceed.

Thank you, just a clarification on two things. One is you mentioned the business development expense was up C$2 million, up about C$2 million from last year. Can you give us the absolute number?

I don't think we get into that level of detail, Bob.

Okay, and then the comments the impact of the hurricanes, you mentioned the C$4 million number. Was that pre or after tax?

That was after tax.

Okay, and it was after tax as well for your fourth quarter impact from the hurricane?

That's correct.

Okay, and then my other question is the energy services inventory charge in the third quarter -- can you give us some magnitude on that? It was an C$8 million swing year over year in the quarter and was wondering how much was from that?

I think in the aggregate we picked up -- relative to our expectations, let's measure it that way. About a C$4 million shortfall between the inventory adjustment and lower operating performance in the environment which removed some of the opportunities there otherwise would be.

So that C$4 million -- so I guess it was evenly split between the inventory and just lower operating performance?

Yes, combination of the two.

Okay, thank you very much.

Thanks, Bob.

And your next question comes from the line of Matthew Akman. Please proceed.

Thanks very much. Two questions -- one is on Aux Sable. There is unrealized derivative fair value gain. In fact it moved around a lot. Can please just explain how that gain comes about and what your hedges look like relative to this year going into next year?

Richard?

We pretty much have our Aux Sable earnings expectation built into our guidance locked in at this point for the year. It's really just a question of when that's recognized over the course of the year. And we've got a little more upside potential at this point if things were to improve significantly in the next couple of months, but we're pretty well locked for the year. In terms of rolling into next year, we would be already well along in our hedging program for next year, and so as we roll into guidance for 2009, we'll reflect what our expectations are there but we've captured substantial amount of upside for 2009 as well.

So when you book an unrealized derivative fair value gain in the quarter, Richard, is that because the hedges going forward through '09 are in the money relative to where the mark was?

That's right.

And when was the mark made?

September 30th, Matthew.

Okay, thanks for that. And my last question is simply to provide some more color on how you guys were exposed to SEM group in Lehman and what kinds of activities were involved in that exposure, please?

Vern, do you want to take that?

We had sold [SEM] Group some crude oil through our Tidal Energy affiliate, and Lehman Brothers we had natural gas sales contract through our Enbridge gas services subsidiary as well.

Okay.

As you know, those were very small exposures, Matthew.

Okay. Thanks very much. Those are my questions.

Okay, thank you.

And your next question will come come from the the line of Robert Kwan with RBC. Please proceed.

Thank you. Just of the C$6.2 billion of the credit facilities, can you give a breakdown of maturity schedule by amount and year?

Can we follow-up with you on that, Robert? I should have had that handy, but I don't. It's a mixture of 364 day with one year term outs, some three and some four-year facilities, but Vern will get back to you with the details that.

Sure, that's great. My other question relates to the funding table that you have on slide eight. The first part, does that include the Alberta Clipper as the estimated as spent cost versus the 2007 cost?. Secondly, when you look at the timing, especially given the free cash flow as a little back-end loaded, when would you expect to address the residual equity need based on your interim credit metrics and the free cash flow profile that you have?

First of all with regard to the Clipper, it's the estimated as spent. It's expected clipper up-to-date. Richard, can you address the timing on the overall C$600 million of equity over that four year time?

Again, I think we have a lot of flexibility on that in the near term, but you're right, the standing profile is front-end weighted, and so the bulk of that C$600 million we will require in the next 18 to 24 months. Okay, great, thanks, Pat. Thanks, Richard.

Robert.

And your next question will come from the line of Andrew Kuske with Credit Suisse. Please proceed.

Thank you, good morning,. Just wondering to the extent that you've really started to think about potentially much different credit metrics into the future and then just drawing contrast to the time that all of the industries' credit standards really tied in the wake of the collapse of Enron back in 2001, early 2002?

I'm sorry, what's the question around that, Andrew?

Have you really thought about credit metrics changing dramatically to the point say we had to have another 5% to 10% of equity in your capital structure and that's what the debt raters were really asking for, for your lending syndicate?

You're right, sure we have, because your comparison back to the Enron days is very accurate. We saw some tightening in the actions that we took at that time. I'm going to let Richard speak more specifically to it because it has been an area of consideration to us.

Basically in our go forward plans, we have -- I wouldn't say we've made a quantum change in our capital structure, but we have -- for the reasons you just identified, Andrew, we have notched up our equity capitalization versus debt capitalization by a little bit, hopefully sufficiently to reflect the concerns you have. We do obviously remain in pretty constant dialog with the rating agencies, and at the moment at least we're not seeing any indication on their part of a significant shift in expectations for our industry sector. They have pretty well established guidelines along those kind of things for our industry sector, and at the moment we're not seeing any indication that they'll be looking for more than we have historically. We have nevertheless in our own plans gone a snick more conservative.

I think, Andrew, adding a general comment to that, I think that we have proven again as we did through the Enron era and now this concern around credit that companies that own and manage hard assets do well and probably deserve better credit considerations than many that deal in financial instruments or other ways of booking earnings. And I look back on it and felt that probably we were a little unduly pressured by the rating agencies post Enron, considering the fact we were never in that business, and I think therefore we would expect the rating agencies to look through to the hard assets and not dramatically change the metrics for our industry.

