Nov 5, 2008
Executives
Vern Yu - VP of IR & Enterprise Risk Patrick D. Daniel - President and CEO J.
Richard Bird - CFO, EVP and Corporate Development Stephen J. Wuori - EVP, Liquid Pipelines
Analysts
Linda Ezergailis - TD Newcrest Andrew Fairbanks - Merrill Lynch Carl Kirst - BMO Capital Markets Robert Hastings - Canaccord Adams Matthew Akman - Macquarie Research Equities Robert Kwan - RBC Capital Markets Andrew Kuske - Credit Suisse Winfried Fruehauf - W. Fruehauf Consulting Ramin Burney - National Bank Financial Sam Kanes - Scotia Capital Scott Haggett - Reuters
Operator
Good morning ladies and gentlemen, and welcome to the Enbridge Third Quarter 2008 Financial Results Conference Call. I would now like to turn the meeting over to Mr.
Vern Yu.
Vern Yu - Vice President of Investor Relations & Enterprise Risk
Thank you and good morning. Welcome to Enbridge's Q3 2008 earnings call.
With me this morning are Pat Daniel, President and Chief Executive Officer; Richard Bird, Executive Vice President and Chief Financial Officer and Corporate Development; Steve Wuori, Executive Vice President, Liquid Pipelines; and Colin Gruending, Vice President and Controller. Before we begin, I should advise you during this conference call we may refer to certain information that constitutes forward-looking information.
Please take note of the legally required forward-looking information disclaimer in our slide, which generally states that you should not place undue reliance on the statements about our future since we necessary apply certain assumption to reach these conclusions about our future outcome, and future outcomes are always subject to risks and uncertainties affecting our business, which include regulatory parameters, weather, economic condition, exchange rates, interest rates and commodity prices. A more fulsome disclosure of these risks and uncertainties is available at securities files.
This webcast... this call is webcast and I'd encourage those listening on the phone lines to view the supporting slides which are available on our website.
A reply of the call of the available later today and the transcript will be posted shortly thereafter. The Q&A format will be the same as of the past few calls.
The initial Q&A session will be restricted to the analyst community. And once that's been completed, we invited calls from the media.
I will also remind you that Colin, Pat, Wuori and myself will be available for follow-up questions after the call. And at this point, I'd like to turn the call over to Pat.
Patrick D. Daniel - President and Chief Executive Officer
Thanks, Vern. And good morning, everyone.
Thank you for taking the time to joining us this morning. And as you know, earlier today we reported year-to-date adjusted earnings of $474 million, which is 8% higher than last year.
And that we've reported third quarter adjusted earnings of $86 million, at which were 9% higher than Q3 of last year. This increase in earnings is primarily due to the progress that we've made on our first wave of liquid's pipeline projects.
We've now placed in the service the Waupisoo Pipeline and phase one of our Southern Access expansion and we continued to make excellent progress on building Alberta Clipper, Southern Lights and the balance of the wave one projects. The earnings contributions from these projects and the strength of the existing business allows us to be highly confident that we will realize earnings in the range of $1.85 to $1.95 per share in 2008, and will allow us to grow earnings per share at 10% plus per year, from 2007 through 2012.
Then Richard is going to provide the detailed review of the quarter in a few moments. Since, we've just seen most of you at our recent Investor Day sessions in Toronto in New York, I'm going to try to keep my opening remarks quite brief today.
But if you didn't get a chance to attend either one of those Enbridge day events, I would encourage you to review a replay of the webcast on our website. And there you're going to find our take on the supply and demand fundamentals of North American natural gas and crude oil markets, also detailed updates on all of our wave one and wave two growth projects, an update our financial projections and financing plans.
And, of course, a description of what we considered to be the safe haven nature of the investments in Enbridge. So, all of that is available online.
At Enbridge day we focused on how Enbridge is a unique contribution or combination of safety, income and growth. And we've described it as an investment triangle.
This has allowed us to significantly outperform the broader equity market and our peers in these very turbulent times. Since the start of the credit prices in December of 2007, Enbridge has generated a 16 month total shareholder return of 22.5% on the TSX and 7.5% on the NYSE.
The weaker performance on the NYSE is only due to the recent weakening of the Canadian dollar, where we've moved from close to park for about $0.87 in the month. So, excellent performance over a period of uncertainty.
We believe that this superior stock performance in these very trying times is the direct result of the low risk nature of the business. And what I'd like to do is run through those risks starting with capital cost risk, which we think is probably the most relevant today.
We limit the capital cost risk by negotiating our new construction projects that limit our exposure to the capital costs. And generally what we tend to do is target a 12% return on equity with the plus or minus bracket of 2% on our return depending on how we manage costs.
We've also, on top of that established a major project business unit and that was done at the beginning of this year to ensure that our construction projects are now centrally controlled and manage. Secondly, with regard to risks, we have little or no volume risk on the system.
Over 80% of our earnings are from cost of service or take-or-pay contracts and over 95% of Enbridge earnings are from regulated businesses. So once again, very low risk.
