South Bow Corp’s Earnings Calls: Financing Strategy, Dividend Outlook Don’t Match

Date of Call: Mar 6, 2026

Guidance:

• Delivered normalized EBITDA of $1.02B in 2025, slightly above expectations, with marketing segment contributing modestly.
• Distributable Cash Flow of $709M, more than 30% above original guidance, enabling accelerated deleveraging.
• Exited 2025 with net debt to normalized EBITDA ratio of 4.7x, slightly better than expected 4.8x.
• Reaffirmed financial outlook for 2026, continuing to direct free cash flow to deleveraging and targeting 4x leverage in medium term.
• Expect pressure restrictions on Keystone Pipeline to be lifted in a phased manner, potentially returning operational capacity to over 600k barrels per day by early 2027.
• Blackrod cash flows will ramp in second half of 2026.
• Targeting to have derates lifted by end of 2026.

Business Commentary:

Financial Performance and Growth:

• South Bow delivered normalized EBITDA of $1.02 billion in 2025, slightly above expectations of $1.01 billion.
• The company reported Distributable Cash Flow of $709 million, exceeding original guidance by more than 30%.
• The financial outperformance was driven by effective risk management in the face of market volatility and tax optimization efforts.

Operational and Safety Achievements:

• South Bow achieved 0 recordable safety incidents across more than 2.5 million work hours during 2025.
• The Blackrod Connection Project was placed into commercial service less than 24 months from sanctioning.
• These accomplishments highlight the company's commitment to safety and operational discipline amid significant construction and maintenance activities.

Milepost 171 and Regulatory Compliance:

• The independent third-party root cause analysis confirmed the pipe and wells met industry standards.
• Progress on remedial actions included 11 in-line inspection runs and 51 integrity digs completed across the system.
• The phased lifting of pressure restrictions is anticipated to enable a modest increase in spot movements in 2026.

Growth Initiatives and Strategic Development:

• The Prairie Connector Project open season is underway to determine commercial interest for firm transportation service from Hardisty, Alberta.
• The company is focusing on organic growth opportunities leveraging pre-invested infrastructure to support anticipated crude oil production growth.
• South Bow is exploring a combination of organic and inorganic opportunities to diversify and enhance business competitiveness.

Capital Allocation and Shareholder Returns:

• The company exited 2025 with a net debt to normalized EBITDA ratio of 4.7 times, slightly better than the expected 4.8 times.
• In 2025, South Bow returned $416 million or $2 per share through its sustainable dividend.
• The focus remains on maintaining a strong balance sheet while investing in growth and delivering meaningful shareholder returns.

Sentiment Analysis:

Overall Tone: Positive

• Management stated '2025 was an important year...demonstrated the resilience of our business' and 'We delivered financial results that were slightly ahead of expectations.' They highlighted 'an open season to determine commercial interest is currently underway' for growth projects and expressed confidence: 'We’re confident in the foundation we’ve built, and the path ahead offers even greater opportunity. You can expect us to execute it the right way.'

Q&A:

• Question from Theresa Chen (Barclays): With respect to the open season for the Prairie Connector Project, can you discuss any early indications of commercial interest...What do you see as Prairie Connector’s key competitive advantages?
  Response: Management is in early stages and customer-aligned; competitive advantages include providing a direct and competitive path to the Gulf Coast.

• Question from Theresa Chen (Barclays): ...after sharing the root cause analysis related to milepost 171, can you talk about the timeline of lifting the pressure restrictions...?
  Response: Expect pressure restrictions to be lifted in a phased manner, with derates potentially lifted by end of 2026, returning capacity to over 600k barrels per day. Guidance considers tight differentials and market opening in early 2027.

• Question from Robert Hope (Scotiabank): ...when you think incremental capacity will be needed out of the basin, and then how would that mesh with...regulatory timeframe if this Prairie Connector Project does proceed?
  Response: Customer growth ambitions over 3-5 years align with potential development timeline; permits are in place, and project could be advanced quickly.

• Question from Robert Kwan (RBC): ...how do you think about the role of joint ventures and partnerships versus just outright acquisitions?
  Response: Organic development is more accretive; inorganic opportunities can complement and diversify, but won't advance at same EV to EBITDA build multiple.

• Question from Sam Burwell (Jefferies): ...are there any learnings to be had from what happened with the original Keystone XL?...
  Response: Learnings include leveraging permits, customer commercial discussions, and a more constructive policy environment focused on energy security.

• Question from A.J. O’Donnell (TPH): ...what’s needed on your U.S. Gulf Coast infrastructure...?
  Response: Project is a continuation of sequenced expansion of Keystone system; facility modifications will occur but leverage existing Gulf Coast capacity.

• Question from Ben Fullerton (TD Cowen): ...can you speak to how you may look to finance a potentially larger capital and longer duration project...?
  Response: Financing strategies include asset-level financing or partnerships, ensuring risk preferences are met and aligning with deleveraging to 4x target by 2028.

