恩橋 (ENB) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Enbridge Incorporated first quarter 2010 financial results conference call.

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

Thank you. Good morning, and welcome to Enbridge Incorporated's 2010 Q1 earnings call. With me this morning are Pat Daniel, President and Chief Executive Officer; Richard Bird, Executive Vice President, Chief Financial Officer, Corporate Development; and Colin Gruending, Vice President and Controller.

Before we begin, I'd like to point out that we may refer to forward-looking information during this call. By its nature this information implies certain assumptions and expectations about the future of the Company. We remind you it is subject to risks and uncertainties affecting every business, including ours. Our slides include a summary of the more significant factors and risks that may affect the future outcomes for Enbridge which are fully disclosed in our public disclosure filings available on SEDAR.

The call is Webcast. I encourage those listening by phone to view the supporting slides on our Web site at www.enbridge.com\investor. A replay and podcast 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 we've done most recently. The initial Q&A will be restricted to the analyst community, and once completed we will take questions from the media. Finally, I'd like to remind everyone that both Pat, Murray and I are available after the call if you have any detailed follow-up questions.

With that, I'd like to turn the call over to Pat Daniel.

Thanks, Vern, and good morning, everyone. Thank you for joining us on a very snowy Calgary day to review our first quarter results. We were very pleased to announce just a few hours ago adjusted earnings for the first quarter of 2010 of CAD318 million, or CAD0.86 per share which is a 16% increase in earnings per share over last year. These results now place us well on the way to meeting our 2010 guidance range of CAD2.50 to CAD2.70 per share. Richard, of course, will walk you through the results in a little more detail shortly. But first let me talk to those areas where we see some very substantial opportunities for further growth in the future.

Over the last seven or eight months, we've been referring really to four key areas where we're seeing substantial activity and potential for growth, and where Enbridge also enjoys strong strategic advantage through the existing infrastructure that we have in our proven expertise in those areas. The areas that I'm referring to include the Alberta regional oil sands, the ultra deep offshore oil and gas, North American oil and gas shale plays, and then our newest business unit, renewable and green energy.

Let me go through those one by one, starting, first of all, in the oil sands. We've been very encouraged with the continued series of announcements from major producers of the advanced new or expanded projects in the oil sands. Examples like Statoil who are ramping up operations at their Leismer site. Announcements by Cenovus and ConocoPhillips who are going ahead with future phases of Christina Lake. As you're aware, Enbridge won the opportunity to service both of those projects. When you add the Leismer and Christina Lake projects to our work on the Woodland pipeline to connect Imperial Oil's Kearl Lake project, Enbridge has now secured three oil sands related projects in less than a year. With renewed activity and production forecast by major producers including Suncor, Husky and Surmont investors, to name a few, you can expect to hear more from us as we continue to pursue additional opportunities.

Our existing regional infrastructure gives us a strategic advantage in terms of being able to scale solutions to their near, medium and long-term needs. So just to give you an example of that, in the near term, as the initial phases of large-scale projects come on stream, Enbridge is able to offer bridging capacity that minimizes capacity commitments by the customer. And then as production grows and as new phases are brought into service, we have the ability to expand our services up to and including transportation on a fully dedicated pipeline. This kind of flexibility is a direct result of having the most comprehensive system in the area that is very cost-effective expansion options in order to accommodate new volumes as and when they come on stream.

Much like the oil sands region, there have been numerous announcements in the US Gulf Coast ultra deep water in the past year. As you know, we have announced CAD750 million in new projects to connect both the Jack, St. Milo and Big Foot gas projects into our existing gas pipeline systems. As the primary transporter of ultra deep gas and a proven player in construction and operation of ultra deep facilities, we have an advantage when bidding on new projects in that area. We continue to focus on building out a significant asset base in the region and at the same time to leverage our gas expertise in an attempt to further expand our liquids transportation infrastructure in the Gulf, much like we did with the Big Foot oil pipeline. We see substantial opportunity for not only expansion of these systems to serve new customers, but expansion of our return on our existing systems as we increase the volumes with the new connections that are being made.

