South Bow (SOBO) Q4 2025 Earnings Call Transcript

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Date

Friday, March 6, 2026 at 10 a.m. ET

Call participants

• President & Chief Executive Officer — Bevin Mark Wirzba
• Executive Vice President & Chief Financial Officer — Van Dafoe
• Executive Vice President & President, Liquids Pipelines — Richard J. Prior

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Takeaways

• Normalized EBITDA -- $1.02 billion, exceeding the expected $1.01 billion due to stronger performance in the marketing segment.
• Distributable cash flow (DCF) -- $709 million, in line with revised guidance and more than 30% above original guidance.
• Dividend returned -- $416 million, or $2.00 per share, described by management as sustainable.
• Net debt to normalized EBITDA -- 4.7x at year-end, better than the forecasted 4.8x leverage ratio.
• Contracted cash flow -- About 90% of operations are supported by long-term, high-quality contractual cash flows.
• Blackrod Connection project -- Entered commercial service within 24 months of sanctioning, meeting schedule and budget targets, with zero recordable safety incidents across 2.5 million work hours.
• Milepost 171 remediation -- Completed 11 in-line inspections and 51 integrity digs to assess 68 pipe joints; regulatory findings confirmed pipe and welds met industry standards. Pressure restrictions remain, but phased lifting is anticipated.
• Prairie Connector project -- Open season underway for new transportation to U.S. refining markets, leveraging existing infrastructure. No capital cost estimates disclosed; commercial interest described as positive but preliminary.
• Deleveraging target -- Management reiterated a medium-term leverage goal of 4.0x net debt to normalized EBITDA.
• Dividend growth policy -- Van Dafoe stated, "we would not contemplate a dividend increase until we get to that point," referring to the leverage target.
• Operating model transformation -- Transitioned from TC agreements and began independent operational systems, with supply chain, financial planning, and AI-enabled workflow optimizations planned for 2026.
• Pipeline spot capacity -- Only 6% of Keystone system capacity is reserved for spot shipments, with the remainder under take-or-pay contracts.

Summary

South Bow Corporation (NYSE:SOBO) reported normalized EBITDA and distributable cash flow that met or exceeded revised internal expectations, driven by marketing outperformance and strong contract coverage. Management detailed operational milestones, including the timely and safe deployment of the Blackrod Connection project and regulatory progress on Milepost 171 remediation, with expectations for phased lifting of pressure restrictions. The open season for the Prairie Connector project is in progress, with permits in place in Canada and management noting, "we are in a different environment today where we are able to have those discussions and ensure good alignment of where those risks should be allocated." No financial guidance for Prairie Connector’s capital requirements was provided. Dividend and leverage priorities remain unchanged, with payout increases and dividend growth deferred until the targeted leverage ratio is achieved.

• Management indicated that as Blackrod Connection cash flows ramp in the second half, free cash flow will be directed toward deleveraging and strengthening the balance sheet.
• Bevin Mark Wirzba stated, "Clearly, organic development that fits the needs of our customers with the same risk preferences that we have been able to achieve with even our base operations is far more accretive for shareholders over the long term," while noting that inorganic opportunities are also being advanced as market conditions allow.
• Regulatory analysis confirmed that Milepost 171’s root causes were "unique and that the pipe and welds met industry standards," supporting management’s position on system integrity.
• Van Dafoe said the payout ratio is "higher than what we would like," targeting "low 60s" on a DCF basis before considering dividend increases.
• Commercial agreements for Blackrod are structured to support EBITDA growth, with full-year contributions expected by 2027 following initial ramp-up.
• The company intends to maintain capital allocation discipline, even as new organic and inorganic growth initiatives are evaluated.

Industry glossary

• Open season: A defined period during which pipeline operators solicit binding transportation commitments from potential shippers to support new or expanded capacity projects.
• Take-or-pay contract: A long-term agreement obligating shippers to pay for reserved pipeline capacity, regardless of volume transported.
• In-line inspection: The use of specialized tools (often called “pigs”) within pipelines to assess integrity, detect anomalies, and inform maintenance decisions.
• Grand Rapids Corridor: Designated pipeline infrastructure critical for transporting crude oil product from upstream production sites to major market hubs, specifically referenced as part of the Blackrod Connection deployment.
• PHMSA: Pipeline and Hazardous Materials Safety Administration, the U.S. federal agency responsible for pipeline safety regulation.
• Contracted commitments: Obligations outlined in pipeline agreements assuring minimum revenue through secured, long-term utilization of infrastructure.