• Question from Robert Catellier (CIBC): ...is there any ability or understanding that you can invest in some of the downstream pieces...?
  Response: Focus is on Prairie Connector component; commercial discussions ongoing on participation scale.

• Question from Jeremy Tonet (J.P. Morgan): ...what gives you confidence to the ramp [for Blackrod] as you laid out in the slide...?
  Response: Confidence based on commercial agreements acknowledging production ramp-up sequence and full EBITDA contribution expected in 2027.

• Question from Patrick Kenny (National Bank Financial): ...back on the funding plan for Prairie Connector...can you confirm your desire for the Alberta government’s involvement...?
  Response: Alberta government prefers private developers; focusing on risk allocation and alignment with stakeholders, not seeking loan guarantees.

• Question from Benjamin Pham (BMO): ...update on your appetite and observations on acquisitions since your investor day?
  Response: Active dialogues on both organic and inorganic opportunities; valuations have improved, but confidence in infrastructure thesis is a tailwind.

• Question from Manav Gupta (UBS): ...how you mentioned that you materially exited the TSA with PC and were able to see some workflow optimization...?
  Response: Optimizations include new procurement processes, financial planning systems, and leveraging AI for efficiency, with 2026 as a year of implementation.

Contradiction Point 1

Financing Strategy for Larger Projects

Contradiction on whether Alberta government involvement or guarantees are sought for major projects.

Patrick Kenny (National Bank Financial) - Patrick Kenny (National Bank Financial)

2025Q4: The company is pursuing the project as South Bow, focusing on risk allocation discussions rather than government guarantees. - Bevin Wirzba(CEO)

Would the Alberta government consider equity or loan guarantees to fund the Prairie Connector project? - Sam Burwell (Jefferies)

2025Q3: The company's strategy is to leverage its pre-invested corridors in Alberta (from the former Keystone XL project) and its U.S. system. The company is evaluating how to use this pre-spend for other solutions. - Bevin Wirzba(CEO)

Contradiction Point 2

Outlook on Dividend Growth

Contradiction on the timing and conditions for future dividend increases.

What are your thoughts on the company's recent financial performance? - Manav Gupta (UBS)

2025Q4: A dividend increase will only be contemplated after achieving these targets, with no forecasted future growth. - Bevin Wirzba(CEO) and Van Dafoe(CFO)

How are you balancing dividend growth with debt reduction? - Maurice Choi (RBC Capital Markets)

2025Q3: The 2025/2026 DCF benefits are from these accelerated tax pools, with a return to a regular cadence in 2027. - Van Dafoe(CFO)

Contradiction Point 3

Keystone System Capacity Restoration & Spot Movement Timeline

Contradiction on when the Keystone system will be ready to handle increased spot capacity.

Theresa Chen (Barclays) - Theresa Chen (Barclays)

2025Q4: Guidance accounts for limited spot movement in 2026, with the market expected to open in early 2027 as basin growth surpasses egress. - Bevin Wirzba(CEO)

What is the timeline for lifting pressure restrictions on the Keystone system following the Milepost 171 incident, and how will capacity increases in the second half of 2026 impact 2026 guidance considering tight differentials? - Jessica Hoyle (Scotiabank Global Banking and Markets)

2025Q2: The goal is to have the system ready to accept spot volumes as supply grows in late 2026/2027. - Bevin Wirzba(CEO)

Contradiction Point 4

Valuation and Capital Allocation for Growth Projects (Blackrod)

Contradiction on the priority and capital allocation for the Blackrod project's cash flow.

Robert Kwan (RBC Capital Markets) - Robert Kwan (RBC Capital Markets)

2025Q4: The strategy combines both [organic and inorganic growth]. Organic development (like Blackrod) is more accretive, offering 6x–8x EV/EBITDA build multiples. - Bevin Wirzba(CEO)

How does the company prioritize joint ventures, acquisitions, and organic initiatives for growth? - Sam Burwell (Jefferies)

2025Q2: The priority is to maintain consistent capitalization (~$100M/year) for growth to meet the 2-3% CAGR, with any extra cash flow from Blackrod going towards deleveraging to reach a 4x net debt/EBITDA target within four years. - Bevin Wirzba(CEO)

Contradiction Point 5

Timeline for Lifting Pressure Restrictions on Keystone

Timeline estimate shifts from being uncertain to a firm year-end target.

Theresa Chen (Barclays) - Theresa Chen (Barclays)

2025Q4: Regulatory dialogue is ongoing; the goal is to lift the Corrective Action Order by year-end. - Bevin Wirzba(CEO)

What is the timeline for lifting pressure restrictions on the Keystone system following the Milepost 171 incident, and how will the resulting capacity increases in the second half of 2026 impact 2026 guidance considering tight differentials? - Robert Hope (Scotiabank)

2025Q1: It is too early to speculate on the timeline; the current incident has different complexities than Milepost 14. - Richard Prior(COO)