Thirdly, with regard to commodity, FX and interest rate risks, we've got a very fulsome hedging policy and we limit our exposure to market price to be less than 5% of adjusted earnings. So when you see the price of crude oil falling off sharply as we have recently, you don't need to be concerned about your Enbridge investment.
While our second wave of growth is somewhat tied to long-term commodity prices, you will not see our day-to-day earnings impacted by commodity price. And lastly, with regard to credit risk, almost 95% of our business is done with very large record both energy and industrial company.
So our contracts with the large multinational energy companies of the world, companies such as Axon, BP, Shell, EnCana, SunCor. We do not have any appreciable exposure to the financial counterparties.
And when we work with companies of lesser credit quality, we ensure that we've got proper collateral in place. The current status of the capital markets, courses are concerned for all companies and especially a concern for those companies with significant growth plans.
While our capital program is significant, we took early and appropriate actions to successfully finance what we want. So, if you take into account our free cash flow, the sale of our Spanish assets CLH are dividend reinvestments plan and the recently completed $1.5 billion project financing for Southern Nights.
Our $12 billion capital requirement is been reduced to a debt requirement of roughly $2 billion and an equity need of only $600 million and that's over the next four years. The aggregate of this funding requirement is less than the $3 billion of excess bank liquidity that we currently have in place.
And this ensures that for the next few years, we'll have a great deal of financial flexibility. So, I mean I'd like to spend a few minutes on the impact of falling oil prices that may have on our expansion projects.
The first point is that our wave one projects as I mentioned are commercially secured and under construction, and this drop in crude prices will anomaly affect there in service stage or the earnings profiles once they are placed into service. The only exception to this of course is the Fort Hills project.
And over the last few weeks you're probably read varying comments on the current plans for the projects. We have been and will continue work very closely with the Fort Hills partnership and have provided the partners with a number of different design scenarios to accommodate shifting either upgrade synthetic crude or bitumen.
We expect the decision on the project in December and we continue to work towards of mid 2011 and service date that to the pipeline. The impact on the wave two projects is probably too early to know at this point and we believe that most, if not all of these projects will still be required for a number of reasons.
Firstly, these projects are further out in the 2012 plus timeline, and although oil prices have dropped in the last few weeks, long-term crude oil price forecast has not fallen as dramatically. And just as producers didn't use the $1 or $150 a barrel as a planning benchmark during the price run-up earlier this year, they're probably not going to be using $65 per barrel crude oil long-term.
Secondly, the bulk of the wave two projects are designed to extend the market. Whether it's into Eastern PADD II, whether it's into PADD I, the U.S.
Gulf Coast, off of the West Coast of Canada. And they are extending for Canadian producers to tie new oil sands production into the Edmonton and Hardisty pipeline hubs.
These projects will ensure that Western Canadian producers get the best possible netbacks, which will be even more important in the lower price environment to in a lot of ways, these longer term projects make even more sense. And of course, Enbridge economies have scaled will serve our customers very well in this environment.
Finally, we believe that our phased approach to extending into these new markets is even more attractive than this financial environment as it requires less of a financial commitment by our shippers, and in some cases no commitment at all as they that can be built the mid '09 toll structure. So that really concludes my prepared introductory remarks.
Richard is now going to go through as a financial and operating knowledge for the quarter. And then I'll come back at the end.
Richard?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Okay. Thanks Pat and good morning everyone.
As released this morning, reported net income for the third quarter was $148 million compared to $78 million in 2007. And adjusting for a non-operating items, third quarter earnings were $86 million or $0.24 per share, up from third quarter 2007 earnings of $79 million or $0.22 per share.
So, with the number of adverse external developments in Enbridge's business environment in the third quarter, you are seeing a live stress test of the low risk safe haven aspect of our investor value proposition which Pat just spoke about. During the third quarter, we experienced another hurricane and a decline in commodity prices which far exceeded the level of volatility any one would plan for.
Despite this, our adjusted earnings per share of $1.32 for the nine months held at 7% lift over the $1.23 figure from last year. For sure, we were expecting a little stronger quarter.
And these externals events would continue to affect us in the fourth quarter as well, taking little of the icing of the cake for 2008. But we remain on track to hit our guidance range of $1.85 to $1.95 and our prospects beyond 2008 remain very strong as Pat indicated.
I'll now take you through a quick summary of each operating segment, highlighting the major points for the quarter. Liquids pipelines increased both in the quarter and the year-to-date as a result of AEDC being recruit for Southern Lights and within the Enbridge system on Alberta Clipper and Southern Access expansion.
In addition, we are seeing the impact of the Waupisoo Pipeline and other additional contract terminal infrastructure which has been placed in the service throughout 2008. This was somewhat offset within the third quarter as a result of wave two business development costs.
The earnings contribution from our Gas Pipeline segment was down slightly for the quarter, continuing the pattern from the first half of the year. For the most part, this is as expected due to gradual rate based depreciation and foreign exchange effects.
