恩橋 (ENB) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Enbridge, Inc., Second Quarter 2011 Financial Results Conference Call. I would now like to turn the meeting over to Guy Jarvis.

Thank you and good morning, and welcome to Enbridge Inc.'s Second Quarter 2011 Earnings Call. With me this morning are Pat Daniel, President and Chief Executive Officer; Richard Bird, Executive Vice President, Chief Financial Officer and Corporate Development, and John Whelen, Senior Vice President and Controller.

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

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 and pod cast of the call will be available later today, and a transcript will be posted to our website shortly thereafter. The Q&A format will be the same as always. The initial Q&A session is restricted to the analyst community and once completed we will invite questions from the media. I would also remind you that Jonathan Gould and I will be available after the call for any follow-up questions you may have. At this point I would like to turn the call over to Pat Daniel.

Thank you, Guy, and good morning everyone. Thank you for joining us for this review of our second-quarter results. As you know, earlier today we were pleased to announce our adjusted earnings for the second quarter of 2011 of CAD260 million or CAD0.35 a share. Then on a six-month basis, that's CAD594 million, or $0.79 per share to date, compared to $0.31 and $0.75, respectively, for 2010, so very good progress.

Based on a solid first six months, we're confident that 2011 is going to be another strong year for Enbridge, and we're now looking to be in the upper half of our 2011 guidance range of CAD1.38 to CAD1.48 post-split.

Richard will walk you through the results in a few moments but first what I'd like to do is update you on what is an extremely busy and very exciting time at Enbridge. So 2011 is shaping up very well, and the longer-term picture is even more remarkable for the Company. Throughout the organization we have approximately CAD6 billion of new projects which have been commercially secured, and all of which should be in service prior to the end of 2014. And beyond that, we have more attractive opportunities under development across a broader panorama of asset types than ever in the history of our Company.

As you may recall at our Enbridge Days conference last Fall, we identified several areas of promising opportunities that we intend to focus on, including of course, oil sands, regional pipelines, the Bakken area, extensions of the crude oil main line. Shale gas gathering and processing, and green energy, along with some targeted new business platforms, including international assets, an entry into the Canadian midstream business, gas-fired power generation, and power transmission. I'm very pleased with the progress being made in all of these areas, so stay tuned for further news as we go forward.

In addition to this level of activity, we're pleased to report continued progress in the regulatory review of the Northern Gateway pipeline project. The joint review panel issued its hearing order during the second quarter, and that really sets the beginning of the formal hearing process for January 2012. We're pleased with the scope of the public hearings, which clearly meets the widely expressed desire for a full and open review of the project. The JRP is going to test the merits of our proposal and it will hold Enbridge to the highest standards. We have confidence that it will render a decision that is and will be seen to be in the best interest of Canada.

Northern Gateway will bring Canada's energy resources to the booming economies of the Pacific basin, while delivering sustainable local and regional prosperity to northern Alberta and northern BC, and national economic advantage for all Canadians, because it truly is a Canadian project.

In conjunction with Northern Gateway proceeding to the next stage of its development cycle, and with the very active growth program that I've mentioned throughout the balance of the Company, I've this morning announced a series of organizational changes designed to further strengthen the Management team's ability to execute on our growth plan, while at the same time ensuring the highest standards of attention to the safety and integrity of all of our operations.

Effective September 1, Janet Holder will assume the new position of Executive Vice President, Western Access; and in this role, Janet will be responsible for the overall leadership of the Northern Gateway pipeline project. Originally a native of British Columbia, Janet will relocate to BC in the fall. As you know, Janet is currently President of Enbridge Gas Distribution.

Guy Jarvis, who as you know is on the call with us this morning, is going to relocate to Toronto to succeed Janet as President of Gas Distribution, and Jody Balko, who is Currently Vice President, Human Resources, will succeed Guy as Vice President of Investor Relations and Enterprise Risk.

Before I hand the call over to Richard, I'd like to take a moment to just update you on our ongoing cleanup and remediation activities in Michigan, stemming from the leak we experienced one year ago. I was in Michigan a little over a week ago to get an update on our progress. Many of you remember that our second-quarter call last year took place from the incident sites in Michigan, as we responded to the spill. That was the beginning of some very challenging days, not only for Enbridge but for the community that was affected by that spill. Since that time, there's been significant progress and our work to restore the area continues.