Full Conference Call Transcript

Bevin Mark Wirzba: Thanks, Martha, and good morning, everyone. We appreciate you joining us today. 2025 was an important year for South Bow Corporation. It was a year that tested our organization, but ultimately a year that demonstrated the resilience of our business and the discipline of our decision making. We delivered financial results that were slightly ahead of expectations, advanced our first growth initiative to completion, and, most importantly, continued to operate safely. Safety remains the foundation of everything we do. In a year of significant activity, we delivered a strong occupational safety record, reflecting the commitment of our employees and contractors even under challenging conditions.

We also made meaningful progress on our Milepost 171 remedial actions, continuing to prioritize system integrity and working toward returning Keystone to baseline operations. Richard will speak to Milepost 171 shortly. Our focus on safety and operations goes hand in hand with South Bow Corporation’s financial discipline. Strong financial performance in 2025, supported by our highly contracted and predictable cash flows, enabled us to deliver on our capital allocation priorities. Now turning to growth. At our Investor Day last November, we outlined our ambitions to grow our business. Today, we see multiple potential paths to achieving those growth objectives.

This will include a combination of organic opportunities that leverage our existing infrastructure to support anticipated crude oil production growth in the Western Canadian Sedimentary Basin, as well as inorganic opportunities that diversify and enhance the competitiveness of our base business. The policy environment in North America is becoming more constructive, and we believe Canada has a tremendous opportunity to grow production and add incremental egress in the coming years. Canadian producers aspire to materially grow their asset bases, and with our customer-led strategy, we are looking to put forward the most competitive solutions to meet their needs, while aligning with our capital allocation principles and risk preferences. All growth at South Bow Corporation will be balanced with financial discipline.

This is non-negotiable for our team and board of directors. We remain committed to maintaining a strong balance sheet and returning a meaningful and sustainable dividend to our shareholders, all while investing in growth. That balance is central to our strategy. The Blackrod Connection project is a good example of how we think about organic growth at South Bow Corporation. It builds on existing infrastructure and enables us to safely and reliably move Canadian crude to a desirable market at a competitive toll. A recent endeavor of ours, the Prairie Connector project, has garnered some attention.

While currently in early stages, the project would provide firm transportation service from Hardisty, Alberta, leveraging and optimizing South Bow Corporation’s pre-invested infrastructure and connecting to other systems downstream to deliver Canadian crude to U.S. refining and demand markets, including Cushing and destinations on the Gulf Coast. An open season to determine commercial interest is currently underway, and we look forward to discussing this potential solution further in the future. With that, I will now ask Richard and Van to provide an update on the operational, commercial, and financial aspects of the business. Go ahead, Richard.

Richard J. Prior: Thanks, Bevin. I will start by talking about our safety performance. We had significant construction activity levels across our business last year, from the Blackrod project, to the Milepost 171 response and restoration, to executing a significant maintenance and integrity program. The scope amounted to more than 2.5 million work hours, where we achieved zero recordable safety incidents. Our strong focus on safety supports the well-being of our workforce and the communities where we operate. Earlier this week, we placed the Blackrod Connection project into commercial service less than 24 months from the time of sanctioning. The project was on time and on budget, with exceptional safety performance.

As our first growth initiative, this is a significant accomplishment for the organization and demonstrates that we have a highly capable team that can develop and execute organic projects and deliver competitive solutions to our customers. Turning to Milepost 171, last month, PHMSA posted the results of the independent third-party root cause analysis, which confirmed that the characteristics of the incidents were unique and that the pipe and welds met industry standards for design, materials, and mechanical properties.

We began proactively addressing many of the recommendations after the incident occurred last April and have made significant progress on our remedial actions and integrity work, with 11 in-line inspection runs and 51 integrity digs to investigate 68 pipe joints completed across the system so far. In parallel, we continue to work closely with our in-line inspection technology providers to enhance tool performance and detection capabilities. We are operating the Keystone pipeline at a high system operating factor, which has enabled us to continue meeting our contracted commitments while under pressure restrictions. As we progress our remedial and integrity work and share our findings with the regulators, we expect pressure restrictions to be lifted in a phased manner.

The lifting of pressure restrictions would present an opportunity for a modest increase in spot movements later in 2026. With that, I will turn it over to Van to walk through our financial performance and outlook.