If I may ask a somewhat related question as it relates to your earnings at risk metrics internally, with the volatility we've seen in the last two months, has that caused to you rethink and revisit a lot of the parameters around your own risk metrics internally?

I'll comment generally and then Vern has put his hand up because he wants to respond to that as well, Andrew. I think as we indicated, this has been a tremendous stress test of our EAR and look that we have come through the quarter, the three quarters right on target, right on budget, right on guidance. I think it's working the way we want to work. It's part of the Enbridge investment proposition, and we are quite comfortable. This has been a dramatic as a swing in commodity prices as we will see, at least we hope and I think we've come through it with shining colors. I don't think we'll dramatically change that.

Andrew, the earnings or risk metric is designed to look at how much the earnings would be impacted by two standard deviations in the market prices. What we saw was well beyond two standard deviations, and when we go forward and measure earnings risk on a go-forward basis, we'll look at how volatility has changed over the last period of time and will reflect higher volatility as we move forward because of what has happened here. So, if we have just seen a very modest impact in our energy services division, you can see that our earnings -- our actual earnings at risk are well below that 5% limit that we have for the corporation.

That's great. Thank you very much.

Thanks, Andrew.

And your next question will come from the line of Winfried Fruehauf from W. Fruehauf Consulting. Please proceed.

Thank you. I have a question on the international financial reporting standards and I'm wondering how far down the road is Enbridge in adopting these standards? What is the estimated total cost? And thirdly, has Enbridge tested how some historical results for example for 2007 would have fared on the Canadian GAAP versus the internationally financial reporting standards?

Sure, Richard is going to respond to that, Winfried. We're well into our planning movement towards IFRS. As a matter of fact, we did a very thorough review with our AF&R committee yesterday and I'll let Richard tell you specifically where we are and where we think we're going.

Sure. I guess I should say first of all that we haven't made a decision at this point as to whether we will go with IFRS or whether we will elect for US GAAP, which is an option that's available to us. We're weighing the pros and cons of both alternatives. The benefit of US GAAP, of course being that our financials wouldn't really be materially different-looking under US GAAP than they are at the moment. In fact we do a US GAAP note and you can see there's really not much difference. So that's a decision that we're weighing.

We're going to have make that decision relatively quickly to maintain on track for implementation of either a conversion to US GAAP or a conversion to IFRS. Feedback we have from our external advisories with respect to our state of readiness in the preparatory work that we've done to go in either direction is we're bit ahead of the pack, at least consistent with peers and the rest of industries or a bit ahead. So I think we're in good shape as we move ahead. There will for sure be some costs. There will be costs really on either choice, conversion to IFRS or to US GAAP. Don't think we're in a position to specifically quantify those at the moment. I don't think they will be material in the the big picture, but they'll be another little bit of cost along with SOX and various other regulatory costs that our current world imposes on us, and if I missed anything, Winfried, may be you could remind me if there's another question in there.

No, you answered it well and thank you very much. Thanks, Win.

And your next question will come from the line of Ramin Burney with National Bank Financial. Please proceed.

Thanks, good morning. Regarding the halting of the Stonefell Terminal here, how much has been reimbursed by BA energy?

BA is as per our arrangements with them has reimbursed us for all of the costs that we incurred on the portion of the terminal that was dedicated to them and in fact over and above that a return on the capital that we had tied up for that period time.

What is the amount? Are you allowed to -- ?

I don't believe we've made that part of the public record. That's a confidential matter between us and them.

As far as the Fort Hills pipeline project, how much cost has been incurred to date?

Steve, do you know that number off the top on Fort Hills costs?

It would be a relatively small amount incurred to date, but we have made commitments on steel pipe at this point in time. Of course, all of those costs are passed through to the Fort Hills pipeline partners.

A followup question here -- regarding the northern Gateway project there's been media reports out there saying that Enbridge is prepared to offer equity stakes to aboriginal groups here. Are you -- given it's quite preliminary here, are you still considering keeping a 51% stake, and the other 49% offering it to the refiners, producers, and aboriginals?

That's right. We would intend to maintain the 51% interest, and you're right -- we have indicated that we would be prepared to make up to 49% of the equity available to our partners, producers, refiners, and First Nations and aboriginal groups.

Thank you.

Thanks, Ramin.

Our next question is a followup question from Linda Ezergailis with TD Newcrest. Please proceed.

Thank you. I'm wondering if you could help us understand a little bit more about your C$55 million of unrealized derivative fair value gains related to storage transactions at Tidal Energy? When would you expect to realize that?

Vern?

Hi, Linda. Those are transactions that hedged future sales of the commodity, and you would see that reverse over Q4 and Q1 of next year.

Okay, and so that was commodities owned by Enbridge or owned by third parties and your fees are tied to commodity prices?