The third exciting growth area for Enbridge is the various oil and gas shale plays in North America. I'll begin with the Bakken formation where Enbridge is already the primary oil pipeline provider. I think we're all aware of the significant growth projections for oil and gas out of the Bakken. Even the most conservative estimates indicate tremendous potential for companies like Enbridge. We're actively working to expand our systems on both sides of the border. On the Saskatchewan side, we placed into service a large expansion in June of 2008, and we're currently in the midst of another CAD120 million expansion, which will add a further 129,000 barrels a day of capacity to that Canadian side. On the US side, we placed the North Dakota expansion into service on January 1st of this year, and this 51,000 barrel a day expansion has been full from day one. We have presented a number of potential capacity expansion opportunities to our producers and expect to secure anchor commitments that will support the next project in the near future on the US side.

On the gas side of the shale story, we're very well positioned to take advantage of infrastructure opportunities nearer within our current Texas footprint. So in the last few months, Enbridge Energy Partners has announced two separate projects. Of course, our East Texas assets are located very close to the exciting Haynesville shale play. We're also well connected in relation to the Montney play through our alliance pipeline, which is actively extending the reach of that system to better serve the growing gas play in eastern DC.

And just recently we announced a new potential project that would transport NGLs from the southern Pennsylvania and northwest Virginia areas of the Marcellus play to the Aux Sable extraction plant. I think you're aware the Aux Sable plant has approximately 20,000 barrels a day of excess extraction capacity that could be well served by this pipeline.

The final growth platform I'll speak to is our renewable or green energy opportunities. We've announced CAD1 billion in projects over the last seven months, and we believe there is substantial opportunities in this area due to government and public support of this gradual shift to a less carbon-intensive economy. We currently have interests in more than 560 megawatts of green generating capacity, either in operation or under construction, and we're actively working to secure additional projects which align with our risk reward profile. While Ontario offers a very favorable environment for investment in renewables, we're open to opportunities in other areas where there are favorable commercial churns across North America and we'll be looking quite broadly.

Our green energy business has also provided with us insight into opportunities in upgrading North America's electrical infrastructure. New electrical transmission and distribution infrastructure is needed to relieve transmission grid congestion arising from increased green energy power generation. Also, additional gas-fired generation will be needed and added to provide power when wind and solar are unavailable. And of course, all of these investment opportunities will be of interest to Enbridge so long as they fit into our tried and true investment triangle, which I know you've heard a lot about over the years.

I should also quickly mention one area of our business that will grow by improving the return on its capital. In 2009, Enbridge Gas Distribution was able to increase its allowed rate of return above the embedded regulatory rate by approximately 120 basis points to around 9.6%, and we're aiming to increase the premium above the embedded regulatory rate to more than 200 bps in 2010. So rate promise an opportunity there.

All of these growth opportunities, the 6 billion that we have already secured to come into service in 2012 and thereafter as well as the numerous opportunities we're actively working on, will allow Enbridge to achieve its target to grow EPS by 10% a year on average into the second half of the decade. In addition -- and Richard is going to speak to this in a little more detail shortly -- you can assume that cash flow growth will be even stronger than earnings per share growth over the same time period, and that puts us in very sound financial position.

Before turning the call over to Richard, I would also like to briefly cover the status of tolls on our main-line system. In the first quarter, Enbridge reached agreement with producers on the key turns of a new incentive tolling settlement, which as you know we refer to as ITS, on the Enbridge main line system, and we filed final tolls with the NEB. The new ITs is for one year, and is extendable if agreed by both parties. I think it's fair to say that Enbridge and its customers continue to realize significant benefits under the ITS agreement, which really reaffirms the advantages of working cooperatively and in partnership with our customers. In relation to the tolls for the Alberta Clipper project, the NEB has approved our interim tolls and has set a hearing date for this November to address our final toll applications and the challenges made by a few of our shippers in relation to inclusion of Alberta Clipper costs in our tolls. I think it's fair to say a hearing of this nature is standard procedure in the context of shipper complaints regarding a carrier's toll filings. Similar shipper applications made to the FERC challenging the Alberta Clipper tolls were rejected by the FERC near the end of the first quarter, and we're optimistic of a similar decision on the Canadian side.

