恩橋 (ENB) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Enbridge Incorporated's third-quarter 2012 financial results conference call. I would now like to turn the meeting over to Jody Balko, Vice President, Investor Relations and Enterprise Risk. Please proceed.

Thank you, Taheshia. Well, good morning and welcome to Enbridge Inc.'s third-quarter of 2012 earnings call. With me this morning are Al Monaco, President and CEO, Richard Bird, Executive Vice President, Chief Financial Officer, and Corporate Development, and John Whelen, Senior Vice President and Controller. 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. We will take questions from the analyst community first, and then invite questions from the media. I would ask that for everyone's benefit, you wait until the end of the call to queue up for questions and that questions are limited to two per person. Please reenter the queue if you do have additional queries. Lastly I would also remind you that Jonathan Gould and I will be available after the call for any follow-up questions that you may have.

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. This slide includes 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 SEDAR and EDGAR systems. I will now turn the call over to Al Monaco.

Thanks, Jody, and good morning everyone. I'll start out by providing an overview of the financial results and how we see the rest of 2012. We'll also update you on new developments and execution of our strategic priorities.

Earlier today we announced our third-quarter results. Adjusted earnings came in at CAD269 million or CAD0.34 a share while year-to-date was CAD922 million or CAD1.20 a share. This represents a nine-month year over year increase in earnings of 11% and EPS growth of 9%. We are pleased with the results particularly given equity pre-funding of our capital program that we undertook this year. The results are on track with our expectations going into the fourth quarter which I will come back to in a moment. Now Richard will take you through the segmented performance, but one highlight is that we continue to see good results from our liquid segment under the CTS agreement that took effect last year. Throughput volumes are trending above 2011 due to supply growth that is quite robust in Canada and the US and good demand in key markets we deliver into.

This next slide updates the full-year adjusted earnings-per-share picture. Our original full-year guidance as you recall was CAD1.58 to CAD1.74 which equates to a growth rate of 8% to 19% off of CAD1.46 last year. As the year unfolds, we are seeing both headwinds holding us back in some areas and tailwinds pushing us ahead in others. As Richard will describe, these roughly balance out. So based on year to date results, which as I said match our expectations, and the strong fourth quarter we continue to anticipate, we are firmly on track for full-year adjusted EPS well within the guidance range. Now we are not going to reach the top end of the growth rate of 19%, but we should be comfortably in the double-digit EPS growth zone.

So in total, we expect 2012 to be another good year which reflects the steady and attractive growth that you have become accustomed to. We also had good progress on the business development front this quarter. Our regional oil sands strategy drew some dividends. We received a regulatory approval for the Woodland Pipeline Extension Project. As you recall, that is a 36-inch line which would be initiated at our Cheecham Terminal and follow our Waupisoo Pipeline right-of-way. So it essentially is a twinning of Waupisoo. The project accommodates growing dilbit production from Imperial's Kearl project as well as other production in close proximity.

Woodland Extension is subject to sanctioning by shippers still but we are doing pre-construction work here so that we can preserve a 2015 in service date. We also announced a bitumen blending tank. This is a smaller project at our Athabasca Terminal for Suncor's Firebag 3 and 4 production. Of significance this quarter in the gas distribution business, we are moving ahead with CAD600 million expansion in the GTA. We are pleased with that in that the expansion once again illustrates continued customer growth in the franchise and something that is unusual in North America as far as gas utilities. In gas pipelines, we made further progress on our Canadian Midstream strategy.

Last month we agreed to acquire newly constructed and existing gathering and processing facilities in the Montney region of the Peace River Arch. And that was acquired from Encana on terms that were consistent with the Cabin investment. This was part of an overall agreement to defer commissioning of Cabin Phase 1 and to suspend construction of Phase 2 and I think we're all familiar with the reasons behind that given the Horn River is a dry gas area and drilling has trended down there. Under that agreement, we will begin collecting fees in December for investment made to date on Cabin 1 and 2. We are excited about the new opportunity because it establishes a broader footprint for us in the liquids rich and prolific Montney play and that is in addition of course to our existing Alliance position. It also comes with an exclusivity agreement in the area of the Peace River Arch that we are talking about here that you see on the map whereby we will develop major new facilities required by Encana on terms that will be similar to Cabin. So all in, including our investment in Cabin to date, we expect to exceed the original planned investment for Cabin of CAD1.1 billion with this new arrangement.