Van Dafoe: Thanks, Richard, and good morning. First, I will speak to our financial performance in 2025. South Bow Corporation delivered solid results despite a challenging backdrop that included geopolitical and market uncertainty, tight pricing differentials, and pressure restrictions following Milepost 171. South Bow Corporation delivered normalized EBITDA of $1,020 million in 2025, slightly above our expectations of $1,010 million, with a modest outperformance driven by our marketing segment. While 90% of our business is underpinned by high-quality cash flows generated from long-term contracts, our marketing affiliate does make small contributions to our bottom line.

Early last year, we took steps to reduce our risk exposure in the face of market volatility, and the team did a great job throughout the year to partially offset some of those losses. Our tax team also did an exceptional job optimizing our tax position throughout the year. Reflecting these efforts, South Bow Corporation reported distributable cash flow of $709 million, in line with revised guidance and more than 30% above our original guidance. This outperformance expanded our free cash flow position, enabling us to accelerate our deleveraging priority. We exited 2025 with a net debt to normalized EBITDA ratio of 4.7x, slightly better than the expected 4.8x. All other items were in line with our 2025 guidance.

After a solid year, South Bow Corporation is starting 2026 in a position of strength, and we are reaffirming our financial outlook for the year. As Blackrod cash flows ramp in the second half of the year, we will continue to direct our free cash flow to strengthening our balance sheet, remaining on track to meet our leverage target of 4.0x in the medium term. As we deleverage, we also intend to allocate capital towards growth, and we will share our growth capital plans once we have sanctioned our next initiative. Finally, the stability of our financial results enables us to deliver a meaningful return to our shareholders.

In 2025, we returned $416 million, or $2.00 per share, through our sustainable dividend. With that brief financial overview, I will hand it back to Bevin for closing remarks.

Bevin Mark Wirzba: Thanks, Van. Thanks, Richard. To close, I will come back to what defines South Bow Corporation. We operate critical and enduring energy infrastructure in a corridor that connects one of the strongest and most secure supply basins in North America to some of the most attractive refining and demand markets, and we have a growing set of customer-led opportunities that leverage our pre-invested infrastructure. We plan to do that with a focus on safety, integrity, and discipline, and you can trust that our growth will be paired with balance sheet strength and sustainable shareholder returns. That is fundamental to how we run this company. 2025 showed what South Bow Corporation can deliver.

We are confident in the foundation we have built, and the path ahead offers even greater opportunity. You can expect us to execute it the right way. With that, I will now ask the operator to open the line for questions.

Operator: Thank you. And as a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Theresa Chen from Barclays. Your line is open.

Theresa Chen: Good morning. With respect to the open season for the Prairie Connector project, can you discuss any early indications of commercial interest at this point, understanding that you are still very early on? And then, in general, how are you thinking about competition for U.S.-bound WCS egress from Enbridge and Energy Transfer, as well as the impact of incremental Venezuelan barrels flowing to the U.S. Gulf Coast, potentially displacing WCS in PADD 3? What do you see as Prairie Connector’s key competitive advantages?

Bevin Mark Wirzba: Thank you, Theresa. Thanks for joining the coverage group. To your question on the Prairie Connector, we are in early stages as I mentioned. I did say in our remarks that we are a customer-led strategy, meaning that we had good alignment with our customers heading into the open season. That is as much as I can share with respect to the outcome of the open season at this time.

Obviously, in addressing your second question, the impacts of the other open seasons and Venezuela, my earlier remarks also focused on providing the most competitive solution for our customers, and we believe what we have put forward is a very competitive offering that should attract the attention that we are looking for. With respect to the other opportunities, owning and controlling the most competitive and direct path to the Gulf Coast has always been an advantage that South Bow Corporation has leveraged, and we will continue to do so.

Theresa Chen: Thank you. And in relation to the existing Keystone system, after sharing the root cause analysis related to Milepost 171, can you talk about the timeline of lifting the pressure restrictions in a phased manner? Can you give some details around this? What are your expectations for how much the pressure and hydraulic capacity could step up beginning in 2026? And then, within your annual guidance, how much of an impact is this given expected capacity for higher spot movements, but also the expectations for tight differentials nonetheless? Can you help us reconcile this?

Bevin Mark Wirzba: Thank you, Theresa. Even initially after the incident, as Richard pointed out, we have been working very closely with our regulator on all the remedial efforts, and we have made tremendous progress on the digs and in-line inspections to date. Early on, we were able to have some de-rates lifted already on the system as we progressed. What we described in our release is that we intend to continue those remedial efforts at pace this year so that we could see a lifting of the corrective action order by the end of this year.