At the end of July, the re-assessment of all potentially affected portions of Talmadge Creek, the Kalamazoo River, and the over bank areas is complete and these results, along with other data, will be used to guide any future cleanup and remediation efforts, as well as aid local health officials in determining when the river may re-open for recreational use.

As noted by the US Environmental Protection Agency in late June of this year, submerged oil exists and is concentrated in three primary locations along the river. Enbridge is required to have all identified submerged oil removed from the river and Talmadge Creek by August 31 of this year and we're working very hard to meet that deadline. Once we've met that requirement, we'll continue to monitor submerged oil and develop recovery plans going forward. We've committed since the outset of this incident to restore the area as close as possible to its pre-existing condition and we remain fully committed to that goal.

So with that brief update, let me now turn it over to Richard to review the second quarter financial results in a little more detail. Richard?

Good morning. Picking up on slide seven, as Pat mentioned, our second quarter was a little ahead of our expectations on the whole, so with two strong quarters under our belt now, we are guiding to the upper half up our original guidance range, which on a split basis and rounded was a CAD1.38 to CAD1.48 per share. So now CAD1.43 to CAD1.48 for the year.

Although we're looking at another strong year overall, the picture does vary from business to business, so starting with liquid pipelines, the Canadian mainline system performed well as we transitioned from the interim incentive tolling settlement to the new CTS, with the higher tolls over prior year more than absorbing operating cost escalation. This bodes well for the second half of the year in this is sub-segment.

The Oil Sands Regional System remains a source of strength, and we expect this to continue. Southern Lights is off from the prior year, that's because of temporary lease income. It was earning until May 31 last year on the new Light Sour line, which was then transferred to the main line. So this dip was something we were expecting and earnings will be steady from the sub-segment going forward.

Spearhead had a very weak quarter as low crude prices at Cushing depressed shipper interest in using the line to an even greater degree than we had expected. Part of this through-put shortfall is on committed volumes for which shippers have still paid the toll but which we won't recognize as revenue until the future period when their makeup writes expire. So the picture's not actually as weak as it looks on the face of it.

For liquids pipelines as a whole, though off for the quarter, we are running a little stronger than anticipated, and we now expect to hold this and improve on it for the balance of the year. Gas distribution is performing well on a year-over-year basis, and that's consistent with our expectations. Gas pipelines, processing, and energy services is quite a varied story.

Offshore earnings are much weaker than expected, and even in the red, due to a continued lag in drilling coming back up to speed following Macondo. We are going to continue to see weak results from this business until the Walker Ridge, Bigfoot and Venice stabilizer projects, with their much more favorable commercial arrangements, come on stream.

Aux Sable results continue to reflect favorable frac spreads, most of which has been locked in for 2011 at this point, with the remainder unlocked in position, benefiting from the very strong spot spreads that we're seeing. Results here are ahead of expectations. Energy services also turned in a much stronger than expected performance for the quarter. The huge crude price differentials between the mid-continent and any market that's pricing off of the Atlantic basin are affording substantial locational arbitrage opportunities in this business.

So together, Aux Sable and Energy Services are more than offsetting the weakness in offshore, and on the whole, this segment looks like it will meet or slightly exceed our original expectations for the year.

Sponsored investments in corporate are running on track with expectations. Relative to original guidance, the upward trend is coming primarily from liquids pipelines, which we now expect to be up year-over-year rather than down.

Moving to slide eight, the only other matter on the financial front for the quarter that I'll call to your attention is our latest actions on the financial risk management front. As most of you know, we have been heavily hedging our US dollar exposures and our interest rate exposures in recent years, preferring to de-risk the earnings and cash flows in our five-year plan on these two factors. The new CTS agreement created a significant shift in our market price risk exposures on several fronts. These included power prices, allowance oil prices and main line interest rates, all of which we have now fully hedged at attractive rates.