Yesterday, we announced that we've been selected to construct a 20-inch line, an oil line that is, that would connect the Heidelberg discovery with the deepwater off of Mexico and Heidelberg is operated by Anadarko. With this new project, we will have made investments now totaling close to CAD1 billion under the new investment criteria that we established for this offshore business three years ago. That new business model emphasizes fee-based revenue that provides an attractive base level return with upside based on throughput. The line itself is going to be built in about 5,400 feet of water so it fits well with our deepwater capability which is unique in our business and the deepwater of course is where the future will be for the Gulf of Mexico. The other nice thing about this is that it broadens out our oil pipeline footprint in the Gulf. So we're going to continue to be active in the offshore area, looking for opportunities like this one to strengthen the overall business.

You'll recognize this next slide, slide 9, from Enbridge Days where we laid out management's key priorities in the years to come. We covered these in some depth there so I'm not going to go into the detail again, but I would like to emphasize a couple of things. Our first and most important priority is to focus on operations. Which to us covers all aspects of safety whether it's public or personal safety, operational reliability, and environmental protection. The objective is pretty clear and straightforward to achieve top [quartile] performance if not best in class across all critical safety and integrity dimensions. We've redefined accountabilities on this front, set performance targets, and expanded our technical staff. And this is all under an operational at risk management plan which we refer to as ORM which sits right alongside the strategic plan. The second priority is execution of the growth plan which I will expand on in a moment and our third priority is to extend our industry-leading growth rate beyond 2016 which is progressing well.

On slide 10, coming back to the second priority, as we noted at Enbridge Day, we have a record backlog of commercially secured projects, CAD18 billion at this point. These secured projects by themselves could generate 10% average EPS growth through the middle of the decade, even if we don't win any further opportunities. So, you can see that it is critical that we have effective execution to make this happen. That 24 projects right now under management by our major projects group basically all of which are on track. This slide shows the projects that are coming into service by the end of the year. And I'm not going to go through each of these but as you can see, they are close to CAD2 billion in capital all of which are either on or ahead of schedule and on or favorable to budget.

Next, I'll update you on our major market access initiatives. First on the US Gulf Coast projects, we continue to make progress. The pricing discounting in US mid-continent and global pricing continues to remain stubbornly wide. This discounting will persist for Canadian and Bakken producers until there is a large volume infrastructure solution all the way to Taiwan. On Seaway today, we continue to receive significant nomination volumes vying for 15,000 barrels per day of limited spot capacity. However, some relief is in sight as we will have the expansion in service to 400,000 barrels per day of capacity in the first quarter of 2013. And beyond that, we continue to advance as fast as possible the 450,000-barrel per day Seaway twin project with Enterprise which is currently slated for mid 2014.

So in all of this one, market conditions are signaling that every drop of uncommitted capacity reserved on both lines will be highly sought after so we should see some upside on this asset. As for Eastern access, we continue to progress this suite of projects. These are really the first step in opening up greater access for domestically produced crude to the Eastern part of the continent. Again, a very important project in that it provides increased access for oil sands volumes to our core upper Midwest refineries who have or will be converting to heavy oil feedstock. It also enables though Eastern Canadian refiners to source light oil at more favorable levels than [brent]-based pricing. We received significant interest as you know on our line nine reversal open season and we continue to develop solutions that will accommodate all of these requests. We received regulatory approval for Stage 1 of the reversal from Sarnia to Westover which you can see there on the map and expect to submit our regulatory filing for the Westover to Montreal segment next month.

Finally last month, now we're onto slide 13, we introduced our light oil market initiative shown here on the slide. This suite of projects is geared to move growing light oil production in Western Canada and the Bakken to several Eastern points on the continent. Opening up greater access to Patoka and from there to both Eastern PADD II and the Eastern Gulf coast is one of the aims longer-term in this initiative. But it also is focused on meeting all of the feedstock requirements of the Quebec refiners not already accommodated by our Eastern access initiative. Beyond that, it would also provide effective pipe rail water borne solutions to Canadian and US East Coast refineries. We are advancing commercial support for a number of components of the project, so it is a live initiative. So with that overview, an update on the strategies, let me turn it over to Richard who is going to walk through the financial results. Richard?

