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Enbridge Inc. Reports Second Quarter 2017 Results – Part 1


FOR: ENBRIDGE INC.
TSX SYMBOL: ENB
NYSE SYMBOL: ENB

Date issue: August 03, 2017
Time in: 7:00 AM e

Attention:

CALGARY, ALBERTA--(Marketwired - Aug. 3, 2017) -

Q2 HIGHLIGHTS

(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

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-- Earnings were $919 million or $0.56 per common share for the second

quarter and $1,557 million or $1.11 per common share for the six-month period, both including the impact of a number of unusual, non-recurring or non-operating factors -- Adjusted earnings were $662 million or $0.41 per common share for the second quarter and $1,337 million or $0.95 per common share for the six- month period -- Adjusted earnings before interest and income taxes (EBIT) were $1,713 million for the second quarter and $3,228 million for the six-month period -- Available cash flow from operations (ACFFO) was $1,324 million or $0.81 per common share for the second quarter and $2,539 million or $1.81 per common share for the six-month period; 2017 ACFFO per share guidance range is unchanged at $3.60-$3.90 per share -- On June 1, 2017, Enbridge paid a previously announced quarterly dividend on its common shares of $0.61 per share, a 15% increase over the quarterly dividend paid on June 1, 2016 -- Enbridge announced today that it will begin construction this summer to replace certain segments of the Line 3 pipeline in Canada; in the United States, construction has now begun in Wisconsin (collectively, the Line 3 Replacement Program). The Line 3 Replacement Program is expected to come into service in the second half of 2019 -- Enbridge continued the execution of its secured growth program bringing an additional $5 billion of growth projects into service during the quarter -- In June 2017, Enbridge announced that it had secured the $1.0 billion T- South natural gas pipeline expansion in British Columbia, the $0.5 billion Spruce Ridge expansion on the T-North natural gas network in British Columbia (Spruce Ridge Program), and the $0.4 billion expansion of the Hohe See Offshore Wind Project in Germany (Hohe See Expansion Project) -- Subsequent to the first quarter of 2017, the Company further strengthened its financial position with the issuance of US$1.0 billion of hybrid debt securities and made significant progress on its capital funding plan by issuing over $5 billion of term debt, primarily to refinance long-term debt at favourable rates -- On July 31, 2017, Enbridge completed the sale of its interest in the Olympic refined products pipeline (Olympic Pipeline) for $0.2 billion. This sale further bolsters the balance sheet and brings total asset monetizations executed to $2.5 billion since the announcement of the merger with Spectra Energy Corp (Spectra Energy) (the Merger Transaction)

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Enbridge Inc. (Enbridge or the Company) (TSX:ENB)(NYSE:ENB) today reported second quarter 2017 adjusted EBIT of $1,713 million. Second quarter ACFFO was $1,324 million, or $0.81 per common share. This was the first full quarter of operations subsequent to the Merger Transaction that closed on February 27, 2017.

The largest driver of EBIT growth for the second quarter of 2017 relative to the second quarter of 2016 was the contribution of Enbridge's new natural gas assets acquired in the Merger Transaction, which has substantially diversified the Company's asset base and business platforms. Also contributing to year-over-year growth was improved performance from Green Power and Transmission and the impact of a stronger United States dollar. These positive contributors were partially offset by lower results in Energy Services and Liquids Pipelines.

Liquids Pipelines' results for the quarter were impacted by several transitory items including a significant unexpected outage and accelerated maintenance at a customer's upstream facility, additional related and unrelated production disruptions, and a hydrostatic testing program on Line 5 during the month of June 2017. The combined adjusted EBIT impact on the Canadian and United States mainline system (Mainline System) of these factors was approximately $50 million in the quarter. Up until the month of June, the Mainline System had been delivering near record volumes and operating under apportionment in heavy crude oil service. Apportionment on the Mainline System also impacted the EBIT contribution of certain downstream pipelines during the quarter.

EBIT generated by Liquids Pipelines is expected to grow over the second half of 2017 as throughput on the Mainline System returns to levels achieved earlier in the year. This is driven in part by capacity optimization projects completed in the first half of the year that will address capacity constraints and help alleviate apportionment.

ACFFO for the second quarter was $1,324 million, an increase of $456 million over the comparable prior period, driven largely by the same factors noted above. ACFFO of $0.81 per share was lower than the prior period primarily as a result of the issuance of additional shares as consideration under the Merger Transaction.