However, the performance of offshore was adversely affected by Ike to the tune of $4 million, offsetting improving fundamental performance from Neptune and Atlantis. And we expect to see another $7 million to $8 million impact from repair cost and loss revenue from Ike in the fourth quarter.
Our Sponsored Investments segment continued to perform well in the third quarter. The Liquids Pipeline segments within Enbridge Energy Partners was a strong contributor, largely offsetting the hurricane impact on the Gas segment.
And we received an increased amount through the GP incentive distribution mechanism. Likewise, the Liquids Pipeline segment within the Enbridge income fund is driving growth in earnings and cash flow for the fund, supporting a 12% increase in the monthly distribution rate for 2009, which will further enhance our incentive distributions from sponsored investments.
It's also notable that the fund has received shipper support for a further $100 million expansion of the Saskatchewan system to accommodate increasing oil production from the Bakken Shale play. This is the same shale formation which is driving a similar expansion of Enbridge Energy Partners North Dakota system.
The potential from the Bakken is quite extraordinary. Gas distribution and services also performed better within the quarter and year-to-date due to strong performance within Enbridge gas distribution under the new incentive regulation regime.
This performance was augmented by improved results at Aux Sable due to stronger margins which have been locked in. Energy service was a drag for the quarter, taking back most but not all of the favorable year-over-year pick-up achieved in the first six months.
This is where we felt the impact of commodity price declines, though well within our earnings at risk parameters and more than offset on an overall basis by the other positives within the segment. International results, of course, reflect the sale of CLH in the second quarter of this year.
And lastly, corporate costs are also lower due to the decrease in interest expense as a result of lower average rates year-over-year and the payback of debt from the proceeds received from the sale of CLH. Finally, we get a lot of questions on the road with respect to the impact of the current financial market turbulence on both the cost and availability of funding to us.
So I'll update you on that. Pat has already discussed our funding requirements and the flexibility provided by our liquidity position to pick our timing on capital markets funding.
However, as an investment grade credit, we continue to receive indications that we could issue term debt even in the current market. Spreads would be wider than previously planned, but all in rates not a great deal higher.
We have the liquidity to wait for our spreads to improve, but we won't wait too long to issue debt because we prefer to maintain our liquidity cushion and not encroach on it very much. With respect to the impact of higher debt cost on our earnings, there would some but not much.
For nearly all of our $12 billion of commercially secured projects, financing cost are a pass through into totals. And this applies to both construction financing and permanent financing.
The only impact on our bottom-line would be from the portion of our corporate debt, which isn't allocated to a specific project but is leveraged against the overall portfolio. This is an impact which we are taking into consideration in assessing our growth outlook, but it is a small impact.
So in summary, despite hurricanes, commodity price volatility and financial market disruptions, we remain on track both to meet our full year guidance of $1.85 to $1.95 per share and to achieve our 10% plus average annual growth trajectory through 2012. That completes my remarks.
So, over to you Pat for concluding comments.
Patrick D. Daniel - President and Chief Executive Officer
Great. Thanks Richard.
So to reiterate, despite of volatile third quarter in term of financial markets and commodity markets, Enbridge remains on target for not only this year, but for the foreseeable future, while we continue to make very significant progress in constructing our wave one expansion projects. Finally, I think it's fair to say that Enbridge's unique combination of safety, income and growth has allowed our stock to significantly outperform the broader Canadian and U.S.
equity markets and all of our peers, both Canadian and U.S. peers and we're very proud of that.
So on that note, we can move on to the Q&A. Vern?
Vern Yu - Vice President of Investor Relations & Enterprise Risk
Thanks Pat. And I think we are ready to take questions as they come in place.
Question And Answer
Operator
At this time, we'll now take question from all analysts. [Operator Instructions].
And your first question comes from the line of Linda with TD Newcrest. Please proceed.
Linda Ezergailis - TD Newcrest
Thank you. I am wondering if you can quantify the amount of business development expenses for wave two projects in Q3 and what your expectation of a run-rate going forward for I guess the balance of the year as well as 2009 and 2010 would be?
Patrick D. Daniel - President and Chief Executive Officer
Richard or Colin, can you take that?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Sure, I'll take it. Q3 business development costs, I think ran us at a $2 million higher than of course one quarter in the prior year.
And, I'm not sure that's indicative of what our running REI is going to be a go forward basis, because I think we are looking at starting to manage those down to a certain degree. So, it's probably a little bit more of a onetime lift that we would expect to see on a go forward basis.
Linda Ezergailis - TD Newcrest
Okay. Thank you.
And, if you can just clarify your revolving credit agreement with EEP of $500 million, would you expect that the magnitude of that agreement to grow and for how long is that agreement in place?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
That's a three year term facility, and when we display Enbridge's available liquidity, we lock that amount off the top because that is set aside for EEP. At the moment, there is no plans to extend additional liquidity to EEP or above that.
We believe what it has in place, will be sufficient but we do have the ability to do so if that were necessary.
Linda Ezergailis - TD Newcrest
Great, thank you.
Patrick D. Daniel - President and Chief Executive Officer
Thanks Linda.