Thanks, Al and good morning, everyone. So I'll start on slide 14 with some color on the segmented earnings and as Al indicated, on the whole the quarter was consistent with our expectations and with strength anticipated in the fourth quarter in a few areas I will note, we are on track for a full year well within our guidance range. Liquids pipelines continues to be a powerhouse offsetting weakness from other areas. Earnings of the Canadian Mainline continued to be strong for the quarter. Volume growth relative to the prior year was favorable though not to the same extent as it was last quarter. This reflected a number of oil sands plant outages during the quarter.

We also had a significant increase in the international joint toll -- residual toll that is applicable to the main line with an annual escalation kicking in at July 1. So in combination a solid bump in revenue both year over year and relative to the second quarter. That favorable toll will carry over to the fourth quarter and we expect volumes to come back stronger in the fourth quarter than they were in the third. So it should be a very good quarter for the Mainline.

The Spearhead Pipeline continues to benefit from higher volumes moving down to Cushing encouraged by the reversal of the Seaway Pipeline out of Cushing and the anticipation of its expansion, or sorry, its expansion to 400,000 barrels per day early next year. And this source of strength should continue in the fourth quarter. And for Seaway itself, we are beginning to see a significant earnings contribution in the third quarter which will continue in the fourth and looking very good for 2013 and beyond.

Moving to gas distribution, it was a weak quarter for EGD with some favorable revenue factors more than offset by higher expenses largely as a matter of -- as a result of intro year timing matters and this is an area where we expect a better result in the fourth quarter. Enbridge Gas New Brunswick continues as a significant drag in Q3 and will be in Q4 as well though not to the same degree. Moving to gas pipelines processing and energy services, another painful quarter for our offshore Gulf of Mexico system and no respite insight in the near-term on this front though continued positive signs for the medium-term as Al has alluded to. The story on Aux Sable is mixed. It was a good quarter compared to last year as we continue to enjoy the benefit of more favorable NGL prices, locked into our hedging program more favorable than currently available. Yet a less favorable performance than we had expected overall.

Energy Services is the opposite of Aux Sable. It is down relative to last year due to closing up of some of the very profitable arbitrage opportunities we captured in 2011 yet it is running a little stronger than we had expected. Sponsored investments is up year over year on the strength of last year's asset drop down to Enbridge Income Fund which should be a continuing help in the fourth quarter of this year. And the corporate segment results reflect increased pref dividend expense offset by reduced net financing costs. So turning to slide 15, for the year as a whole, relative to our original expectations, we now see lower than expected contributions from EEP's gathering and processing business and from Aux Sable, though still better than last year in the case of Aux Sable, and also lower than expectations from the Enbridge Gas New Brunswick economic expropriation we've experienced. Those factors are roughly offset by better than expected contributions from liquids pipelines, from Enbridge Income Fund and Energy Services although again in the case of Energy Services a little better than our expectations, lower than last year. On balance, the combination of these headwinds and tailwinds should bring us well inside our guidance range as Al has already indicated.

Turning to slide 16, once again another busy quarter for funding in liquidity actions. Enbridge Energy Partners brought in over CAD400 million of class A common unit equity and we issued another CAD850 million of rate reset preferred shares. We placed another CAD500 million of medium term notes including the CAD100 million, 100-year century bond issued out of Enbridge Pipelines. We probably need a separate line on the chart for that one because medium-term notes doesn't really seem like a very apt label for a 100-year bond. We also added another chunk of bank credits to our formidable enterprise-wide liquidity cushion now standing at CAD11.6 billion of committed general-purpose funds with yet further expansion in that cushion in progress at present. Altogether we bolstered liquidity by CAD2.5 billion in the quarter and almost CAD7.5 billion on a year-to-date basis.

Now I will finish up on slide 17 with a little more color on our recently announced drop down of a CAD1.2 billion package of assets to the Enbridge Income Fund. This transaction does remain subject to the approval of the Enbridge Income Fund Holdings public shareholders. This drop down is the next step in the broader sponsored vehicle strategy we outlined at Enbridge Day. That strategy involves utilizing the advantageous cost of funding which the sponsored vehicles can provide for suitable assets to enhance the return on those assets to Enbridge and supplement the sources of funding available to us.