However, by far and away, the greatest financial risk exposure from the CTS is our increased exposure to the US dollar because we now effectively collect toll revenue on the Canadian main line in US dollars. Fortunately, a brief window of attractive forward swap rates opened up in the late in the quarter, and we were able to lock in about $4 billion of CTS US dollars or a little over 80% of the exposure over the period through 2015 at rates that start at CAD0.96 per US dollar for the second half of this year, and increased to CAD1.025 per US dollar for 2015. So this takes the exposure largely out of play at rates consistent with the assumptions built into our CTS modeling.

All of this reinforces our confidence in achieving our target growth rate in EPS of an average of 10% per annum through mid-decade. With that, I'll turn it back to Pat.

Great. Thanks, Richard. Just to very quickly summarize, the second quarter was a strong quarter financially, as Richard has just indicated, and we are shaping up for a strong year again, in the upper half of our original guidance range. Our longer-term prospects are also increasingly promising, and our business develop progress, combined with initiatives like the competitive toll settlement, really does reinforce our confidence in our ability to deliver an average annual EPS growth rate of 10% from now right through 2015. So I think with that very quick summary, we can go to questions.

(Operator Instructions)

Your first question comes from the line of Linda Ezergailis with TD Securities. Please proceed.

Thank you. I have a question with respect to your Spearhead pipeline system. I'm wondering what the deferred committed capacity earnings would have been in the quarter, if you would have recognized them? And when do those makeup rates expire?

John or Richard?

It's about CAD5 million, Linda, that's effectively un-booked earnings that will carry forward, a little more than that, and about CAD5 million of that will pick up at the third quarter.

I'm sorry, you said CAD5 million un-booked in the quarter and you'll pick up all of that in Q3?

Yes. Slightly more than CAD5 million for the quarter and we'll pick up CAD5 million in the third quarter.

Okay. And what is the outlook for volumes on Spearhead? Should we expect continued weakness, maybe until the Brent WTI spread narrows? Can we assume, then, that this dip is temporary? Because if you're maybe lagging one quarter in terms of picking up those committed earnings, then it should be more stable run rate going forward?

I think those are all reasonable assumptions.

Okay. Is it reasonable also to assume that the Toledo weakness was somewhat one-time, and that any integrity work going forward shouldn't affect that system?

That was driven by the integrity work on 6B, and although we're not all the way up to pre-martial capacity on 6B, I think that's largely mitigated at this point.

Great. Thank you.

Thanks, Linda.

Your next question comes from the line of Juan Plessis with Canaccord Genuity.

Thanks very much. Congratulations on a strong quarter. With regard to Enbridge offshore pipelines, I'm wondering if you can give us a bit of color as to what's going on there, and if or when you expect the drilling activity to resume to a level that brings that business back to profitability?

Well, one, I think the general issue is one that most people are aware of, and that is the result of the incident a little over a year ago and now in the Gulf there was a significant slow-down in drilling, and we relied on that drilling in part to offset natural declines in the Gulf. So if you take away not only new exploration drilling, but also infill and development drilling, you start to realize the decline in throughput. And that's really what has impacted throughputs on the existing system.

We are seeing now a return to drilling. As you know, it's been rather slow, but we remain very confident in terms of the long-term prospectivity of the Gulf, and we also were very pleased with our relative positioning in the Gulf. So longer-term we're patient. We feel that the asset will be a very strong asset, but it'll go through some very challenging times while that drilling rig comes back up to normal.

Okay, thanks very much.

Thank you.

Your next question comes from the line of Carl Kirst from BMO Capital. Please proceed.

Thanks. Good morning everybody. Nice quarter. Pat, you obviously had some good things to say as far as the initiatives underway, and understanding -- you can't say things before their time. As we look at the different new initiatives from international, Canadian midstream, and like, you were indicating progress on all fronts and stay tuned. Is there any one particular area that is progressing faster than another that we should be aware of? And when you say stay tuned, is this something that seems to be on sort of a few months worth of baking, or is this still perhaps a year-end or 2012 type of additional color?

You ask good questions and challenging questions, Carl. First of all, pretty much on every front that I mentioned, and that's why I itemized them the way I did, I'm very excited by the diversity and the variety of opportunities, and many of them are coming very close to the point of us being able to proceed and look highly prospective. So when I say stay tuned, don't turn your radio off until the end of the year. We hope to be out with some of these initiatives before that, but as you correctly pointed out, there's not much more we can say other than to convey a high degree of optimism that you're going to see a number of new things coming forward from us in the very near future.