Operator
And your next question will come from the line of Andrew Fairbanks with Merrill Lynch. Please proceed.
Andrew Fairbanks - Merrill Lynch
Hey, good morning guys. I'm just curious, as we see potentially the mix of oil sands projects move more to raw bitumen from synthetic crude oil.
How would that affect your capacity plans going forward and the overall system's ability to deliver volumes to where they mostly used by U.S. refining systems?
Patrick D. Daniel - President and Chief Executive Officer
Well, just in general terms, first of all Andrew, if all of other projects went as scheduled but stopped at the bitumen phase that would result in the need for more pipeline capacity ex-Alberta because of course you're transporting bitumen diluted say one-third, two-third for condensate and hence takes more pipeline capacity than if we are taken through to the upgraded stage. So, potentially stopping at the bitumen phase could be beneficial for pipeline capacity.
And, of course, that's one of the beauties of Enbridge system. As you know we transport over 100 different types of crudes from refined products right through the heavy, so we are able to accommodate no matter what the market does, whether it's updated crude whether it's refined product, whether it's bitumen we are able to move it.
Andrew Fairbanks - Merrill Lynch
That's great. Thanks Pat.
Patrick D. Daniel - President and Chief Executive Officer
Thanks Andrew.
Operator
And your next question will come from the line of Carl Kirst with BMO.
Carl Kirst - BMO Capital Markets
Hey, good morning everybody. Pat, you had mentioned in your comments that you're working with the shippers in the Fort Hills perhaps under different designs.
Did any of those varying designs to the radically change the scope of the $2 billion proposed projects or should we think of that right now with more sort of tweaks to the design change?
Patrick D. Daniel - President and Chief Executive Officer
Well, there are various different alternatives that we've been looking at depending on whether the project proceeds as originally designed, whether it kind of stops at phase 1. And I guess either Steve Wuori...
Steve why don't you go and take that because you've been most closely involved? And we can't tell you everything at this point Carl, because we're working in confidence with them.
As you know, we've been selected as their pipeline provider and are working in confidence with them. And I have to wait for their December announcement, but Steve can tell you some of the other things that we've looked at.
Stephen J. Wuori - Executive Vice President, Liquid Pipelines
Sure. As you know the discussion in the market has been whether or not the upgrader will get built in conjunction with the Fort Hills project on the same timeline that it was originally planned for.
And really all that would do is change the design of the system at the Southern end where the upgrader will be... would be sooner if they move ahead on the original timeline.
And so, the base design of the project to move diluted bitumen sell from the mine site down to the Edmonton area and condensate moving back for diluents is really unchanged. It's really just a matter of the plumbing in the Edmonton and north of Edmonton in the Sturgeon County area that would change.
Carl Kirst - BMO Capital Markets
Okay, okay. Thank you.
And then just a quick follow up, obviously ENB terrifically positioned here from a liquidity standpoint. EEP needs a little bit more equity near term.
Can you update us as far as perhaps what the status of that is and here is the MLP market has recovered somewhat from pretty dismal lows? Is this something where if need be ENB might look to take additional units from EEP if necessary?
Can you just sort of give us a status update of what you're thinking here?
Patrick D. Daniel - President and Chief Executive Officer
Sure. That's one of the...
one of our considerations Carl. But I'll let Richard to speak to the various alternatives that we've looked at deep liquidity.
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Okay. So, I guess first of all EEP does have an adequate liquidity position itself, maybe not quite as robust as Enbridge does but certainly between their facilities, the cash that they've got in hand and the facility they have with us, they've got reasonable amount of room to run.
They will, as you've indicated need to raise equity at some point to carryon with the capital expansion program that they've got, which is a very attractive and favorable capital program. EEP is looking at a number of alternatives to fund that program, including asset sales and asset monetizations in addition to issuing equity.
So, we're... our preference would be through some combination of those actions that it would be successful in achieving the level of equity that requires Enbridge could as it has in the past put additional equity into EEP would rule that our.
But neither would I say that that's our preference.
Carl Kirst - BMO Capital Markets
Understandable. Should we still think of that as roughly something that may occur or buy or around year end?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
An equity action by EEP?
Carl Kirst - BMO Capital Markets
Well, something to address the credit rating agencies' concerns, whether it happens to be a small asset monetization or a combination of things. I guess is it something that we should think of as perhaps being sooner rather than later or is this something that perhaps might be something more spring or later even?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Yes, I think we will need to see some actions being undertaken by spring or before the spring. I wouldn't pin it down to as soon as year end, but between now and then.
And probably as you're suggesting, it would be a number of things as opposed to just any one.
Carl Kirst - BMO Capital Markets
Okay. I appreciate the color.
Thank you.
Patrick D. Daniel - President and Chief Executive Officer
Thanks Carl.
Operator
And your next question will come from the line of Bob Hastings with Canaccord. Please proceed.
Robert Hastings - Canaccord Adams
Thank you. Just a clarification on two things; one is you mentioned the business development expense was up $2 million...
up about $2 million from last year. Can you give us the absolute number?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
I don't think we get into that level of detail Bob.