We are in active dialogue with the regulator to ensure that what we are doing and what we are finding informs the plans as we go forward. In terms of the capacity that would be realized, it would be returning to the kind of operational capacity that we delivered in previous years, which was, I believe in 2024 and early 2025, just north of 600,000 barrels per day of delivered capacity. With respect to your last part of the question, our outlook in terms of our earnings and our guidance, the timing of this incident occurred when ARBs were quite tight with TMX coming on in 2024. The basin was long-piped by approximately 250,000 barrels per day.

In 2025, we saw the basin grow north of 100,000 barrels per day and continuing to grow here in 2026. We believe that our guidance, while it includes the impact of not being able to move as many spot volumes as we had hoped, reflects that the market really does not open for us until early 2027, and then, at that point, we are planning and targeting to have the de-rates lifted so we can take advantage of those ARBs as the basin grows and overtakes the egress out of the basin.

Theresa Chen: Thank you very much.

Operator: One moment for our next question. Our next question will come from the line of Robert Hope from Scotiabank. Your line is open.

Robert Hope: Morning, everyone. Two questions on the Prairie Connector. Maybe first, just in terms of a follow-up on when you think incremental capacity will be needed out of the basin? And then how would that mesh with what you would think would be a reasonable regulatory time frame and construction time frame if this project does proceed.

Bevin Mark Wirzba: Thanks, Rob. One of the benefits of having a strategy that focuses on our pre-invested corridors is that we are in a position where our permits are in place in Canada for the Prairie Connector, and we are working closely with the Canada Energy Regulator to manage through that. Obviously, it is early stages, so we are not going to share our timelines for a potential development, but I would suggest, much like the Blackrod project where we were working within an existing corridor, our ability to advance construction quickly in a regulated environment is consistent with the Prairie Connector project objectives.

With respect to the timeline of the need for the project, you can see from our customer base that most are announcing or suggesting they have growth ambitions over the next three to five years of quite materiality. Being able to develop the project over the mid-term would be consistent with providing a competitive solution for our customers at the time frame of when they are intending to have their production growth.

Robert Hope: Alright. Appreciate that color. And then maybe as a follow-up, as we take a look at what the Prairie Connector would connect into in the U.S. and the path down to the Gulf Coast, we have seen Bridger file already for some regulatory approvals there. But how do you envision working with partners to help get barrels down to the Gulf Coast?

Bevin Mark Wirzba: Great question, Rob. We will not speak on behalf of other developers. What I can say is our team has learned through many previous projects that allocating risk appropriately amongst all stakeholders—our customers, ourselves as developers, and partners—is really critical. The team has been working diligently on that front to ensure that we have the right alignment amongst all stakeholders to ensure that we have a project that could be advanced within our risk preferences, which, as I have stated, is critical. We will not sacrifice our capital allocation discipline through advancing any project.

Robert Hope: Alright. Appreciate the color. Seems like an interesting project. Thank you.

Bevin Mark Wirzba: Thanks, Rob.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Robert Kwan from RBC Capital Markets. Your line is open.

Robert Kwan: Great. Thank you. Good morning. If I can just ask about how your growth initiatives—do you have a preference, or how do you think about the role of joint ventures and partnerships versus just outright acquisitions, over and above the organic initiatives?

Bevin Mark Wirzba: Thank you, Robert. Within our strategy, we have always said that leveraging the pre-invested capital on the ground and organic allows us to develop projects at a 6x to 8x EV-to-EBITDA build multiple, and Blackrod was demonstrated at the low end of that range. Clearly, organic development that fits the needs of our customers with the same risk preferences that we have been able to achieve with even our base operations is far more accretive for shareholders over the long term. But as I pointed out in my remarks, to complement that organic strategy, there are opportunities that we believe we could leverage inorganically that provide diversity and provide some additional synergies to the business.

Obviously, those will not advance at that same EV-to-EBITDA build multiple, but the combination of an organic and inorganic strategy, we believe, can deliver the shareholder returns we are targeting.

Robert Kwan: Great. Thanks. And if I could just finish by asking about the open season, there is some language there about asking potential shippers to demonstrate market demand for incremental egress opportunities. What should we take away from that specific wording? And then how should we think about this with respect to the existing Keystone capacity and your contract rollovers or expirations that would occur in roughly the same proximity as this initiative?