"Our financial results this quarter highlight the benefits of having a well-diversified portfolio of businesses and growth platforms," said Al Monaco, President and Chief Executive Officer. "The overall performance of the US Gas Transmission assets that we acquired in connection with the Merger Transaction has been solid and as expected. We anticipate the performance of our Liquids Pipelines business to strengthen over the balance of the year as production and throughput ramps back up on the Mainline System and we benefit from capacity optimization initiatives that have been implemented to accommodate greater heavy volumes. Given the strengthening outlook for Liquids Pipelines, the success we are having in executing our secured growth program, and our progress in driving out synergies from the Merger Transaction thus far, we remain right on track for delivering financial results in line with the guidance we provided earlier in the year."

Commenting on the overall strategic positioning and near term outlook for the business, Mr. Monaco noted: "I'm pleased with the progress that we've made in this first full quarter since we merged with Spectra Energy. Management is keenly focused on the key strategic priorities that we laid out at our mid-year investor update which include: growing organically, minimizing risk and streamlining the organization. Since the end of the first quarter, we've brought $5 billion of projects into service, added high-quality, low-risk organic projects to our inventory of secured growth projects, executed on our funding plans and strengthened the balance sheet. Our integration and synergy realization plans remain right on track and we continue to optimize the performance of our existing assets while operating safely and reliably. Entering the second half of the year, we are well-positioned to deliver growing cash flow in line with expectations, and we look forward to our core business and projects coming into service this year and next driving growing cash flows in 2018 and 2019."

Line 3 Replacement Program

Enbridge announced today that it will begin construction this summer on certain segments of the Line 3 Replacement Program in Canada and that construction in Wisconsin has commenced. This program entails a full replacement of the existing pipeline which runs from Hardisty, Alberta to Superior, Wisconsin.

All required regulatory permitting is in place to proceed with the Canadian construction work. Regulatory permitting is also in place for construction in North Dakota and in Wisconsin. The only remaining jurisdiction in which the regulatory permitting process is still under way is in Minnesota, where the Minnesota Department of Commerce is expected to release a Final Environmental Impact Statement in the third quarter of 2017. Based on the expected regulatory process and timeline, Management's anticipated in-service date for the project is the second half of 2019.

Given the updated execution plan, the finalized cost estimate for the project is now $5.3 billion in Canada and US$2.9 billion in the United States. The revised cost is approximately 9 percent above the original estimate at the time of project sanctioning in 2014, and primarily reflects delays in the regulatory process, scope changes and route modifications as well as other changes that resulted from the extensive consultation process. The impact of these additional costs on project returns are fully offset by lower estimated operating costs and a stronger United States dollar relative to the original project assumptions.

"Line 3 is a critical piece of energy infrastructure that supports our economy and assures reliable and cost-effective supply of energy," commented Mr. Monaco. "The new Line 3 will comprise the newest and most advanced pipeline technology and provide much needed incremental capacity to support Canadian crude oil production growth and United States and Canadian refinery demand."

Project Execution

Enbridge continued to execute on its secured growth capital program, bringing an additional $5 billion of projects into service this quarter, including Sabal Trail Transmission, LLC's natural gas pipeline, the Norlite Pipeline System, and its equity investment in the Bakken Pipeline System (which commenced service during the quarter). This brings the total growth capital projects brought into service to well over $6 billion thus far in 2017. Over the remainder of this year, the Company expects to bring a further $7 billion of growth projects into service. All of these projects are supported by low-risk long-term take-or-pay contracts, cost-of-service frameworks or similar commercial arrangements and will provide a significant uplift to cash flow as they come into service.

New Secured Growth Projects

At its mid-year investor conference in June, Enbridge announced the addition of $1.9 billion of new secured growth projects.

Following a highly successful open season, Enbridge is proceeding with the $1.0 billion T-South natural gas pipeline expansion project. This expansion will add 190 million cubic feet per day (mmcf/d) of additional capacity supported by long-term contracts under a cost-of-service framework, and will enable greater access for growing Montney production to attractive demand pull markets in the Pacific Northwest by late 2020. Enbridge is also proceeding with the expansion of several segments of the T-North natural gas gathering and transportation system in British Columbia to facilitate better access and connectivity to regional infrastructure. The $0.5 billion Spruce Ridge Program is supported by long-term contracts under a cost-of-service framework and is expected to come into service in the second half of 2018.