Robert Hastings - Canaccord Adams
Okay. And then, the comments on the impact of the hurricanes, you mentioned the $4 million number, was that pre of after tax?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
That was after tax.
Robert Hastings - Canaccord Adams
Okay. And you're active it was after tax as well for your fourth quarter impact from the hurricanes?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
That's correct.
Robert Hastings - Canaccord Adams
Okay. And then, my other question is the energy services inventory charged in the third quarter, can you give us some magnitude around that, reached along as an $8 million swing year-over-year in the quarter and just wondering how much of it from that?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
My thinking aggregate, we picked up relative to our expectations, let's measure it that way, about a $4 million shortfall between the inventory adjustment and just lower operating performance in the environment which reduced some of the opportunities that otherwise would be.
Robert Hastings - Canaccord Adams
So that $4 million was... sorry I guess it was evenly spread between the inventory and the just lower operating performance?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Yes, combination of the two.
Robert Hastings - Canaccord Adams
Alright.Okay. Thank you very much.
Patrick D. Daniel - President and Chief Executive Officer
Thanks, Bob.
Operator
And your next question comes from the line of Matthew Akman. Please proceed.
Matthew Akman - Macquarie Research Equities
Thanks very much. Two questions.
One is one Aux Sable, there is unrealized derivative for value gain facts for around a lot. Can you please just explain how the gain comes about and what your hedges look like just relative to this year going to next year?
Patrick D. Daniel - President and Chief Executive Officer
Yes, Richard?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
We pretty much have our Aux Sable earnings expectation built into our guidance locked-in at this point for the year. So, it's really just a question of when that's recognized over the course of the year.
And we've got a little bit more upside potential at this point if things were to improve significantly in the next couple of months. But, we're pretty well locked for the year.
In terms of rolling into next year, we would be already well along in our hedging program for next year. And so, as we roll into guidance for 2009 will reflect what our expectations are there, but we've captured substantial amount of upside for 2009 as well.
Matthew Akman - Macquarie Research Equities
So, when you book an unrealized derivative fair value gain in the quarter, Richard, is that because the hedges going forward through '09 are in the money, relative to where the mark was?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
That is right.
Matthew Akman - Macquarie Research Equities
And when was the mark made?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
December 30th, I think.
Matthew Akman - Macquarie Research Equities
Okay. Thanks for that.
And my last question is simply to provide some more color on how you guys were exposed to some group in Lehman. And what kind of activities were involved in that exposure please?
Patrick D. Daniel - President and Chief Executive Officer
Vern, can you take that?
Vern Yu - Vice President of Investor Relations & Enterprise Risk
We had sold 10 group, some crude oil through our title energy affiliates. And Lehman brothers, we had natural gas sales contract through our Enbridge gas services subsidiary as well.
Matthew Akman - Macquarie Research Equities
Okay.
Patrick D. Daniel - President and Chief Executive Officer
As you know, those were very small exposures Matthew.
Matthew Akman - Macquarie Research Equities
Okay. Yes, thanks very much.
Those were my questions.
Patrick D. Daniel - President and Chief Executive Officer
Okay. Thank you.
Operator
And you next question comes from the line of Robert Kwan with RBC. Please proceed.
Robert Kwan - RBC Capital Markets
Great, thank you. Just of the $6.2 billion of the credit facilities, can you give a breakdown of maturity schedule by amount in year?
Patrick D. Daniel - President and Chief Executive Officer
Can we follow-up with you on that Robert. I should have that handy, but I don't.
It's a mixture of 364 day with one year turn out some three and some four year facilities. But Vern will get back to you with the details on that.
Robert Kwan - RBC Capital Markets
Sure, that's great. My other question relates to the funding table that you have on slide eight.
The first part, does that include Alberto Clipper as the estimated spent cost versus for 2007 cost? And then secondly, when you look at just the timing especially given the free cash flow is a little backend loaded, when would you expect to address the residual equity need that based on your interim credit metrics and then that free cash flow profile that you have?
Patrick D. Daniel - President and Chief Executive Officer
First of all with regard to the Clipper, it's the estimated as spent. So, it's expected Clipper up-to-date.
Richard, can you address the timing on the overall $600 million of equity over that four year time?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Yes. Again I think we have a lot of flexibility on that in the near term, but you're right.
The standing profile is front-end weighted. And so, the bulk of that $600 million, we will require in the next 18 to 24 months.
Robert Kwan - RBC Capital Markets
Okay, great. Thanks Pat, thanks Richard.
Operator
And your next question will come from the line Andrew Kuske with Credit Suisse. Please proceed.
Andrew Kuske - Credit Suisse
Thank you, good morning. Just wondering to the extent that you've really started to think about your potentially much different credit metrics pattern into the future.
And then just drawing a contrast to the time that all the industries' credit standards really tightened in the wake of the end of the class of Enron back in 2001 or early 2002?