Bevin Mark Wirzba: Two great points, Robert. First, the language is actually pretty benign in that, from a regulatory standard, we have to prove need and necessity for any development that happens. That need and necessity on our existing permits was demonstrated years ago, and that need and necessity still exists today. The language is really pointing to our customers indicating to us, if they support the open season, that they have need and necessity—they have growth ambitions that require us to develop this capacity. On the second point with respect to base Keystone operations and potential impact of recontracting, the way we think about it is we are really developing a corridor.

The Prairie Connector would be in addition to that corridor, and it really serves the same customer base and the same demand markets. We believe that the combination of the two would be an extremely competitive corridor going forward, and we believe that we can provide that competitive solution for customers going forward, making the corridor in and of itself the ideal solution for getting Western Canadian oil sands production down to the Gulf Coast.

Robert Kwan: That is great. Thanks, Bevin. Appreciate the thought.

Operator: One moment for our next question. Our next question will come from the line of Sam Burwell from Jefferies. Your line is open.

Sam Burwell: Hey. Good morning, guys. Another open season question, but maybe from a different angle. Are there any learnings to be had from what happened with the original Keystone XL, especially on the U.S. side? Anything that went wrong on that project that is within your control to perhaps do differently with this one? Obviously, the route will be different, and it is different in many ways. What gives you more confidence in this project’s success where Keystone XL did not?

Bevin Mark Wirzba: Sam, great question. I was around, and many of our team were around, during that last attempt. There are a tremendous amount of learnings. Subject to the permit that we have, we are developing it in a very consistent manner to that permit’s requirements, but our conversations with our customers and how we can work with them through a commercial offering—we are leveraging a lot of those learnings in those commercial discussions that are confidential at this time. As I mentioned in my opening remarks, the policy environment in North America has been far more constructive.

The unfortunate events that are ongoing in Iran and the tragic events in Ukraine have highlighted that energy security and establishing energy corridors are critical. Those realities are a great backdrop for us to provide a solution that increases energy security in North America between the great resource in Canada and the strong demand markets on the U.S. Gulf Coast.

Sam Burwell: Okay. Understood. And then, tying onto that, the Bridger proposal mentioned that a Presidential Permit is required to cross the border. That was obviously an issue with Keystone XL that everyone knows about. Is there a point in time, or a point in construction, or some threshold met whereby the Presidential Permit is ironclad and cannot be revoked? Has anything changed with that dynamic since 2021 when President Biden effectively put the kibosh on Keystone XL?

Bevin Mark Wirzba: Per my earlier remarks, Sam, we are only going to talk to our component of a project, which is delivering service from Hardisty to the border. My comments around risk allocation and structuring, and your earlier comment around lessons learned—there are a lot of things going into the commercial dialogue right now amongst ourselves and with our partners. I will leave our partners to speak to their own business. We have really focused on finding a solution that we can deliver for our customers, with an allocation of risk that makes sense for all stakeholders in this approach.

If we are not able to achieve that risk allocation that we all believe we need, then the project just will not advance.

Sam Burwell: Okay. Understood. Thank you, Bevin.

Bevin Mark Wirzba: Thanks, Sam.

Operator: Thank you. One moment for our next question. Our next question will come from the line of AJ O’Donnell from TPH. Your line is open.

AJ O’Donnell: Hey. Morning, everyone. I am going to sneak in one more about the Prairie Connector, maybe just talking about leveraging your existing corridor. I think we know that you have some pipe already in the ground in Canada. But let us say things go to plan and the project moves forward. Thinking about these barrels getting into Cushing and ultimately getting down to the Gulf Coast, can you speak to what is needed on your U.S. Gulf Coast infrastructure in order to accommodate potentially 450,000 barrels per day going down to the Coast? Would that be all on the existing Keystone system, or would you be looking to leverage other infrastructure as well?

Any details you can provide there would be great.

Bevin Mark Wirzba: AJ, the Keystone system in this corridor has been built in phases—Phase 1, Phase 2, Phase 3. Phases 2 and 3 were the extension of the Keystone system to Cushing and then to the Gulf Coast. Phase 3 of the system, the Gulf Coast, was sized and built for the original expansion of that system, which is what we are now building into with our Prairie Connector. It is just a continuation of that sequenced expansion of the broader Keystone system. We did build capacity on that Gulf Coast section for increased volumes. There will be some facility modifications through our base Keystone system, but this is all a continuation of that sequenced expansion of our base corridor.