Great. And maybe just one follow-up for Richard. Once the -- and assuming, I guess, the Enbridge income fund, the renewables drops closes, can you refresh our memory as to what the Enbridge equity cushion would be, sort of at the end of the five-year planning period?

Directionally, I can do that. It's become such a big number that we stopped calculating it on a regular basis, so it is -- it's roughly in line with the last number that we would've given you, plus the additional surplus that comes from that drop-down transaction. That surplus, I think, is about another CAD300 million of equity we generate through that transaction.

It's running at roughly the same number as the last time we quoted, which my memory is vaguely recalling to be in the vicinity of CAD3 billion. Because as we add new projects, we're also rolling prior projects off and rolling the cash flow horizon ahead, so that equity cushion becomes sufficiently ample that it's not something we're really focusing on much anymore.

Fair enough. Thanks, guys.

Thanks, Carl.

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

Good morning. This morning NewStar and EOG announced that they were joining up to build a 70,000-barrel-a-day rail offloading facility for Bakken, Eagle Ford, and other crudes. Are there others things that Enbridge could do to capture some of these crude movements that the rails seem to be getting?

Well, the answer is definitely yes to that, Steven. As you know, while I wasn't aware of the specific announcement that you mentioned this morning, but as you know, we have and continue to expand our Bakken pipeline capacity and terminaling capacity very rapidly. It's been a challenge to keep ahead of the curve in the Bakken because of the rate of new exploration and development.

Also, of course rail provides a relatively low-cost early entry into the transportation business. Long-term, we can definitely beat rail in terms of toll and reliability, so we're very confident that even though these rail facilities might get put in place initially, that all that is a precursor to even more pipeline opportunity down the road for us. So we're building out very fast. Our BPEP program is under way now, and we'll add additional capacity out of both the Canadian and US Bakken.

Okay. Thank you. I'll jump back in the queue.

Okay.

Your next question comes from the line of Matthew Akman from Scotia Capital. Please proceed.

First of all, I wanted to extend my congratulations to Janet and to Guy on the new roles. My questions are just on a few of the business areas. First, on renewable, I'm just wondering, since we haven't in the very near term seen any new announcements on project development, and given the transfer into the income fund, whether the kind of rapid expansion that took place in that business sort of 2009, 2010, is starting to taper off?

And the answer to that is no, Matthew, and stay tuned.

Okay. So it's still a significant part then, Pat, of the strategic organic growth plans of the Company?

Yes, it is, and I remember your questioning and comments at our Enbridge Day conference with regard to it, and yes it definitely is. As we indicated at the time, our intent is to diversify our geographic base there. That really started with the move that we made at Cedar Point in Colorado, and we've got some very promising initiatives under way that will further broaden out that geographic base in renewables. It definitely is part of the excitement that I was referring to earlier of opportunities that are under way and close to coming to fruition.

Okay, thanks for that. My next question is on the offshore piece, and I'm just wondering whether you could let us know whether Walker Ridge, when it comes on line, would improve the base earnings of the existing pipelines, or is it just expected to add earnings based on a return of that particular capital investment?

Well, I believe it's the latter, that it will provide only on that invested capital. I'm just trying to remember the interconnect on Walker Ridge as to whether it connects into existing infrastructure. Richard or Guy? Okay, so there is some contribution to existing?

There is.

Okay. My last question is around Noverco, and what the subsidiary companies are doing, and Gaz Met's venture into Vermont and so forth, and your increased stake in Noverco. I'm wondering whether Enbridge is really getting involved in this stuff from a strategic thrust standpoint, in terms of acquisitions of distribution utility in the US, or are you at arms length from that? Is this sort of an intentional strategic direction for Enbridge, or are you more passive in that?

I'm going to ask Richard to comment on that, Matthew, because he sits on the board, and in a way that probably answers the question because we are actively as a result of our board participation, but Richard?