Patrick D. Daniel - President and Chief Executive Officer
I'm sorry. What's the question around that, Andrew?
Andrew Kuske - Credit Suisse
Well just... have you really thought about credit metrics changing dramatically to the point that...
say we had to have another 5% to 10% of equity in your capital structure and that's what the debt raters were really asking for your lending specific?
Patrick D. Daniel - President and Chief Executive Officer
Yes. And you're right.
Sure we have, because your comparison back to the Enron days is very accurate. We saw some tightening and the actions that we took at that time.
Then I'm going to let Richard speak more specifically to it because it has been an area of consideration to us.
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Basically in our go forward plans we have... I wouldn't say we've made a quantum change in our capital structure.
But we have, for the reasons you just identified Andrew we have notched up our equity capitalization versus debt capitalization by a little bit hopefully, sufficiently to reflect the concerns you have. We do obviously remain in pretty constant dialogue with the rating agencies and at the moment at least, we are not seeing any indication on their part of the significant shift in expectations for our industry sector.
They have pretty well established guidelines on those kinds of things for our industry sector. And at the moment, we are not seeing any indication that they will be looking for more than they have historically.
But we have nevertheless say in our own plans going as snick more consecutive.
Patrick D. Daniel - President and Chief Executive Officer
And I think Andrew just adding kind of a general comment to that I think that we have proven again as we did through the Enron era and now this concern around credit that companies that own and manage hard assets do well and probably deserve better credit considerations than many deal and financial instruments or other ways of booking earnings. And I look back on it and felt that probably we were a little unduly pressured by the rating agencies post Enron, considering the fact we were never in that business.
And I think therefore we would expect the rating agencies to look towards the hard assets and not dramatically change the metrics for our industry.
Andrew Kuske - Credit Suisse
And if may I ask somewhat related question, just as it relates to your earnings of risk metrics internally, with the volatility we've seen in the last two months, has that caused you to rethink and revisit a lot of the parameters around your own risk metrics eternally?
Patrick D. Daniel - President and Chief Executive Officer
I'll comment generally and the Vern has put his hand up because he wants to respond to that as well Andrew. But I think as we indicated, this has been a tremendous stress test of our EAR.
And look that we have come through the quarter, through the three quarters just right on target, right on budget, right on guidance. So I think it's working exactly the way we want it to work.
It's part of the Enbridge investment proposition and we're quite comfortable. This has been as dramatic swing in commodity prices as we will see, at least I hope.
And we've come through it and I think with shining colors. So, I don't think we will dramatically change that.
Vern?
Vern Yu - Vice President of Investor Relations & Enterprise Risk
Andrew, the earnings of our risk metric is design to look at how much the earnings would be impact by two standard deviation moving market crisis. What we saw was well beyond to standard deviations.
And when we go forward and measure earnings risk on a go-forward basis, we'll look at how volatility has changed over the last period of time. And it will reflect higher volatility as we move forward because of what's happened here.
So, if we've just seen a very modest impact in our energy services division, you can see that our earning... our actual earnings are at risk or well below that 5% that limit that we have for the corporation.
Andrew Kuske - Credit Suisse
Okay. That's great.
Thank you very much.
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Thanks, Andrew.
Operator
And your next question will come from the line of Winfried Fruehauf from W. Fruehauf Consulting.
Please Proceed
Winfried Fruehauf - W. Fruehauf Consulting
Thank you. I have a question on the international financial reporting standards.
And, I'm wondering how far down the road is Enbridge in adopting these standards? What is the estimated total cost, and thirdly has Enbridge tested how some historical results for example for 2007 would have faired under Canadian gap versus the international financial reporting standards?
Patrick D. Daniel - President and Chief Executive Officer
Sure. I'll...
Richard is going to respond to that, Winfried we're well into our planning towards movements to IFRS. As a matter of fact they go through very thorough review with our AF and our committee yesterday.
And I'll let Richard tell you specifically where we are and where we think we're going?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Sure. I guess I should take first of all that we haven't made a decision at this point as to whether we will go with IFRS or whether we will elect for U.S.
GAAP, which is an option that's available to us. We're weighing the pros and cons of both alternatives.
The benefit of U.S. GAAP of course being that our financials wouldn't really be materially different looking under U.S.
GAAP than they are at the moment. In fact, we do U.S.
GAAP note and you can see there is really not much difference. So, that's a decision that we're weighing.
We're going to have to make that decision relatively quickly to maintain on tracks for implementation of either a conversion to U.S. GAAP or a conversion to IFRS.
Feedback we have from our external advisories with respect to our state of readiness and the preparatory work that we've done to go in either direction is that we're a bit ahead of the pack, at least consistent with peers and the rest of industries or a bit ahead. So, I think we're in good shape as we move ahead.
There will, for sure, be some cost. There will be cost really on either choice conversion IFRS or to U.S.
GAAP. I don't think we're in a position to specifically quantify those at the moment.
I don't think that they will be material in the big picture, but there'll be another little bit of cost along with SOX and various other regulatory costs that our current world imposes on us. And if I have missed anything Winfried maybe you could just remind me of whether there was another question in there.