That's a very quick review of what will drive our growth over the next several years. Let me now pass it off to Richard to review the quarterly results in a little more detail. Richard?

Thanks, Pat, and good morning, everyone. So picking up on slide 12 of the slide package for those that are following that. As Pat mentioned, earlier this morning we released our first quarter results and reported net income was CAD342 million or CAD0.93 per share. That's a decrease from 2009, where we reported CAD558 million or CAD1.54 per share. But of course, this year over year decrease was due to the 2009 year, including the one time gain on our sale of the investment in the Columbian pipeline, OCENSA, which played up a CAD329 million after-tax gain in the 2009 first quarter. Excluding non-recurring and non-operating factors, our adjusted earnings per share for the first quarter increased from CAD0.74 to CAD0.86 or 16%, and that's actually slightly ahead of where we thought we would be by this time of year and puts us in a very good position to meet our 2010 guidance range.

So let's walk through each of our segments in a little more detail. Moving on to slide 13. Liquids pipelines adjusted earnings rose CAD37 million, as compared to 2009. This 38% increase was primarily from recognition of AEDC on our Southern Lights project and within the Enbridge system from Alberta Clipper. The Enbridge system also benefited from a higher rate base as a result of placing lines into service last year, and from operating cost savings. The Spearhead pipeline increased, as well, as a result of the expansion, which was placed into service in May of last year. It should be noted that this quarter should reflect the peak of our AEDC earnings as Alberta Clipper came into service on April the 1st, and Southern Lights will come into service in July of this year. With natural gas delivery and services, results were slightly lower in the first quarter of 2010, primarily due to the sale and investment in OCENSA in Q1 of last year and a decreased earnings contribution from our energy service business, which performed well this year, but did not have the same level of opportunities as it did last year when the commodity markets experienced greater changes in the price of oil and gas, and that was allowing for more arbitrage opportunities.

On the positive side, within this segment, off-shore results were once again strong, and the contribution of Enbridge Gas Distribution was similar to the same period in 2009, even though the change in our customer billing practice where a larger portion of the customer's bill is shifting to a fixed component and a lesser amount will be variable, reduced earnings by approximately CAD7 billion for the first quarter. So earnings for EGD were flat despite that CAD7 million reduction from the change in the billing practice. And as you will recall, this change only affects the distribution of earnings across the year, as among the quarters, it has no impact on the full year on the bottom line of EGD. In fact, as Pat mentioned and as the first quarter would bear witness to, our full-year results from EGD should increase significantly from last year as we continue to generate cost savings, which in turn increase Enbridge's return to shareholders and also increase the savings we are passing on to our gas distribution customers.

Sponsored investment earnings continue to be very strong. Enbridge Energy Partners' contribution increased by 50% year over year, and this exceptional performance was the result of increased rates on April 1st of 2009 as a result of completion of Phase 2 of the southern access expansion as well as placing into service Phase 6, the Phase 6 expansion of the North Dakota feeder system on January 1st of this year, and that was ahead of schedule and on budget. As a result of this strong performance and Enbridge Energy Partners' confidence in its future cash flows, a CAD0.05 increase in the annual distribution was just announced. And this is very good news for Enbridge, as this is the first increase that Enbridge will be entitled to 50% of as a result of the partnership distribution level now being in the high split range.

Alberta Clipper US also favorably impacted earnings. The US portion of this project was completed late in the quarter and placed into service on April 1st, so the earnings that you see in the quarter reflect 67% of the after-tax earnings from the AEDC converted to Canadian dollars. And finally corporate costs were basically in line with the prior year and consistent with our expectations.