That's correct. Enbridge is represented, not just on the Noverco board, but also on the Gaz Met board, and we certainly bring to the board discussion a view on the strategic direction of Gaz Met. We're not the only contributors to that discussion, but we are a significant contributor to that discussion.

It just seems a little bit maybe out of step with the Enbridge general direction in terms of investment returns overall. And I wasn't an inexpensive deal.

No, it wasn't an inexpensive deal. But in that particular case, Gaz Met through its existing asset base in Vermont, which is quite substantial both on the gas side and on the power side, is in a somewhat unique position as acquisitions go to capture synergies that you wouldn't see in most step-out acquisitions of that kind, so I believe it will still be a very attractive return for Gaz Met and for the partners in Gaz Met, which includes Enbridge, indirectly through Noverco.

Thanks very much, those are my questions.

Thanks, Matthew.

Your next question comes from the line of Ted Durbin from Goldman Sachs. Please proceed.

Thank you. My first question is, the Enbridge LP mentioned that there were some interruptions on some upstream production facilities that impacted volumes. I'm wondering if you can talk to that on your side, how much that impacted your financial results?

Yes. Those were weather-related interruptions due to the very hot weather in Texas, and the impact of that would have been, of course, through the incentive mechanism in the 27% interest, but because the impact was very small at the EEP level, it was even smaller at our level. I don't know whether John, Guy or Richard, you can quantify that. But it was relatively small.

I'm not sure, was the question with respect to our G&P business, or our liquids pipeline business?

On the liquid side is what I was talking about.

Okay. So I think that's CNRL plant that's been down, and is either -- Suncor was on turnaround. Yes, I think CNRL is back up now, or If they're not, they're pretty close to it, so there would've been some impact of that on our results, but not hugely significant. Going forward under CTS, that kind of thing will have a more significant impact.

Got it. Right. Makes sense. Then it looks like on the insurance side, you renewed your programs there. Can you just talk about where the rates came in versus where they were before? I know you talked about potentially self-insuring what went into the decision around maybe not self-insuring? And if the rates are higher, can you somehow seek some sort of recovery from customers?

Guy, can you --?

So I guess the first part of your question is, in terms of that particular liability policy tower that we had in place previously and looking to renew it, we never really seriously considered self-insuring along that Avenue. We were pretty confident that we were going to be able to replace the bulk of the tower, which we did. Clearly, not only with our own leaks last year, but with other energy events and issues impacting the insurance market in general, the costs were, relative to what the premiums were prior to this renewal, the costs were up substantially, but yet on an Enbridge-wide basis not material to the financial results.

In terms of passing that additional cost through, it would be very marginal and it wouldn't have an impact on us.

Okay. That's helpful. Just a last question on the Prairie Rose deal here. I had thought of Alliance as being pretty full the way you described it. Maybe that was just contractually, is there actually physical room to move more volume on Alliance here to get down to Aux Sable?

It's John Whelen. Yes, there is -- they upped they maximum allowable operating pressure up several years ago, which created the capacity to move more gas downstream in the US, and that's some of the capacity that they're utilizing to accommodate volumes coming off of the Prairie Rose.

Okay, great. That's it for me. Thanks.

Thanks.

Your next question comes from the line of Robert Kwan from RBC Capital Markets.

Good morning. Just first question on Monarch. Just wondering if there's an update, I know in the past you've said there's room for a couple of pipes, but the space maybe is become a little bit more crowded with Excel EE and then the smaller Magellan proposal, and indirectly, Longhorn. So just wondering where Monarch's at, and if you can provide some color on that?

Yes, Robert. We're still pleased with the progress that's being made, and definitely feel that there is room for -- well, I think it's pretty obvious that there's room for additional pipeline capacity from Cushing south -- and we have broadened our focus a little bit with regard to Monarch to look at, as a result of having the CTS agreement in place now, and the stability of tolls that offers for our customers, in offering a service that effectively represents expansion from Flanagan all the way through, including the Monarch South section. So I guess you could say we have a Monarch North, which is Flanagan down to Cushing, and then a Monarch South initiative underway.

We're currently out discussing that with potential shippers. We've been very encouraged with the initial discussions that we're having on the prospects of being able to move crude all the way through. We're finding that shippers are wanting to concentrate on movements from Alberta or from the Bakken all the way through to the Gulf, rather than just the Cushing South part, so we're quite encouraged by this, and are in the midst of the process right now of reviewing it with potential shippers.