This advantageous source of funding applies to organic growth of the existing asset base in each sponsored vehicle. It applies to potential acquisition of third-party assets and it also applies to potential drop downs of suitable Enbridge assets. All of those limited of course to the funding capacity of the vehicles. The current drop down to Enbridge Income Fund is right down the center of the fairway of how these drop downs should be a win-win for both Enbridge and the sponsored vehicle. The Fund is able to provide an attractive valuation of the asset given its access to advantageous funding. The 12 times multiple on this transaction represents a premium of roughly CAD300 million to our carrying value on which we'll pay tax of about CAD60 million.

Like last year's drop down, we won't actually report a gain, a book gain on the drop down at the Enbridge consolidated level, since under GAAP it is a transaction between affiliates and it's eliminated on consolidation. Once the Fund has completed its financing, the drop down will provide Enbridge with CAD800 million of funding including a significant equity component. The transaction will be modestly accretive to Enbridge per share right out of the gate and with earnings per share right out of the gate and more so over the medium term. It will be a bigger win for the public shareholders of Enbridge Income Fund Holdings which will see a 4% accretion in earnings and cash available for distribution. The transaction further expands and diversifies the fund's asset base and builds its capacity to absorb additional drop downs consistent with Enbridge's sponsored vehicle strategy. And that is all for me, so back over to Al to wrap up.

Okay. Thanks, Richard. And just before I do, this slide here which we're on is 18 of course, reiterates our earnings outlook for the five-year plan horizon and then beyond that. With the current backlog of commercially secured projects and by executing those projects well, we should achieve a 10% annual average EPS growth profile through 2016 and of course dividend growth follows. At Enbridge Day we introduced a new category called highly probable unsecured capital which represents projects that are not commercially under pinned quite yet. When we include this CAD12 billion category of growth capital, the EPS profile would accelerate to 12% plus on average through 2016. Then, given the expected ramp up in volumes and the tilted return profiles from the projects that we mentioned earlier today, as well as other potential opportunities, we have increasing confidence that we will be able to continue our industry-leading earnings growth profile through the end of the decade.

So to conclude, another strong quarter here has set us on our way to achieving another year of industry-leading growth well within the guidance range. We are happy with that given the headwinds that Richard went through. Our focus continues to be on operations and that is going to be our job one. We continue to have business development success across all segments. Our major projects group is doing an excellent job of overseeing our large suite of projects under construction, several of which we will see come into service through the remainder of this year. Funding activities continue on many fronts to finance these projects and as Richard noted, we are particularly pleased with the sponsored vehicle drop down that we just went through. And lastly, we are increasingly confident in being able to extend an industry-leading growth trajectory into the latter half of the decade. So that concludes our remarks for this morning. So now we would be pleased take some questions.

We will now take questions from the analyst community. (Operator Instructions)

Paul Lechem, CIBC.

Just wondering on the mainline, good results this quarter. Can you talk about maybe the -- you talked about in the past, Richard, the scale factor and it seems like that might be a little higher this time around. What were the factors that drove potential upside in the mainline earnings this quarter?

Sure, so I think we indicated the last quarter that based on the performance we were seeing and largely the higher volumes on the mainline that we were experiencing and as a result of that, the distribution of those higher volumes as between long-haul and short-haul, heavy and light, we moved our indication of what we thought was a reasonable scale factor to adjust for all those factors down to 1.14 and so, yes, you will have seen it come back up in this latest quarter if you sort of do the backend calculation to see what it would have been. I think it comes in at about 1.17 for the quarter to balance all those factors off. And that's -- that's really part and parcel of the fact that the volumes backed off a bit in the quarter so some of the factors associated with higher volumes in terms of length of average haul composition as between Canada and the US in deliveries and so forth. As volumes come down, those tend to go back in the other direction. So I think for the time being, we would still view and as I did indicate we see volumes coming back in the fourth quarter, we would view 1.14 as being appropriate based on the level of volumes that we are anticipating moving into the future.

Thank you, just switching to Seaway. The number -- the earnings contribution from Seaway was strong in the quarter. Did the Q3 result include earnings on Seaway since it started up in May? It seems to suggest in the MD&A that it included some of the contributions from the start up time?

I don't believe that that is the case. I think we did book the very tiny amount of May earnings into June earnings in the second quarter. It's just it was a relatively small amount.