Well, our marketing affiliate at Tidal Energy does often purchase crude oil and sell crude oil on a per forward basis, and the vast majority of the time, both the purchase and the sale are hedged. So the economics are known. So that's why when you see the adjusted earnings, you'll see very modest earnings numbers, but on a GAAP earnings basis, you'll see the full change in the fair value of the derivative, but not the full change in the fair value of the underlying crude oil. So the GAAP earnings show the change in the value of the derivative which has gone up substantially, but not the change in the fair value of physical commodity, so there's a mismatch in the accounting of what is actually happening. That will reverse when the transaction settle.

You said Q4 and Q1 of next year, so that's Q4 '09 and Q1?

Sorry, Q4 of this year and Q1 of this year.

Okay, thank you -- and just as a followup, cleanup question. Can you break down the amount of AEDC in the quarter and how much was related to Clipper versus Southern Access expansion for example?

Okay, and Richard?

Sure. We've got in total about C$15 million of AEDC. About half of that is Southern Lights and the rest of it is spread more or less evenly amongst the other projects.

And the other projects are just Clipper and Southern Access expansion?

Also Line 4 and other work that would be going on just in the normal course within the Enbridge system.

So evenly between Clipper, Southern Access expansion Line 4 and mainline system?

Yes, in round numbers.

Okay, thank you.

And just for clarification, Linda, on your earlier question on the unrealized gains, hopefully it was clear, but as those unrealized gains are realized, you're not going to see a sudden jump up in our earnings, because they are offsetting the other side of the transaction, which is a physical side. So the derivative gains will in effect hedge out or offset what will turn out to be physical losses on those transactions. It could have gone the other way where we would have gains on the physical transactions and losses the derivatives. The whole purpose there is to neutralize the impact of commodity prices on that type of business and just preserve the original planned margin that was built into those transactions.

Great, thank you.

And our next question will come from the line of Sam Kanes with Scotia Capital. Please proceed.

Just curious on EGD -- how you're tracking relative to your PDR expectations and what amount if any was in Q3 of consequence that could be broken out?

I'm not sure I can break out a specific amount that's attributable to that, but I think our overall performance on EGD under our overall operating performance is a bit ahead of what we were expecting and, of course, with the incentive regime, we get keep the first 100 basis points of that. So it's working out better than expected at this point.

We would expect that we would realize that 100 basis point upside that we forecast that we should.

That would be better than your guidance, I presume.

Yes.

Switching, thank you for that -- your policy or latest policy, if there is a policy on your ownership interest in Enbridge Energy Partners -- you've over the years taken dilution gains by not participating sometimes -- fully participated in this latest year. You did not fully participate -- in the Enbridge Energy Partners equity deal coming down here down the road. Is this a methodology or has it happened since? How do you look at this?

Well, there is a methodology. It's pretty much the economics of the transactions, Sam, and as you know we started out -- when we IPOed we held a 20% interest and gradually diluted that down to 9% or 10% because effectively as a taxable entity, the economics of investing were best in the hands of retail investors. However, with the unit price where it is today, those dynamics change a little bit. That's something we constantly evaluate as we go along and the opportunity comes to participate or not.

Strictly economics?

Yes -- well, I shouldn't say strictly economics, because there's the overriding issue that we know that investors want to see strong support from the sponsoring company -- the sponsoring C Corp. When we dropped down around 9% to 10%, we thought that was as low as we wanted to go, and you saw us turn around with the case and reinvest in part because we wanted to show strong support from Enbridge's sponsor. So there a limit as to how low we would go.

Thanks, Pat.

Thanks, Sam.

Ladies and gentlemen, at this time we will now take questions from the media. (OPERATOR INSTRUCTIONS) And our first question comes from the line of Scott Haggett, please proceed.

Hi guys. Thanks for the opportunity. You say you can still issue debt. Can you give me some sense if possible on how much you would look to tap markets this year and next?

Richard?

Sure, well, I don't know whether you have the visuals in front of you from our website, Scott, but basically what we're indicating over our five year planning horizon is we're going to need to access capital markets for about C$2 billion of debt. Again, that will tend to be more in the front end than it will be in the back end of that five year period of time. And we do have sufficient liquidity on our bank lines that there's no pressing need to do that really for a considerable period of time to come. We have over C$3 billion of liquidity on our bank line. I don't think we're driven to a particular time table, but as I mentioned, our objective would be not to eat too far into that liquidity cushion if we can see a reasonable opportunity in the market. We'll sit and wait until we see an opportunity to issue what we feel are attractive spreads. They may not be as good spreads as would have been possible a year ago, but we'll wait to see something a little bit better than what we're seeing at the moment.

Great, thank you very much.

Scott, that is one of the advantages of having the liquidity that we do. We're able to time our entry into the market to suit us and to get the best rate possible.

One more question if I could. You have found replacements for Lehman, complete replacements for Lehman and your banking group?

No, we haven't done that at this point. We did have one bank come in a little earlier for a piece of the Lehman obligation, but we haven't moved ahead at this point to replace them. That's a relatively small amount in our Enbridge facility -- it's about C$40 million of that C$6.2 billion. So it's less than 1%.

Great, thank you very much.

And at this time there are no further questions in the queue.

Okay. Well, if there aren't any more questions, Colin, Pat, Murray, and I are available for any detailed followups. Please give us a call.

Thanks, everybody, and we will talk to you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.