The sanctioning of the $0.4 billion Hohe See Expansion Project brings Enbridge's total investment in this facility to $2.1 billion. As co-developer, Enbridge will participate in the construction and operation of the project, which is supported by long-term fixed price power purchase contracts. Completion of this low-risk and immediately accretive project is expected in the second half of 2019.

"We've now successfully secured almost $4 billion of new projects since the Merger Transaction was announced," noted Mr. Monaco. "Our success reflects the strength of our diversified business model, which incorporates six strategic growth platforms post the Merger Transaction. These new projects are a great fit with Enbridge's investor value proposition, extending our industry leading $31 billion secured capital program into 2020, and supporting our long-term dividend growth outlook of 10-12 percent through 2024."

Funding Progress

During the second quarter of 2017, Enbridge was active in the capital markets, making significant progress on the execution of its funding plan.

Since the end of the first quarter, the Company has raised over $5 billion of term debt in both the United States and Canadian markets across a range of maturities, the proceeds of which were primarily used to refinance existing or maturing debt at favourable rates. In July, Enbridge successfully completed tender offers for approximately US$1.0 billion of outstanding Spectra Energy Capital, LLC term debt as part of an ongoing effort to streamline and simplify the Company's financing structure and further reduce its cost of capital.

On July 14, 2017, Enbridge further strengthened its balance sheet with the issuance of US$1.0 billion of hybrid securities. In addition, the Company closed the sale of its interest in the Olympic Pipeline for $0.2 billion on July 31, 2017, increasing the total asset monetizations to $2.5 billion since the announcement of the Merger Transaction. Enbridge will continue to assess its overall asset portfolio for opportunities to selectively monetize non-core assets and free up capital for re-deployment to its growth program.

Quarterly Dividend

On June 1, 2017, Enbridge paid a previously announced quarterly dividend on its common shares of $0.61 per share. On January 5, 2017, the Company announced that it would increase its quarterly common share dividend from $0.53 per share to $0.583 per share effective with the dividend payable on March 1, 2017. Following the successful closing of the merger with Spectra Energy, the Company announced a further $0.027 per share increase in the Company's common share dividend to be effective with the dividend payable on June 1, 2017. Together, these increases represent a 15% increase over the prevailing quarterly rate in 2016.

SECOND QUARTER 2017 PERFORMANCE OVERVIEW

For more information on Enbridge's growth projects and operating results, please see Management's Discussion and Analysis (MD&A) which is filed on SEDAR and EDGAR and also available on the Company's website at www.enbridge.com/InvestorRelations.aspx.