AJ O’Donnell: Okay. Thanks, Bevin. And then maybe just one more, shifting into marketing. I realize it is a smaller portion of your business, but spreads have been on the move, particularly WCS Houston trading pretty far back from Brent and WTI right now. Can you speak to what is going on at Houston and if you are seeing any opportunities either in the short or medium term to potentially capture some upside there, either through marketing or maybe storage opportunities?

Bevin Mark Wirzba: AJ, great question. We are always in a dynamic crude oil market. It appears in the last few years, with some macro volatility earlier this year with Venezuela and now with the war that is ongoing in Iran. We have taken a really risk-off strategy with our marketing affiliate. As we pointed out, last year we went through a situation where, early in the year, there were tariffs that caused volatility. That caused us to reevaluate how we leverage our marketing affiliate and get back to a customer-led strategy. The strategy around our marketing affiliate is really to reduce the overall operating costs and variable tolls for our customers.

We do not try to take advantage of swings that we see down in Houston on the WCS. We do manage and contract MarketLink, because we still have capacity there, and we have seen some movements, as you say, but it is really a non-material part of our strategy. We are focused on our 90% contracted business and managing that as best we can.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Ben Fullerton from TD Cowen. Line is open.

Aaron MacNeil: Oh, I guess I had my associate run this one. It is Aaron MacNeil here. Good morning, all. Thanks for taking my questions. You guys highlighted Blackrod as a successful project in the context of the balance sheet and in your prepared remarks. Maybe bigger picture, can you speak to how you may look to finance a potentially larger-capital and longer-duration project given the leverage and payout ratio profile of South Bow Corporation?

Bevin Mark Wirzba: Thanks, Aaron. At our Investor Day, we laid out a number of different financing strategies, whether it is financing a project at the asset level or partnering with other capital sources. We will look at the specifics of any capital project to ensure that we manage the cost of capital as well as match it to the execution risk. The point I would like to make is, when you think about us developing projects—going back to my comments around within our risk preferences—means that we are not going to take risks that would not allow us to debt finance something, and that can be a base case for people to look at.

You have to have the conditions, the contract terms, the investment-grade counterparties, and the risks mitigated to a level that can attract debt-level financing that aligns with our risk preference. That might not be the best way to finance it, but the principles around managing the risks are consistent with any financing approach. We wanted to make clear to our market in November that there are multiple solutions on that front. I will just remind that we go back to our risk preferences and making sure that anything we develop meets those criteria.

Van Dafoe: And, Aaron, it is Van here. We will also keep with our deleveraging journey to get to 4.0x by the mid-term, 2028. We are not deviating from that.

Aaron MacNeil: Okay. That is helpful. And then, switching gears a bit, we have been fielding a lot of questions on the Grand Rapids arbitration. I can appreciate that you are not going to speak to the ongoing legal matter, but I was hoping you could help with some clarifying items. First, again, I assume the answer is no here, but is the Blackrod Connection project included in the scope of a potential sale? And then, second, how should we be thinking about sanctioning new projects with connectivity to Grand Rapids while arbitration is ongoing?

Bevin Mark Wirzba: Aaron, Blackrod we advanced as South Bow Corporation alone. PetroyChina is not involved in that project. They were offered an opportunity to participate in it, and that is as much as I can say. As part of the partnership agreement, when we do pursue growth—obviously growth within the partnership frame is open to all partners—and whether or not our partners choose to capitalize into those projects is up to them.

Aaron MacNeil: Okay. Alright. That is all for me. Turn it back.

Operator: Thank you. One moment for our next question. The next question will come from the line of Robert Catellier from CIBC Capital Markets.

Robert Catellier: Hey. Good morning. Most of my questions have been exhausted here, but I will take a shot in the dark to see if you are interested in putting out a potential capital number for the Prairie Connector project should it make it through the open season and have enough commercial interest?

Bevin Mark Wirzba: Robert, unfortunately, you are not going to bait me with that. I will take a pass. We are obviously in early stages. Our team has done a good amount of work, given it is an existing corridor, but we are not establishing any cost at this point in time.

Robert Catellier: Understood. And related to that, is there any ability or understanding that you can invest in some of the downstream pieces, whether it is project or otherwise, should the project move forward?

Bevin Mark Wirzba: We are really speaking to the Prairie Connector component as how we are looking to participate going forward, and we are still in commercial discussions ongoing. As you can appreciate, the scale of what would be contemplated in Canada is a very meaningful development for South Bow Corporation.