So is it fair to say that where some of the other projects are focusing on mid-continent producers, you're kind of trying to work a little bit more of the Cap and maybe Bakken producers for a full-path solution?

I think it's fair that we're looking at an offering to customers where they've got a huge variety of alternatives for delivery options, being able to deliver into Minnesota, into Chicago and region, into Cushing, if they so choose, or all the way to the Gulf, and it's that flexibility around those delivery options that really holds the appeal.

And when would you expect to go into a binding open season?

We don't have a date set for that, but I think it's fair to say that this issue is going to come to a head in matter of certainly months and not years, because of the immediacy of the challenge from Cushing South.

Just the other question on Fort Hills disclosures. I'm just wondering if you can refresh the remaining unsubscribe capacity for Athabasca and Waupisoo after the expansions. Ultimately the question is, can you accommodate the Fort Hills volumes without a new system?

I'm going to turn to Guy to see whether you're able to quantify those numbers? We may have to get back to you on that, Robert.

I think rather than speaking specifically to Fort Hills, we can talk a little bit more broadly in the context of a view that suggests we think, and are planning that we will probably be building some new pipeline out of that region by the 2015, 2016 timeframe, based on indications of what we're seeing, not only from Suncor, but from others in the region.

So is kind of what you're saying that you're pretty much fully subscribed on Waupisoo and Athabasca with the expansions, and the idea of sequencing, getting people off of those lines onto dedicated lines, maybe it's not really working out the way you might have originally anticipated?

It's Richard. Robert, I'd say part of what you said is correct, that the recent expansions that have been announced on both those pipes are to accommodate commitments that we've got, and those commitments pretty well fill up the capacity. But the sequencing concept is by no means gone. We still expect, as Guy was mentioning, that we will be reaching a point with some of our existing customers where their volumes reach a point where they need their own dedicated pipe systems, at which point we will construct new facilities dedicated to them, and that will free up capacity on the existing systems to continue to pick up incremental volumes from new projects.

Okay. That's great, thanks very much.

And I might just come back just briefly on your Monarch question and Pat's answer, and that's just to point out that once we're looking at a Monarch North and a Monarch South solution, it does bring into play the CTS international joint toll feature that we've talked about previously as an additional tool in our tool kit, to make that kind of a solution attractive to shippers.

Your next question comes from the line of Andrew Kuske of Credit Suisse. Please proceed.

Thank you, good morning. I guess it was about almost 10 years ago when we saw the Enron debacle and then really a de-leveraging in the industry being mandated in large part by the credit raters. Do you see similar conditions in place today with effectively banks having to de-lever and higher capital commitments, countries having problems, obviously interest rates are unbelievably low right now, spreads are widening in general for some corporates, not all corporates, but for some, So do you have any thoughts and feelings about just the industry having to go through a de-leveraging process?

Well, Andrew, let me start out on that, and then I'll ask Richard or John to comment as well. Having lived through that wonderful experience a decade ago of the de-leveraging as a result of the Enron situation, as you know, that was very -- well, quite industry-specific. We found ourselves caught up in this situation where the rating agencies were all over us, almost disbelieving the Enbridge business model at the time and assuming that we had to have a lot of marketing and trading underlying our base business, was of course never was the case with Enbridge.

We went through a de-levering at that point. We sold our energy services business to help bolster up the balance sheet, and it was very industry-specific with a huge amount of attention directed at us.

Right now, as you are implying, it is much more a financial institution de-leveraging and an improvement in capital ratios that we're seeing on a worldwide basis, and it hasn't been that industry-specific to our industry. But I'll maybe ask Richard or John as a result of conversations with the rating agencies whether there's been any indication that it might impact us more directly.

Sure. So I think it's pretty much as Pat said. We're not seeing anything on the rating front that would suggest that they're looking to us to change our capital structure in any significant way. I think, however, the concern would be not so much on that front, but just the availability of capital going forward, given the generally fragile nature that we see world capital markets being in, and so you will see us continue to follow our usual conservative strategy in that regard of making sure that, if anything, we've got a little excess dry powder available to us.