HIGHLIGHTS

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Three months ended Six months ended June 30, June 30, ----------------- ----------------- 2017 2016 2017 2016 ---------------------------------------------------------------------------- (unaudited, millions of Canadian dollars, except per share amounts) Earnings attributable to common shareholders Liquids Pipelines 1,272 643 2,396 2,255 Gas Pipelines and Processing 682 19 1,021 80 Gas Distribution 153 83 428 322 Green Power and Transmission 51 41 101 90 Energy Services (18) (7) 138 (13) Eliminations and Other (41) (48) (356) 173 ---------------------------------------------------------------------------- Earnings before interest and income taxes 2,099 731 3,728 2,907 Interest expense (565) (369) (1,051) (781) Income tax expense (293) (10) (491) (427) (Earnings)/loss attributable to noncontrolling interests and redeemable noncontrolling interests (241) 20 (465) (41) Preference share dividends (81) (71) (164) (144) ---------------------------------------------------------------------------- Earnings attributable to common shareholders 919 301 1,557 1,514 Earnings per common share 0.56 0.33 1.11 1.69 Diluted earnings per common share 0.56 0.33 1.10 1.67 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted earnings Liquids Pipelines 938 922 1,908 2,006 Gas Pipelines and Processing 667 90 1,003 177 Gas Distribution 153 73 422 313 Green Power and Transmission 51 40 101 88 Energy Services (3) 47 (8) 48 Eliminations and Other (93) (83) (198) (169) ---------------------------------------------------------------------------- Adjusted earnings before interest and income taxes(1) 1,713 1,089 3,228 2,463 Interest expense(2) (588) (363) (1,053) (757) Income taxes(2) (194) (131) (338) (307) Noncontrolling interests and redeemable noncontrolling interests(2) (188) (68) (336) (136) Preference share dividends (81) (71) (164) (144) ---------------------------------------------------------------------------- Adjusted earnings(1) 662 456 1,337 1,119 Adjusted earnings per common share(1) 0.41 0.50 0.95 1.25 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash flow data Cash provided by operating activities 2,033 1,370 3,710 3,231 Cash used in investing activities (2,368) (2,080) (5,891) (3,932) Cash provided by financing activities 531 230 2,124 981 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Available cash flow from operations(3) Available cash flow from operations 1,324 868 2,539 1,982 Available cash flow from operations per common share 0.81 0.95 1.81 2.21 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Dividends Common share dividends declared 1,003 492 1,551 952 Dividends paid per common share 0.610 0.530 1.193 1.060 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Shares outstanding (millions) Weighted average common shares outstanding 1,628 917 1,404 897 Diluted weighted average common shares outstanding 1,636 925 1,413 904 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, ----------------------------------- 2017 2016 2017 2016 ---------------------------------------------------------------------------- Operating data Liquids Pipelines - Average deliveries (thousands of bpd) Canadian Mainline(4) 2,449 2,242 2,521 2,392 Lakehead System(5) 2,604 2,440 2,675 2,588 Regional Oil Sands System(6) 1,171 823 1,228 987 Gas Pipelines - Average throughput (mmcf/d) Alliance Pipeline Canada 1,519 1,559 1,574 1,587 Alliance Pipeline US 1,623 1,698 1,674 1,724 Canadian Midstream(7) 2,177 - 2,458 - Gas Pipelines and Processing - Volumes processed (mmcf/d) Canadian Midstream(8) 1,715 - 1,875 - US Midstream(9) 5,422 1,141 5,591 1,154 Gas Pipelines and Processing - natural gas liquids (NGL) production (thousands of bpd) US Midstream(9 ) 518 159 516 149 Gas Distribution - Enbridge Gas Distribution Inc. (EGD) Volumes (billions of cubic feet) 71 78 243 251 Number of active customers (thousands)(10) 2,167 2,133 2,167 2,133 Heating degree days(11) Actual 462 546 2,148 2,255 Forecast based on normal weather volume 476 478 2,351 2,309 Gas Distribution - Union Gas Limited (Union Gas) Volumes (billions of cubic feet) 222 - 371 - Number of active customers (thousands)(10) 1,465 - 1,465 - Heating degree days(11) Actual 492 - 1,093 - Forecast based on normal weather volume 514 - 1,090 - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 1 Adjusted EBIT, adjusted earnings and adjusted earnings per common share are non-GAAP measures that do not have any standardized meaning prescribed by GAAP - see Non-GAAP Measures. 2 These balances are presented net of adjusting items. 3 ACFFO is defined as cash flow provided by operating activities before changes in operating assets and liabilities (including changes in environmental liabilities) less distributions to noncontrolling interests and redeemable noncontrolling interests, preference share dividends and maintenance capital expenditures, and further adjusted for unusual, non- recurring or non-operating factors. ACFFO and ACFFO per common share are non-GAAP measures that do not have any standardized meaning prescribed by GAAP. 4 Canadian Mainline throughput volume represents mainline system deliveries ex-Gretna, Manitoba which is made up of United States and eastern Canada deliveries originating from western Canada. 5 Lakehead Pipeline System (Lakehead System) throughput volume represents mainline system deliveries to the United States mid-west and eastern Canada. 6 Volumes are for the Athabasca mainline, Athabasca Twin, Waupisoo Pipeline and Woodland Pipeline and exclude laterals on the Regional Oil Sands System. 7 Canadian Midstream throughput volumes represent throughput from the Western Canada Transmission & Processing assets only. 8 Canadian Midstream processing volumes represent the volumes processed through the Tupper Main and Tupper West gas plants and the Western Canada Transmission & Processing assets. 9 US Midstream processing volumes and NGL production represent the volumes processed and produced from the Field Services assets and the Midcoast Energy Partnership assets as well as the Aux Sable processing plant. 10 Number of active customers is the number of natural gas consuming EGD and Union Gas customers at the end of the period. 11 Heating degree days is a measure of coldness that is indicative of volumetric requirements for natural gas utilized for heating purposes in EGD's and Union Gas's franchise area. It is calculated by accumulating, for the fiscal period, the total number of degrees each day by which the daily mean temperature falls below 18 degrees Celsius. The figures given are those accumulated in the Greater Toronto Area.

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