Robert Catellier: Okay. Thanks very much.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeremy Tonet from JPMorgan Securities. Your line is open.

Jeremy Tonet: Hi. Good morning.

Bevin Mark Wirzba: Morning, Jeremy.

Jeremy Tonet: Just wanted to turn to slide 19, if we could, with the Blackrod and project ramp there. If you could remind us what gives you confidence to the ramp as you laid out in the slide—it looks like the 2027 contribution could be three to four times the size of 2026. With the project just online now, can you walk us through that a little bit more?

Bevin Mark Wirzba: Great question, Jeremy. We did the final tie-in weld earlier this year, so our systems are fully prepared for our customer to begin the ramp-up. The sequence of events that we are not in control over on their end—whereby they have already been steaming their asset. Once the wells start producing, they will fill their tankage and infrastructure, fill the pipeline, and then fill our tankage. That is when the production will actually start hitting the Grand Rapids corridor. There is a build-up that takes time to effectively get through commissioning and filling the existing infrastructure, and that happens through the balance of the last half of this year.

We have made comments in the market previously—I will remind folks that the commercial agreements agreed to between ourselves and our customer were to acknowledge that ramp in terms of their production growth. In 2027, our outlook is that we will have a full-year contribution of that EBITDA, given the commercial agreements.

Jeremy Tonet: Got it. Understood. Thank you for that. And if we think about 2027 in totality, are there any other major moving pieces as we think about growth at that point in time?

Bevin Mark Wirzba: I will refer to my previous remarks, Jeremy. We are working hard this year to move through the corrective action order and complete the remedial efforts, which would then allow us, if the order is lifted, to return to full capacity on our base systems, which would give an opportunity for us to achieve that spot capacity out of the basin at a more material level than what we are experiencing. Just to remind you, 94% of our base system is take-or-pay, and we reserve 6% for spot capacity. That is the capacity we are targeting to leverage in 2027.

Jeremy Tonet: Understood. I will leave it there. Thank you.

Bevin Mark Wirzba: Thanks, Jeremy.

Operator: Thank you. One moment for our next question. Next question will come from the line of Patrick Kenny from NBC. Your line is open.

Patrick Kenny: Thank you. Good morning, everyone. Just maybe back on the funding plan for Prairie Connector, assuming a successful open season here. Can you confirm your desire for Alberta government involvement, if any, either as an equity partner or perhaps providing loan guarantees through construction, just to help protect your financial guardrails along the way?

Bevin Mark Wirzba: Thanks, Patrick. You are referring to the model that was pursued historically, and I believe the Premier has been clear that she wants private developers to develop projects. We are pursuing Prairie Connector as South Bow Corporation today. With respect to your question around loan guarantees and other commercial matters, I will refer back to my comments that we are looking at the risk framework and allocating risk appropriately amongst the customers and us as a developer and, broadly, other stakeholders. We feel that we are in a different environment today where we are able to have those discussions and ensure good alignment of where those risks should be allocated.

Patrick Kenny: Got it. Thanks for that. And then maybe on the 60-day review period following the March 30 deadline. How should we think about this period in terms of the binding commitments? Can they be nullified by any material change in policy such as the emissions cap, industrial carbon tax, or any other developments that might come out of the MOU between Alberta and Ottawa? Would these binding commitments basically be taking on the full stroke of pain risk, so to speak, beyond March 30?

Bevin Mark Wirzba: As you point out, Patrick, there is a lot going on. When I refer to a constructive policy environment, constructive also means a very active policy environment where our customers are working closely with not only us on this open season, but considering the broader framework that the federal and Alberta governments are putting together. That is consistent with the timeline of what we are pursuing. I will not speak to those conditions or those discussions because I am not a part of them. Our timeline with having a binding open season and the time from there is just the regulated approach of how you develop a project.

That is why we have been thoughtful about making a competitive solution for our customers, acknowledging the significant commitment that they have to make over the time frame of the development to commit to a project like this. These are not small decisions by anyone. I think the basin customers have relayed that, under the right policy environment, there is an ability for them to grow. We will have to defer to them on whether they feel they have the confidence to grow into the capacity that we are offering.

Patrick Kenny: Okay. That is great, Bevin. I appreciate the comments.

Operator: Thanks, Patrick. Thank you. One moment for our next question. Our next question comes from the line of Benjamin Pham from BMO. Line is open.