Before I hand it back to Pat, I wanted to spend a little time focusing on the strong cash flow growth we will experience over the next few years. The expected growth in cash flow will be larger than our expected growth in earnings, and that's as a result of the fact that our depreciation is expected to be higher than the maintenance capital on our systems following our significant expansions. Depreciation up, but maintenance capital not so much. Therefore, even as we maintain our earnings payout level at the midpoint of the 60% to 70% of earnings, our payout of distributable cash flow, which we define as funds from operations, less maintenance capital, is expected to decrease from its current level of approximately 45% to even less than that. This will allow Enbridge to self-fund all commercially secured projects as well as have the capacity to fund numerous development opportunities we have in front of us, which Pat mentioned earlier, and that without the need to access the equity markets.

Thanks, everyone, for your time, and I'll pass it back to Pat.

Great. Thanks, Richard. So let me just very quickly summarize. We're very encouraged, not just by our success in capturing a number of new projects, but by the increasing level of activity in the key resource basins and where we have a strategic advantage. Additional growth will also come from improving returns in existing businesses, such as Enbridge Gas Distribution. And as Richard mentioned, not only was this quarter very strong, but our cash-flow growth over the next few years will be exemplary and will provide Enbridge financial flexibility that very few companies will be able to match over that time period.

So with that very quick summary, let's move on to the Q&A session.

Ladies and gentlemen, today's question-and-answer session be held in two parts. First we will take questions from analysts, followed by the media. (Operator Instructions). And your first question comes from the line of Robert Kwan with RBC Capital Markets. Please proceed.

Good morning. Just in the offshore segment, when you first announced the Big Foot project was was letters of intent. I'm wonder what the state of the agreement is today and do you see any risk to the project in light of the oil spill?

First of all, let me just respond generally that from what we've been able to determine, Robert, the Chevron permits are valid, and that development will proceed as scheduled. As you know, it's early in the development of the issues in the Gulf to know longer term what the impact may be, but we don't expect there to be any impact on this project.

Is it a hard agreement, or is it still in the LOI stage?

It's still in the LOI stage at this point, Robert.

Okay. If you look at the dividend policy, you mentioned that dividend growth should follow earnings growth, and Richard, you mentioned with the AFFO growth the payout ratio would move down. Are you considering a modest move up in the payout ratio? Is that something you would examine? And if you would what are some of key factors that would cause you to make what I guess would be a semi permanent change?

We're comfortable with the range of 60% to 70% at this point, Robert. I think you can expect to see us in that range. We always assess the appropriateness of that range relative to our peers and investor preferences but at this point, we're comfortable with it. I think you can expect us to stay in the 60% to 70% range.

Thank you.

Your next question comes from the line of Sam Kanes with Scotia Capital.

Good morning, and congratulations on a strong quarter. This Marcellus NGL back-haul line, I guess, there's room for 20,000 barrels per day in Chicago to Aux Sable but that's an awful small line. Are you envisioning this that it could possibly roll out with the potential success of Marcellus into Sarnia, as well, backing and filling NGL requirements there as well? Or what would be the minimal size that makes economic fundamental principle sense in the context of pipelining backwards raw NGLs?

It's probably too early to tell in answering most of those questions. We're seeing, of course, in the Marcellus liquids-rich gas that logically positions us very well with regard to Aux Sable. That's what we're trying to capture with regard to announcing the potential project, to determine what level of interest we're able to firm up. The potential could be there to move it northward, as well, rather than over to Aux Sable but it's far too early for us to speculate on that. It would be small diameter in that the volumes are not likely to be large, at least in the near term, but still too early to be very definitive.

Second question, with respect to your increasing cash flow over earnings going forward, your post-2012, you're going to be in a great position here to get back in the acquisition market potentially again. You've been acquiring projects pre-construction in renewables. I'd imagine, based on your principles, you'd be agnostic given that your hurdle ratesare met, in that area or any other area, or do you have an increasing focus now within renewables in general? And specifically, is there any hypothetical logic for Enbridge to pull in the Enbridge Income Fund 28% minority as one of your competitors or colleagues did this week?

When we come to the Enbridge Income Fund, I'm going to ask Richard to comment on that. But let me just address your general point with regard to growing cash flow and therefore therefore well positioned for acquisition and further growth. I certainly agree with that. We're very pleased with the way now, as a result of the projects built over the last number of years, we see a very rapid escalation in that cash flow. As you probably know from our investor relations presentation we pretty much doubled cash flow over that five-year period. So it puts us in a very strong position.