Winfried Fruehauf - W. Fruehauf Consulting
No, no. You answered it well and thanks very much.
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Thanks Win.
Operator
And your next question will come from the line of Ramin Burney with National Bank Financial. Please proceed.
Ramin Burney - National Bank Financial
Thanks. Good morning.
Regarding the halting of the stone pill terminal here, the work here, how much has been reimbursed by BA energy?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
BA is as per our arrangements with them has reimbursed us for all of the cost that we incurred on the portion of the terminal that was dedicated to them. And in fact, over and above that a return on the capital that we had tied up for that period of time.
Ramin Burney - National Bank Financial
And what is the amount? Are you allowed to --
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
I don't believe we've made that a matter of public record. That's a confidential matter between us and them.
Ramin Burney - National Bank Financial
Alright. And as far as the Fort Hills pipeline project, how much cost has been incurred to-date?
Patrick D. Daniel - President and Chief Executive Officer
Steve, you know that number at the top of Fort Hills cost?
Stephen J. Wuori - Executive Vice President, Liquid Pipelines
It would be a relatively small amount incurred to-date, but we have made commitments on steel pipe at this point in time. Again, of course all of those costs are pass-through to the Fort Hills pipeline partners.
Ramin Burney - National Bank Financial
Alright. And a follow-up question here, regarding the Northern Gateway project, I mean there has been some media reports out there, saying that Enbridge is prepared to offer equity stakes to aboriginal groups here.
Are you... given it's quite preliminary here, I mean are you still considering keeping up 51% stake and the other 49% offering it to the refiners, producers and aboriginals?
Patrick D. Daniel - President and Chief Executive Officer
Yes. That's right.
We would intend to maintain a 51% in first. And you are right, we have indicated that we would be prepared to make up to 49% of the equity available to our partners, producers and refiners and first nations in aboriginal groups.
Ramin Burney - National Bank Financial
Alright. Thank you.
Patrick D. Daniel - President and Chief Executive Officer
Thanks Ramin.
Operator
Now, next question a follow up question with Linda Ezergailis with TD Newcrest. Please proceed.
Linda Ezergailis - TD Newcrest
Thank you. I'm wondering if you could help us understand a little bit more about your $55 million of unrealized derivative fair value gains related to storage transactions at tidal energy.
When would you expect to realize that?
Patrick D. Daniel - President and Chief Executive Officer
Vern?
Vern Yu - Vice President of Investor Relations & Enterprise Risk
Hi, Linda. Those are the transactions that hedged future sales of the commodity.
And you would see that reverse over Q4 and Q1 of next year.
Linda Ezergailis - TD Newcrest
Okay. And so that was commodities that were owned by Enbridge or that are owned by third-parties and your fees are tied to commodity prices?
Vern Yu - Vice President of Investor Relations & Enterprise Risk
Well, our marketing affiliate at tidal energy does often purchase crude oil and then sell crude oil in a look-forward basis and the vast majority the time with both the purchase between the sales are hedged so the economics are known. So that's why when you see the adjusted earnings you'll see very modest earnings numbers.
But on a GAAP earnings basis you'll see the full change in the fair value of the derivative but not the full change in the fair value of the underlying crude oil. So the GAAP earning show the change in the value of the derivative, which is going up substantially, but not the change in the fair value of physical commodity, so there is a mismatch in the accounting of what's actually happening.
Linda Ezergailis - TD Newcrest
Okay.
Vern Yu - Vice President of Investor Relations & Enterprise Risk
And that a reverse when the transaction settle.
Linda Ezergailis - TD Newcrest
So you said Q4 and Q1 of next year, so that's Q4 '09 and Q1 of '09?
Vern Yu - Vice President of Investor Relations & Enterprise Risk
Sorry, Q4 of this year and Q1 of next year.
Linda Ezergailis - TD Newcrest
Okay. Thank you.
And just as a follow-up clean-up question. Can you breakdown the amount of AEDC in the quarter and how much was related to Clipper versus sort of Access extension for example?
Patrick D. Daniel - President and Chief Executive Officer
Okay, Richard?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Sure. We've got in total about $15 million of the AEDC.
About half of that is Southern Lights and the rest of it is spread more or less evenly amongst the other projects.
Linda Ezergailis - TD Newcrest
And the other projects are just Clipper and Southern Access extension?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Also lying for and other work that would be going on just on the normal course within the Enbridge system.
Linda Ezergailis - TD Newcrest
So, evenly between Clipper and Southern Access extension line for a mainline system.
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Yes.
Patrick D. Daniel - President and Chief Executive Officer
Yes.
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
In round numbers.
Linda Ezergailis - TD Newcrest
Okay. Thank you.
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Just for clarification Linda on your earlier question on the unrealized gains, hopefully it was clear. But as those unrealized gains are realized, you are not going to see a sudden jump up in our earnings because they are offsetting the other side of the transaction which is the physical side.