Okay.

That time was mid-May for Seaway.

And just lastly on Seaway, Al, you seem to suggest that you're working on the twin as fast as possible. Does that suggest that there might be opportunity to move the in service date of the twin, Seaway twin, sooner than mid-2014 and same for Flanagan South?

Well that is what we would be striving for, Paul, for sure. As I mentioned, the fundamentals here are really supporting the need for more volumes to move down into the Gulf and it's always a purity to try to advance where we can and obviously this is being managed by Enterprise and we are speaking with them about all those kinds of opportunities that we'd expect.

Okay, thank you.

Juan Plessis, Canaccord Genuity.

You had a pretty strong contribution from Aux Sable in the quarter. I assume this is because it is hedged. Given lower NGL margins, have you hedged or are you planning to fully hedge the Aux Sable volumes for 2013?

At the moment, Paul, we don't have any hedges in place for 2013. It would be our preference as we have done to try and risk manage that position, but at the moment we haven't seen an opportunity to put any hedges on for 2013.

Okay, thanks for that. And on Energy Services, I know there's a lot of moving parts going on there but you had a lower contribution in Q3 versus both last year and Q2. Can you talk about the main -- the main drivers for the decline?

I don't think there is anything particular that I could point to. The nature of that business is such that it kind of has a steady base and then it tries to pick off arbitrage opportunities to augment that basin. Those arbitrage opportunities come and go as commodity prices point to point move as differentials grade to grade move as the degree of contango markets move around and so it is just a combination of the ebb and flow of a bunch of those smaller factors. Generally speaking, as we moved into this year, we have seen a number of the unusually attractive arbitrage opportunities that existed last year beginning to close up as is the nature of arbitrage opportunities. And it has been a little stronger as I mentioned than what we had expected coming into the year, but that is gradually ebbing away on us.

Yes, Juan, I think that is right. It was more a case of last year being quite an unusual year with some of the basis and contango opportunities we saw. And as we said last year, that was quite unusual so we are kind of backing into a more normal run rate, here.

Okay, thanks for that.

Ted Durbin, Goldman Sachs.

I just wanted to dig in a little bit more here on the sell down to EIF. I guess how do you come to the 12 times EBITDA multiple? Is it related at all to the type of assets? Maybe talk about what kind of accretion you are targeting for the sponsored investment vehicle itself? And then the mix of cash versus equity that you took, is this going to be indicative of what you'll try to do going forward?

Let me see. There is a few questions there, Richard you want to talk about the multiple? Are you're referring to how we calculated that?

No, is that the way we should think about the price of what you would sell assets for going forward? It sounds like it is strategy to continue to sell assets. I'm just wondering what kind of accretion you are targeting for the sponsored vehicle itself?

Sure, so, that price is going to vary from asset group to asset group. It is going to vary based on conditions as they exist in the market at the time of any transaction and it is really the outcome of a negotiation between the independent committee of the Fund and Enbridge. And in this particular case, it was a very attractive package of assets with very stable cash flows and attracted that kind of valuation. I think the valuation on last year's package of assets was a little bit less as conditions existed at that time. So, but generally speaking, I think the fund, this is where the win-win comes in, the Fund based on its access to capital can provide a pretty advantageous valuation of suitable assets, and I emphasize suitable because it has to be a particular quality of asset to attract the kind of valuation. And accretion, we don't have a magic accretion number in mind, but the special committee, when it goes through this process utilizes an independent financial advisor and they consider what they view to be an appropriate level of accretion for the type of asset involved together with a variety of different metrics and coming up with what they -- what they believe is appropriate to pay. And of course we are on our side encouraging that to be as generous a number as possible.

Cash versus equity question, there too, I think.

Right, yes, composition of cash versus equity. So generally speaking, the two recent drop downs have followed the same pattern which is that we have provided interim debt financing until the Fund can back that out with its own. We have subscribed to the portion of the equity funding of the transaction which relates to our preferred unit interest in the Fund and we've also subscribed to the portion of the funding which relates to our common interest in Enbridge Income Fund Holdings to maintain our interest in that vehicle at 19.9%. That has been consistent through the two transactions and we have effectively diluted down a bit through foregoing our right to participate in the common units issued by the Fund. So that has been the same between the two transactions and that enables the size of the public offering to be a little bit bigger than it was if we just subscribed on a pro rata basis for all of the components of the funding that we are entitled to, but still throws off a nice chunk of funding for us. So I think that's probably indicative of the way we would do it in future as well.