We're open to looking for opportunities in any one of our key areas of development;. And as I mentioned, we obviously have got a lot of opportunities on the liquids side and see some significant future growth particularly in the oil sands region in the Bakken and on the gas side. They're very involved in the shale plays. We'll be looking at a number of opportunities there. Specifically your question around renewables, we continue to like the returns. They fit well in our investment proposition, and we do see a continuing number of good renewable opportunities coming at us. So we'll be involved. And possibly, as I mentioned in my remarks, looking at some areas that have come to our attention as a result of the involvement in the renewables whether it's gas-fired power generation or distribution and transmission to relieve some of the congestion that has become obvious.

Richard, can you comment on the income fund.

Sure. I don't think, Sam, there's any prospect that we will want to be buying in the minority. If we were going to have done that it would have been something we would have done instead of converting it to a corporation. So that was successfully completed on Monday of this week. The fund is well positioned. It's unit price is strong, and it does have its own organic growth opportunities. But it's well positioned to be able to continue to fund those effectively and continue to contribute growth to Enbridge through our 25% incentive share of cash flow distribution growth within that entity. So status quo looks pretty good.

Thanks.

And your next question comes from the line of Andrew Kuske with Credit Suisse.

Thank you. Good morning. Given the massive pipeline expansions that you've done over the last few years and what one competitor has done, there's been a significant movement in light-heavy differentials, which was somewhat predictable But when you think about the light-heavy movement and really that collapsing and what we're seeing in global refining markets with the new-age refineries being essentially a million barrels a day, and a lot of refineries in the US now being regarded as just generally small, how do you think about counter party risk? Secondly, the future movements accrueds, and really that light-heavy differential over time and how that translates into tolls?

There were a number of questions there, Andrew, and that probably could be the subject of a full-day discussion, which it actually recently has been with the management team. Yes, very significant changes in global refining. With regard to the counter party risk, the first part of your question, I'm assuming you were referring to counter party risk with regard to US refiners in light of the changing global refining dynamics?

Yes, that's correct, especially the smaller scale ones.

Yes. I think it's fair to say -- I'm looking to Vern in response on this -- that we carry very little exposure to downstream refiners. The majority of the toll paying and commitments are with our upstream producers. Vern?

That's correct. When we do have exposures to the lower-rated smaller refiners, generally we have significant credit assurance.

And so sorry, Andrew, give me the second part of your question.

So just on future movements, if we look ahead and there's a glut of excess pipeline capacity, export capacity, out of Alberta for a period of time, the Gateway foreseeable gets pushed off for a period of time, but can you give any commentary about the viability of that, and really with the light-heavy, how that translates into tolls?

Yes. So we continue to be comfortable with the economic case that can be made for Gateway, as are customers and shippers. And you're right. The light-heavy differentials have come in significantly. And probably will stay tight for a fairly long period of time due to the excess now of downstream, heavy crude processing capacity. And until we see a very significant uptick in production in western Canada, it will keep differentials very narrow. But we do see still a significant offshore premium for Canadian crude oil and the ability to move into another market and improve the negotiating leverage that Canadian producers have with their US customers and refiners. And we have undertaken third-party independent reviews of our theories around that pricing, and have also confirmed them with our customers, and the expectation is that the economics remain attractive of being able to reach the off-shore markets for that reason.

And then just finally if I may, the declines on the Enbridge system in Spearhead from Q4 to Q1, is that related to the line fill activities on Keystone? Or is that at least what you believe?

Let's see. Vern, or Colin.

It's Colin. So just looking in the highlights section of the news release, we've been referring to Spearhead volumes. 112,000 barrels a day, which is actually up from Q1 of last year.

And down from 129,000 in Q4 of '09.

It does vary a little bit with season and the various contracted shippers movements, but I think you can attribute some of that to the line fill issue.

Probably Keystone and Clipper line fill would be part of it, Andrew.

Okay. Appreciate that. Thank you.

(Operator Instructions). And your next analyst question comes from the line of Matthew AKman with Macquarie. Please proceed.