You'll see actions like the drop-down that we've talked about, adding CAD300 million of equity, assuming we get that through in the next little while. You'll note in our MD&A that we've upped our lines of credit by CAD0.5 billion, that's something that closed yesterday, and you can expect to see continued capital bolstering activities that we'll be undertaking over the next little while as our plan unfolds, just to make sure that we've got that robust financial capability in place.

That's very helpful. I ask the question in part, because when you look out to the future you've got a very large amount of cash flow that you'll be able to redeploy into really multiple opportunity sets. Just how should we think about that from a capital structure standpoint on future investments? Is it really more of the same and business as usual, or are you becoming a bit more conservative on the capital structures you're going to use to under-pin a few future investments?

Well, generally as we're moving forward, you are correct, we are seeing more cash flow and we're generally seeing our credit metric strengthening as we're going forward as a result of that. And that is consistent with our discussions with the ratings agencies. They've given us a bit of room to maneuver in the last few years, but they and we are both looking to that increase in cash flow to reinforce those ratios moving forward. So I don't think any change in overall structure or philosophy, so much, as just the natural evolution of putting those big cash-flow generating projects in place, and then beginning to reap the benefits of that.

And if I may just ask one follow-on question, and it relates to just the Canadian dollar versus the US dollar, and given the hedges that you've just put in place. Do you see it now as being a great time to invest capital into the US, especially as a predominantly Canadian company, and a Canadian dividend payer, that if we see a normalization of the US dollar over a period of time, that there's really a natural lift and appreciation in value of any US asset?

Pat's looking at me, so I guess that's for me to answer. I think the US is still a great place to invest selectively in the kinds of things that we would invest in. I don't think we would follow an approach which is implicit in your question, Andrew, which is counting on the future appreciation of the US dollar and devaluation of the Canadian dollar to make an investment like that work.

Our approach is typically to substantially hedge that exposure, so as we roll into new assets and perhaps our Cedar Point wind power project would be an example, basically as we spend the US dollar we hedge out about 80% of the future cash-flow stream associated with that US dollar. So we're relatively impervious to potential recovery in the US dollar, or further devaluation of the US dollar, whichever way it might go. We have some views on that, but we don't really follow a view-based strategy on that.

Andrew, just to kind of bring that back to our overall development strategy, which of course has been very North American focused until recently, where we started looking at international opportunities again. The great thing about the North American playing field is you can pretty much set aside the border and look at where the opportunities are, either in terms of supply growth or demand growth and plan your strategy around that, and then leave to Richard and the financial guys the hedging strategy to ensure that the currency is not a relevant issue there.

So it's not a case of us saying well, assets are cheap in the US, let's go after the US right now. It's pretty much a supply-demand basis upon which we take a look at where the opportunities are going to be.

That's very helpful. Thank you.

Your next question comes from the line of Paul Lechem from CIBC. Please proceed.

Thank you. Good morning. You were talking a little bit about various market extension projects. I was wondering if you could give us any update on the reversal of Line 9 and any related projects around that?

Paul, it's one of the projects that is front and center with us right now, looking at both a short-term and then longer-term Line 9 potential. Shorter-term to be able to move crude oil into Ontario and what we kind of call Line 9A is down towards [Natakoke]. Then longer-term, the project that we had on the books two to three years ago to look at a full reversal of Line 9, and then working in conjunction with Portland to be able to move crude off the east coast and into refineries on the east coast is getting some very close work and examination right now as well.

As the market continues to push Canadian crude further east, those projects become even more likely, and that push east of course comes from the fact that we've got a lot of new heavy crude fracing capacity going into the midwest, which takes away some of the light processing capacity and means that it's very important for Canadian producers to be able to broaden out the market.

As you know, we many times in the past have been focused on the huge light-to-heavy differential. We're concerned that there's going to be a significant synthetic differential that develops as well if we don't broaden that market to the east. So both short-term project and then a longer-term project on Line 9 look like they have very good prospectivity at this point.

Thanks for that. Appreciate it.

Your next question comes from the line of Linda Ezergailis from TD Securities. Please proceed.