Just, I will add just a point, circling back to the valuation, Ted. This really illustrates quite well the ideal profile for this kind of transaction in that Enbridge is able to sort of develop the project and get it to a point where it can maximize the valuation, the way, just because of the way that we've structure the contracts behind it, which allows the fund to pay what it did for the assets in this. So it really is like Richard said before, a win-win for both sides.

I appreciate the detail there, thank you. My other question was on EGD and I'm wondering how you're thinking about the ability to get incentive rate treatment going forward. We've heard that another utility in the area likely won't receive incentive rates. I'm just wondering how you're thinking about the return profile there?

Well the way we are looking at that, Ted, is certainly in 2013, we'll be under cost of service. In fact, we have come to settlement and the OED has approved that settlement which was a good outcome actually, but the intention is beyond that we will be filing for incentive regulation after that. So beyond 2013, and once again it is hard to predict what the return profile would look like, but certainly we would hope that we would be able to attract a bit better return above the regulated return going forward. But, as we see it right now, we will be applying for incentive regulation beyond 2013.

I could maybe add a little bit to that, Al. So the EGD settlement with its stakeholders covers all issues except one issue. There is one issue that is going to hearing and that is the equity thickness where we have applied for a bump from 36% equity thickness to 40% to 42% based on the increased risk that we see associated with that business going forward. That will go to litigation so we don't know what the answer on that will be, but with respect to the prospects that we can successfully develop another win-win incentive arrangement, although it's way too early to have any firm indication of that, I think the fact that we were able to arrive at a negotiated settlement on the cost of service hearing with our stakeholders with just that one item left to carryover is a fairly encouraging leading indicator that the same group of people sitting down will be able to come up with an appropriate incentive arrangement for post 2013.

Okay, those are my questions. Thank you.

Linda Ezergailis, TD Securities.

Thank you. Congratulations on a strong quarter. I have a question with respect to your light oil market access initiative. What is -- what would be your timing on securing all six of those sub-initiatives? And I'm assuming that certain ones are predicated on other ones that are proceeding. And I'm assuming that the shippers are largely on board and it is just a matter of negotiating the details. But can you also comment on the timing potentially of the next step of getting to the Eastern US Gulf coast and the East Coast as well and what that might look like at this point?

Well, the first set of Eastern access projects of course is slated for 2014 and then I would expect that the rest of the strategy, the light oil strategy you referred to, would be in 2014, '15. You referred to it is just a matter of negotiating some final points on that. I think there is some work to do still. We feel very good about where we are so far on that, but obviously were not ready to fully commit to the entire string of projects. But I think we are in good shape on that and we are having some pretty good discussions with customers. As far as the timing versus East Coast, I think more of the same. We talked about initial potential for rail or other opportunities that would get light crude into those markets as quickly as possible. That is part of the strategy. So, I would say once again sort of 2014, '15 when we start seeing some results there.

So when might you announce something on that front in terms of actually finalizing anything?

Well, I can't commit to that timing today, Linda. I think at Enbridge Day we've said that it is fairly near term, but we will just have to wait and see when we finalize our discussions with the producers and other shippers.

Great, thank you. And just a quick follow-up question. What is the approximate estimated cost of the Heidelberg lateral at this point? And when do you expect the co-owners to sanction that?

Both -- sorry the cost is estimated around CAD150 million, Linda, and we would expect that sanction to occur in the first quarter.

Great, thank you.

Matthew Akman, Scotiabank.

I wanted to go back to the Eastern access and light oil strategy in light of some information that came out on TransCanada's quarter. Which was their assertion that the mainline conversion from gas to oil is economic effectively so there was talk of conversion before but that is a little bit more supportive information on it and I guess they're going to be pursuing it more actively. So my question in that context is really is there room for both that to happen and the Eastern access and light oil access strategies of Enbridge? What is your view on that?