On Aux Sable you booked CAD7 million of earnings versus CAD6 million in the prior year. Just wondering if the CAD7 million reflects some holdback, as you usually do, until year end.

Yes, it does, Matthew.

Approximate magnitude?

For the full year, on a worst case basis, you should expect the Aux Sable earnings will come in in line with 2009. And there is still upside available to us beyond that.

Okay. Thanks. In terms of the capacity you have on Alliance pipeline, can you remind us how much capacity that is and when it expires?

Enbridge's capacity -- do you have that number, Vern?

Are you looking for Enbridge's capacity or total capacity?

Enbridge capacity, because you disclosed obviously in energy services, there's been a bit of downdraft on the value of the capacity that Enbridge owns.

We're going to have to get back to you on that one, I think, Matthew. Vern will have to give you a call back after.

Was it material in the quarter?

No.

Okay. Thanks. Because you talk about it in the disclosure. That's why I'm raising it. That's all I have. Thanks.

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

Hi. Thank you. The Bakken play is really obviously developed into a very large significant opportunity for you, and we're seeing some expansions around that. One of the regulatory principles in Saskatchewan prior to that was that the reserves weren't that great in the area, and as a result, there were incentives for companies or Enbridge to put in gathering systems, which you absolutely needed. I'm just wondering, with the development of the Bakken play, do you see any changes to the regulation there to reflect the change level of reserves?

I don't think there is any indication of changing regulation Bob, no. There's a great deal of optimism around short, medium and long-term. I haven't heard any indication of regulatory change. Richard?

I'm not aware of anything. There's a pretty hot competition between Saskatchewan and North Dakota on the Bakken, so I doubt that Saskatchewan would want to do anything to discourage further development on the north side on the border.

No. It was more or less on the pipeline tolls that they could actually come down given that there doesn't need the fast depreciation rate.

No, I rather doubt that. There's such a clamoring for incremental pipeline capacity right now, that I think the producers are doing everything they can to incent us and others to ensure that we have capacity in place for them on time and on budget. So I sure haven't heard anything that way, Bob, but I'll follow up on it and either myself or Steve will give you a call back.

Thank you. I appreciate that. Just a general question. On Gateway, you're in the process now. You had an agreement with some of the producers and refiners to fund that development work and CAD100 million. I'm just wondering if we're through that yet and what the process is if we go beyond that. Hard to be we can go through CAD100 million but I guess we can.

Yes. Richard, can you respond to?

Sure. We're not through the CAD100 million, Bob. That CAD100 million was intended to be sufficient to take us well through the approval process, not just up to the filing point. So we wouldn't have used it all up. It may ultimately require more than that to get to the finish line on the filing process but at the moment, we still have cash in bank.

Okay. Great. Thank you. One last question, Richard. On IFRS, have you made a decision on whether you'd go that way? We had one utility in Canada this week say they were going to go to US GAAP and avoid that IFRS issue, at least for now.

Yes. I noticed that this morning in your notes, Bob. But no. We're still on course, and our intent is to go the IFRS route.

With the caveat that we continue the monitor IFRS with respect to rig regulated accounting, which we expect will ultimately be resolved in a favorable direction but that's our course.

That would be great if it was. If not, have you looked at what impacts that might have given the difference we're seeing in rate regulatory accounting and IFRS and then referring to the balance sheet here?

Yes. We have looked at it. We've looked at it very closely, and we've also reserved the potential to go to US GAAP if we conclude that we're not going to get rate regulated accounting.

Okay. Great. Thank you. I appreciate that.

And your next question comes from the line of Petro Panarites with CIBC World Markets. Please proceed.

Thank you. Good morning. Just back to Aux Sable for a second. Can you give us an update, please, on the extent of the hedging you have in place for 2011?

We have about 25% of 2011 hedged right now, Petro.

Okay. So do you think you're going to step that up in the near term and lock it in given where frac spreads are? And suppose you did that today, what kind of year over year margin comparison would we see in '11?