So, derivative gains will in effect hedge out or offset what will turn out to be physical losses on those transactions. It could have gone the other way, where we could have gains on the physical transactions and losses on the derivatives, the whole purpose there is to neutralize the impact of commodity prices on that type of business and just preserve the original plan margin that was built into those transactions.
Linda Ezergailis - TD Newcrest
Great. Thank you.
Operator
And our next question comes from the line of Sam Kanes with Scotia Capital. Please proceed.
Sam Kanes - Scotia Capital
Good morning. Just curious on EGD, how are your tracking relative to your PBR expectations and what amount if any was in the Q3 of consequence, it could be broken out?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
I'm not sure I can break out a specific amount, but it should be eligible to that. But I think our overall performance on EGD under our overall operating performance is a bit ahead of what we were expecting.
And of course with the incentive regime, we get to keep the first 100 basis points of that. So it's working out a little better than expected at this point.
Patrick D. Daniel - President and Chief Executive Officer
So we're probably expecting Sam that we would realize that 100 basis point upside that we forecast that we should.
Sam Kanes - Scotia Capital
So that would be better than your guidance I presume?
Patrick D. Daniel - President and Chief Executive Officer
Yes.
Sam Kanes - Scotia Capital
Switching... thank you for that.
Your policy or latest policy, if there is policy on your ownership interest and Enbridge Energy Partners, you over the years taken dilution gains by not participating sometimes fully to participate in this latest year, you did not fully participate. As a net result, energy partners equity deal coming here down the road, is there a methodology?
Is it happen sense, how do you look at this?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Well, there is a methodology. It's pretty much the economics of the transactions Sam.
And as you know we started out the thing IPO, we held 20% interest and gradually alluded that down to 9% or 10% because effectively as a taxable entity, the economics of investing were best in the hands of retail investors. However, with the unit price where it is today, those dynamics change a little bit.
So that's one thing that we constantly evaluate as we go along and the opportunity comes to participate or not.
Sam Kanes - Scotia Capital
So, strictly economics?
Patrick D. Daniel - President and Chief Executive Officer
Yes. Well, I shouldn't say strictly economics, because there is the overriding issue that we know that investors want to see strong support from the sponsoring company, the sponsoring C Corp.
So, when we dropped down around 9% or 10%, we felt that was as low as we wanted to go, and you saw us turnaround with the case and reinvest in part because we wanted to show strong support from Enbridge's sponsor. So there is a limit as to how low we would go.
Sam Kanes - Scotia Capital
Thanks, Pat.
Patrick D. Daniel - President and Chief Executive Officer
Thanks Sam.
Operator
Ladies and gentlemen, at this time we'll now take questions from media. [Operator Instructions].
And our first question comes from the line of Scott Haggett. Please proceed.
Scott Haggett - Reuters
Hi guys. Thanks for the opportunity.
I'm just wondering you say you can still issue debt. So, can you give me some sort of sense of possible on how much you would look to test the markets this year and next?
Patrick D. Daniel - President and Chief Executive Officer
Richard?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Sure. Well, I do not know whether you have the visuals in front of you from our website Scott.
But, basically what we're indicating over our five year planning horizon is we are going to need to access capital markets for both $2 billion of debt. Again, that would tend to be more in the front-end than it will be in the back end of that five year period of time.
And we do have sufficient liquidity on our bank lines that there is no press who need to do that really. For a considerable period of time that come and go over $3 billion of liquidity on our bank line.
So, I don't think we are driven to a particular time table. But as I mentioned, our objective would be not to eat in too far into that liquidity cushion if we can see a reasonable opportunity in the market.
So, we'll sit and wait until we see an opportunity issue that what we feel are attractive spreads. They may not be as good spreads as would have been possible a year ago.
But, we'll wait till we see something a little bit better than what we're seeing at the moment.
Scott Haggett - Reuters
Okay. Thank you very much.
Patrick D. Daniel - President and Chief Executive Officer
As well as Scott, that's one of the advantages of having the liquidity that we do, we are able to time our entry into the market to suit us and to get the best trade possible.
Scott Haggett - Reuters
One more question if I could, have you found replacements for Lehman... complete replacements for Lehman in your banking group?
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
No. We haven't done that at this point.
We did have one bank come in a little earlier for a piece of the Lehman obligation. But we haven't moved ahead at this point to replace it.
And that's a relatively small amount. Our Enbridge facility, it's about $40 million of that $6.2 billion.
Patrick D. Daniel - President and Chief Executive Officer
So it's less than 1%.
Scott Haggett - Reuters
Great. Thank you very much.
Operator
And as a sign, there no more further questions in queue.
J. Richard Bird - Chief Financial Officer, Executive Vice President and Corporate Development
Okay. Well there aren't anymore question.
Call in Pat, Wuori and I are available for any detailed follow-ups. So please give us a call.
Patrick D. Daniel - President and Chief Executive Officer
Thanks everybody. And we will talk to you next quarter.
Operator
Thank you for your participation in the day's conference. This concludes the presentation.
You may now disconnect. Good day.
.