Thank you. I'm wondering if you could help us think a little bit more about the outlook for energy services, and give us an understanding of what market pricing we should be watching in terms of absolute level of certain types of crude oil differentials, and other maybe basis differentials that might move those margins for the balance of the year?

Well, and by energy services you're effectively referring to crude oil marketing, I'm assuming, Linda?

Yes.

Yes. Well, I guess you could say that our business in that regard is in three areas. Effectively, the crude oil contango market, and when you take the strategy that we have of back-to-back marketing and access to storage. As the biggest storage operator in North America, we're very well-positioned in the contango market to continue to do well there.

The second part of it is basis, and the obvious basis issue right now is the WTI to LLS or brent basis. That continues to provide very good opportunity and looks like it will through the end of the year, and probably longer, until there is significant pipeline capacity available south of Cushing.

Then thirdly, the blending part of the business, which also as a result of access to storage, is a very low-risk and strong business for us. So we would anticipate at this point to continue to see very good numbers out of our energy services group through the remainder of the year.

Okay. That's good to know. And maybe you could give us an update as well on the FX side as to whether or not there has been any additional hedging with your FX exposure outside of the CTS?

No. We haven't added anything additional outside of CTS, so we still are pretty substantially hedged on the other cash flows, but nothing that's changed recently.

Okay. So I can still use 80% hedged through 2014 at an average rate of CAD1.20 to US dollar?

I think that's correct, yes.

Okay, great. Thank you.

Thanks, Linda.

Ladies and gentlemen in the media, please press star one to ask a question. Your next question comes from the line of Carl Kirst from BMO Capital. Please proceed.

Thanks, sorry. Just one quick follow-up with respect to the CTS, if I remember correctly, the 2011 tolls were somewhat based on roughly 1.5 million barrels through Gretna. I just wanted to re-confirm if that was the case, and was that kind of currently where we're tracking?

John, do you --? Carl, maybe we'll have to get back to you on that.

Sure. I can follow-up off line. No problem.

Yes. That's the ex-Gretna volume. We'll get back to you on that.

Your next question comes from the line of Jeff Jones with Reuters. Please proceed.

Thanks. My question is in regards to the Monarch plan. That was your discussing Monarch North. Just to clarify, does the northern portion of this plan include moving crude on the existing system, and by that I mean, would it mean a series of arrangements on the pipeline system that's in place now that would see crude move to the Gulf, or would it mean any building of new facilities north of Cushing?

Jeff, I think it's fair to say, and Guy correct me if I'm wrong on this, that it will be a combination of the two. It will use some existing capacity and then potentially, depending on the volumes committed, could require some additional construction.

That's my understanding.

Just as a follow-up then, one would assume then when you're talking about months in terms of coming up with a finalized plan, this would mean kind of an expedited schedule, would it not?

Well, that would be in terms of commercial arrangements. I'm not implying that we would be able to have, for example, a new pipeline built south of Cushing in a matter of months. That would probably be a late 2013, I believe, was the timing of Monarch, if we were able to get the level of commitment required, but a matter of months in terms of having some commercial arrangements in place.

Thank you.

Thanks, Jeff.

Your next question comes from the line of Brad Olson with Bloomberg. Please proceed.

Yes, can you tell me -- this is Brad Olson from Bloomberg. I just wanted to see if you could, also to follow-up on the Monarch plans, what amount of capacity might Monarch North involve?

Guy, do you have a number on that? I don't right off.

We're probably looking at somewhere between 200,000 to 300,000 barrels a day, depending on the level of shipper interest and that will define the magnitude of the facilities required and how much new facilities, as Pat mentioned, might be required.

And from where to where would that go?

That would go from Flanagan, or basically Chicago, to Cushing, and then from Cushing to the US Gulf Coast.

Okay. And when might Monarch North, same kind of type timeframe, late 2013?

Yes.

Okay. Thank you very much.

And there's obviously no presidential permit for those types of facilities, since they all originate within the US.

Thank you very much.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to turn the call back over to Mr. Guy Jarvis for closing remarks.

Thank you very much everyone for attending. Just a reminder again, that our IR staff is available if you've got any follow-up calls. Thank you.

Ladies and gentleman, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.