Well, the way we look at it right now, if you look at the Quebec market, there is about 370,000 barrels a day of refining capability there and our view is that we could sell the large portion of that with our Eastern access projects. So, I think as far as existing refining capacity in Quebec, I think we are comfortable we can satisfy that and of course as we mentioned before, we do have long-term commitments that underpin that. If you look at the rest of the refining markets in the East Coast, it is probably another 400,000 barrels a day of capacity. That's in the Canadian markets and then of course the key to that is what is beyond that in terms of potentially going to the Philadelphia market or even further into the Atlantic basin across the water. So it really depends on the size of the market that you are looking at. Ultimately I suppose that there would be enough capacity beyond the Quebec market to satisfy the project that you referred to, but right now we are pretty comfortable that our project from a timing perspective and a underpinning perspective is going to meet the needs of the Canadian market at least in Quebec.

Sorry. Were you finished? I was going to follow-up.

Go ahead.

You talk about the market, the end markets, but I'm wondering whether there is also a difference in your two projects really on where the supply comes from? There are literally hundreds of thousands of barrels of oil a day being taken out of Bakken by train and is it possible that we need both the mainline gas conversion for Canadian oil and then the Enbridge light oil strategy to take the oil out of Bakken. Are they two different supply basins effectively even though they might be meeting the same kind of end markets?

Yes, well I think that is a good point especially if you look at the rolling profile coming out of the Bakken in the years to come and that is actually part of the reason why we've talked about the Sandpiper project. And the fact that coming out of the Bakken and heading on to our mainline and then to the Eastern market would give us a pretty good position we feel to deal with Bakken volumes in the most cost-effective way. Whether or not we need more access off the East Coast is really something that needs to be determined, Matthew. I think we are working on that. We do have some other thoughts as to potential alternatives to get to the East Coast that we talked about water-borne exports, rail is another opportunity, and of course we also have an opportunity to further expand line nine so there is lots of ways that on our system we can get there. So whether or not the other project goes forward, I can't really comment on. All I can say is we are very comfortable with our position right now.

Thanks very much guys. Those are my questions.

Andrew Kuske, Credit Suisse.

This is Paul Tan on behalf of Andrew. Regarding the Enbridge Income Fund, how do you see your economic interest in the Fund in the future? Is there a targeted ownership level that you would be looking to achieve?

Paul, it was Paul right?

Yes.

We are pretty comfortable right now with the ownership level that we have. I suppose there is opportunity to further dilute that, but at this point, we are in 60% or above that economic interest and we are quite happy with that right now. It does provide an opportunity I suppose in the future to dilute down if we saw the need to, but at this point, we are happy with that level of interest.

Okay, thank you. And regarding the assets that have been dropped down so far, the Canadian renewable assets, and the most recent one includes liquids terminal, could you see your liquids pipeline or the regional pipeline to be a suitable asset to be dropped down into the fund?

Well, I think the model, that is a good question. The model we have for drop downs is that at some point, when we have a very high degree of stability in the assets whether we are talking about regional infrastructure or the gas assets that we have in Northeast BC, for example, those all present good opportunities if they are highly contracted. At this point, I don't see the regional assets being dropped down. We are still in a relative portion of the growth phase for those assets so I think they are probably best held with Enbridge for now.

Thank you.

Maybe I could just add to that, Paul, that we did at Enbridge Days provide a list of the assets that we saw as likely to be suitable for drop down over a near to medium term horizon. So, you could go to the Enbridge Day's material. You'll actually see what we identified there.

Yes, we saw that one. Thank you. And last question, do you see a potential rebirth of East Coast LNG projects but rather than re-gas facilities more of a liquid faction similar to sort of in Western Canada?

You know, I suppose that if you look at the supply profile in the US Eastern region, there will be a lot of supply coming forward from the Marsalis. We think that that will largely be absorbed within the US Northeast market or of course the Ontario market. I think at least in our view, West Coast LNG is more highly probable simply because of the arbitrage that exists between North American pricing and Asian pricing, but also because of the supply profile in Northeast BC which is very robust. So I would say not as likely for the East Coast, at least in our view.

Okay, great. Thank you very much.

Chad Friess, UBS.

I was wondering if you could speak to the opportunity and whether you are in discussions to build new pipe in the Edmonton to Hardisty corridor?

Yes, we are. In fact at Enbridge Day, we did highlight that that was a potential opportunity and it is one we are working on.

And would it require new pipe or can you expand capacity with just more pumping?

It would require new pipe.

And is the timing or need is such a project dependent on the timing or success of the proposed West Coast pipelines?