As we look at that frac spread every day and look at whether we want to lock it in pretty much on a daily basis, right now, if we were to lock in '11, it would be slightly below where we are in 2010, so we haven't found that to be attractive quite yet.

Okay. Thank you.

And your next question comes from the line of Steven Paget with FirstEnergy. Please proceed.

Good morning, everyone. On possible gas-fired transmission trends and distribution investments, would these be long-term tolling arrangements or power purchase agreements, and where might these be located?

Very early to say, with regard to the latter part of it. We just have noticed some opportunities, as we think most have and the market has in general, with regards to areas of congestion as a result of a lot of the renewable development, and they would not be merchant. They would be long-term agreements very similar to and fitting within the Enbridge investment proposition.

And located somewhere in North America then?

Yes. Sorry. That would be in North America.

Okay. Thank you.

And your next question comes from the line of Sam Kanes with Scotia Capital. Please proceed.

It has to do with your commentary that oil storage and transportation margins were down. Could you describe, with the progress of what's happening in the oil sands, how long of a cyclical low you're expecting? Is it a supply and demand classic commodity storage until such time as demand exceeds supply again, or how does that roll out or perhaps some kind of color to that would be helpful?

Sam, are you referring to the light-heavy differentials?

No. I'm referring to your own infrastructure, at least that's how I read it in your press release. Maybe I read it wrong.

Vern, can you respond?

Sam, I think you're referring to the quarter over quarter gross margin at the energy services.

Yes, I am.

2009 was an exceptional year for that group, because there was a tremendous amount of contango in the market in the first quarter of 2009, so we were able to effectively book significant profitability without taking any risk just through the contango and the curve. That's pretty much the bulk of the difference between Q1 2010 and Q1 2009.

Okay. So it's not a supply and demand thing. It's just simply the curve has flattened out relative to opportunities?

Yes.

Got it. Congratulations to your Clipper coming in on time on budget. Could you give a very brief overview of everything else that's going on in progress on time, on budget? Any underrun potential or overrun for that matter for all of your other projects?

I think it's fair to say that on everything we're involved in, we're either on or under budget. And Vern is just having a quick scan through.

Southern Lights expected to come into service in July. So it's well ahead of budget, in terms of time schedule.

And I think Clipper US is coming in at or slightly under budget. So I think things are looking very good on that front, Sam. We think back to the time when we've reorganized and established that major project management function in order to ensure that we had very effective control on the scheduling and costs on that huge capital program that we had underway, and we're very pleased with the way we set that up, and the outstanding work that group has done in keeping us on schedule and on budget.

Yes. Remember the issue with Moody's. Last for me, IFRS, we're going to shift to some form, if we have presentation a year from now, and if you do move forward with IFRS, would you show cash flow -- cash flow is cash flow. I would imagine, in terms of restructuring your presentation to the investment community, you must have some thoughts on that now. How would it look in Q1 '11 in terms of presentation?

Thanks, Sam. Yes, precisely. The cash flow is cash flow under any of these GAAPs whether it's IFRS or US GAAP or Canadian GAAP. So that's important to remember. Presentation-wise, there may be a few balance sheet extra lines. Things like pension assets or derivatives, things that are broken up in their own lines, but by and large the financials should look pretty similar to what you're used to. Any nuancey things we'll try to break out for the investment community in our NB&A and adjusted payable. And you'll likely see enhanced disclosures consistent with what the experience has been elsewhere in the world so far in the IFRS. Does that help?

Yes, it helps.

And your next question comes from the line of Linda Ezergailis with TD Newcrest. Please proceed.

Thank you. Just a follow-on question from Steve's with respect to your renewables. Would potentially a corporate transaction serve to bolster growth in your renewables, or would you see direct investments in assets and projects as more attractively valued?

Generally speaking, the latter. We see the investments at the project level to be most economically attractive at this point in time. That doesn't mean to say that we wouldn't do a corporate acquisition on the renewables side, but generally speaking, it has worked best to come in and buy at the project level. We've had very good success in doing that. So that tends to be where we're looking most right now.

And geographically in North America, that's a pretty broad scope. Are there any highlight regions that are of most interest to you?