I don't think so, Chad. I think this would be independent of that and the reason for it is, we is, we are seeing a lot of volume come through particularly in the Edmonton corridor. So, from my view is that, that would be independent of Gateway and it would be a pretty near term focus in my view, just given the supply profile we see and obviously the reason for that is, as a producer, the last thing you want is to be apportioned in Alberta especially given where we see current price discounting. So, I would think the priority would be to link up those two in fairly short order.

Okay and just -- as in near-term or an opportunity, would that mean something like a 2016, 2017 in service date?

I would say before that.

Okay, thank you.

Robert Kwan, RBC Capital Markets.

First question on Seaway and I apologize if this was touched on earlier, but was what you booked this quarter unusual or is this the run rate and with respect to those earnings, are those tolls only for third-party shippers or are there some sort of Energy Services like revenues that are being booked in the segment as well?

Richard?

Sure, so the run rate that you see there is there is nothing unusual about it based on the current configuration. Of course as we roll into next year and boost the capacity up, the run rate that is applicable in this quarter well in the third quarter in the fourth quarter is no longer going to be applicable moving forward. And those are purely, purely toll revenues that you're seeing there.

Okay and sorry, Richard, third-party toll revenues, i.e., there is nothing that is any self shipping taking advantage of the differential?

Tidal -- Our Tidal Energy Services group would be looking to take advantage of any arbitrage opportunities it can on that pipe as it would on any pipe so --

But that would be in Energy Services.

Any arbitrage uplift would be in Energy Services. The toll benefit would be in the Seaway segment.

Okay. That is perfect. And just the last question particularly in light of the election result. Is there any update or color you can give on the CTS and the Keystone XL clause?

Okay, so as I recall, the clause relates to January, 2013 and the ability I guess of shippers to not proceed on contracts. I can't really speak on behalf of XL on that one. Our view has always been that XL would go forward, so as far as CTS, we'll have to see how that evolves. If we get notice from the shippers on that, but my view on that, Robert, is that given where we are, given the supply demand fundamentals that we don't really see the shippers exiting CTS. I think they are quite happy with the arrangement especially given the certainty around tolls that we have provided. So I don't see that happening, but we will wait and see.

Okay so there has been no early discussions or some comments. And I don't think were looking necessarily at wholesale changes to CTS, but are there anything that has been brought up as to relatively modest modifications that they would like to see?

No, none that I am aware of and if you think about the scenario in that case if XL didn't get approved as I said I'm not sure it would be in the producers interest to want to renegotiate CTS at this point but that is my own view.

Okay, that is great. Thank you.

At this time we would like to invite members of the media to join the queue for any questions.

(Operator Instructions)

Andrew Fairbanks, [Saugatuck] Energy.

Just wondered if you had any update on the Seaway expansion of 400 kb/d. Do you feel good that you are still on track for a 1Q start up and if so do you think it would be closer towards the beginning of 1Q, i.e., the by 1Q you talk about in the presentations typically or should we expect to see that closer to the spring?

Hello, Andrew, yes we are feeling pretty good about it as you can imagine giving the fundamentals we are in close in discussion with Enterprise on this. We think they are managing the project very well. Obviously, we would want to see that thing in service earlier in the first quarter. I can't really speak to any specifics, but if I had to make a guess, we would probably like to see it in the first quarter, earlier in the first quarter rather than in the second half.

That's great. Thanks, Al.

Jeremy van Loon, Bloomberg.

Just wondering if you can talk a little bit about what you are expecting from a second term of Obama in terms of the Canada/US energy relationship. Any changes or anything that you have on the radar in terms of how things might change?

You know, I actually don't see a lot of change and the reason for that is if you look at the fundamentals in the US and Canadian market for crude oil, we are seeing a huge expansion in the volume that is coming forth in new production and so forth. I think it's in everybody's interest to get new infrastructure built and I think that has been the Obama administration's view to this point and I think we will see that going forward.

Thanks.

As there are no further questions, I would now like to turn the call back to Jody Balko for any closing remarks.

Thank you, Taheshia. We understand that there may have been some technical issues with the website or with the webcast, so just a reminder that the complete transcript and replay will be available on our website and also remind you that Jonathan Gould and I are available for any follow-up questions that you may have. Thank you and have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.