It's easy to narrow down in the renewables business, because you tend to go where the state or provincial incentives, either through feed in tariffs or some level of subsidization make the projects economic. That's obviously screening criteria number one. Number two, we like to be as close as we can to our existing operations. We're prepared to step out from that for the right opportunity, but we do like to operate these facilities, and hence, as you know, we've tended to cluster them around existing Enbridge operations. The incentive structure, the government incentive structure is probably the most critical part of it.

And where would you have build opportunities for transmission and distribution without buying into an existing utility franchise?

On that issue, I would suggest that more likely it would be a buy into existing rather than a greenfield, and we would be looking for some expertise in getting started in the business. I thought you were referring to the renewables as in wind and solar where we tend to buy at the project level rather than corporate level.

No. I was. I was referring to that. Okay. Thank you. Just a follow-up accounting question maybe for Richard. Can you confirm that your first quarter earnings on your Enbridge System were booked to reflect the new ITS agreement as well as reflect the original 2007 proposed tools on the Alberta Clipper Canada?

Colin, can you help me with that one?

The answer is yes to both, Linda. Clipper entered service April 1, so it's not a Q1 issue in any way. Yes. I think you have it right.

Okay. Thanks.

Next we will take questions from the media. (Operator Instructions. And your first media question comes from the line of Carrie Tait with the National Post. Please proceed.

Good morning. Thanks for taking my question. I just have two big picture questions. I'm hoping you can expand a little more on what you think the fallout in the Gulf of Mexico will be following the spill?

That's really hard for me to comment on at this point. As you know we're not a producer, driller and operator, and hence, I think I best leave that comment to any one of our customer companies around town who would be more knowledgeable. So it would be very hard for us to tell at this point.

And my second question, I'm just wondering what steps you're going through right now to get your Gateway opponents on side.

We're working very closely with land owners and interested parties right across the extent of the system. And in constant consultation, working with them to try to make them aware of the opportunities available to them as a result of Gateway, and to try to address concerns that they might have with regard to the environmental issues around a major construction project like this, and the off-shore tanker traffic. So I won't say we're in constant meetings, but we certainly are in weekly meetings with various interest groups across the entire system.

Are you finding that there is one specific area of concern that you keep bumping up against, or is it just more general, just say no blanket approach they're taking?

I think the primary concern, as we see it, is oil tanker traffic off the West Coast. That is the primary issue, the one that's brought to our attention most often.

Okay. Thank you.

And your next question comes from the line of Jeff Lewis with Venture Publishing. Please proceed.

Hi, gentlemen. Thanks for taking my call. I just had a couple quick questions again with regard to the Pacific exports. First, what signals or interests have you received from upstream producers that they'd like to see this project go forward? And secondly, I was hoping you could talk about how involved Chinese refiners or other Asian receivers of product are in getting this project off the ground.

Jeff, to answer the first part of it, probably the most obvious signal we have from upstream producers, in addition to just general support, is the fact that they're providing this CAD100 million worth of funding that was referred to in order to take the application through the approval phase. I think that represents a pretty big commitment from them, and it gives them the right up to 50% of the capacity on the pipeline, as well. We see strong engagement from that group and strong support for the concept. That's the most obvious and quantifiable signal. Obviously, we continue to have discussions with producers. And find strong support even from those that aren't in the group.

Secondly with regard to downstream and Asian refiners, we do have interest. The way I have phrased that in the past is we have interest all the way from Japan to Singapore and various points in between. We're not able to disclose the signatories to the sponsoring support packages that we have, but it is broad Asian support for the project.

Okay. Can you disclose who's behind the CAD100 million?

No, we can't. It's subject to a confidentiality agreement. I'm assuming that at some point during the two-year regulatory process with the National Energy Board, that that would be disclosed.

Okay. Thank you.

And this concludes the question-and-answer session of the conference today. I would now like to turn the call over to Mr. Vern Yu for closing remarks. Please proceed.

Thank you very much, everyone, for participating today, and I'd just like to remind you that both Pat, Murray and I are available now for any other follow-up questions. Thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.