Benjamin Pham: Hi. Thanks. Good morning. Maybe to start off on potential acquisitions. Can South Bow Corporation provide an update on your appetite and observations on acquisitions since your Investor Day? I am also particularly interested in valuation levels on M&A versus organic growth.

Bevin Mark Wirzba: Ben, as articulated in the Investor Day and in my earlier remarks, we are pushing all the boats down the field—both organic and inorganic. Certainly, organic, leveraging our pre-invested corridors, has better valuations. To complement and diversify our business, we have been in active dialogues to try to move down the path on inorganic opportunities. In both cases, as per my last response to a previous question, we can put forward the most competitive organic opportunities for our customers, but it still takes our customers to decide if they can commit. On the inorganic side, we can provide a compelling potential solution for an acquisition, but it takes the counterparty to similarly view it as a good outcome.

We are managing a multi-pronged approach where we are advancing conversations on organic and inorganic in parallel.

Benjamin Pham: And then maybe just a quick follow-up on that. It sounds like you have not seen, with the market valuations expanding meaningfully since your Investor Day, that the spread between the two has widened since that time?

Bevin Mark Wirzba: I think we have seen a flight to the energy sector and, in particular, to hard assets like infrastructure. Many have moved. I think that has raised the confidence in shareholders in the space and the investment proposition that infrastructure has. It gives us more confidence in the equity capital markets, if something did work on the inorganic side, that it could be supported in a transaction. Yes, valuations have improved, but I think the strength and thesis around infrastructure investment has strengthened as well. If anything, it is a slight tailwind for us.

Benjamin Pham: Got it. And maybe on the Prairie Connector—you had the Big Sky proposal about a year ago. Are you able to compare and contrast the two? Is it just something more to downstream is changing, Canada is unchanged? And then, secondarily, on the Canadian permits, is that just a permit reaffirming with the CER, as you mentioned earlier in your commentary? I just want to clarify that portion of it.

Bevin Mark Wirzba: In contrast to 2025, we had a Canadian government that was going through a significant transition. We had a potential tariff environment that was very uncertain, and we had a policy and regulatory framework that was not clear and did not provide the signposts for our customers to legitimately view any kind of meaningful growth as an alternative. Fast forward a year later, all those three things have materially moved in favor of a more constructive environment to consider a development. We did find that the Prairie Connector project—getting barrels to the U.S. Gulf Coast—is a very strategic advantage, and leveraging that pre-invested corridor more broadly also provides advantage. With respect to the permitting situation, these are very complex developments.

The largest of the permit requirements, as you say, are held with the Canada Energy Regulator. We have to work within those permits that have been awarded, and there are expectations and things that we have to do to maintain them if we begin developing the project. There are no other material permits required at this point in time.

Benjamin Pham: Okay. Understood. Thank you.

Operator: Thanks, Ben. One moment for our next question. Our next question comes from the line of Sumantra Banerjee from UBS. Your line is open.

Sumantra Banerjee: Hi. Good morning. Thanks for taking the question. I was curious—how you mentioned that you materially exited the TSA with TC and were able to see some workflow optimization. Are there any specific examples of the optimization you could talk to?

Bevin Mark Wirzba: Thanks, Sumantra. Our team had three objectives last year, in addition to table stakes of safe operations, and one of those objectives was exiting the TSAs as soon as we could. That ties to one of our key objectives this year, in terms of now optimizing our business workflows and processes. We have already begun seeing some optimizations occur since October when we were effectively off of the TSAs, and we have a number of work streams along that front in each of the areas.

An easy example would be supply chain and procurement—utilizing the historical ERP system that we had until we stood up our own system, all those business processes around invoicing and procurement were done in the old way, and now we are able to establish new processes. We have workstreams on financial planning and analysis and on our systems. We are building a new process around budgeting and real-time analysis of our financials and costs, giving the tools to our teams so they can run the business as efficiently as possible. We see 2026 as a big year of standing up all those optimizations.

We are leveraging the latest technology in AI where it is appropriate and where it can help make those processes more efficient.

Sumantra Banerjee: Got it. That is really helpful. Just wanted to shift towards capital allocation quickly. I know you outlined your priorities in the release, but how are you looking at balancing dividend growth versus reducing the leverage?

Bevin Mark Wirzba: I will turn it over to Van on our dividend policy. I want to remind folks that we are going to stick to our capital allocation philosophy with respect to building out this business. When we spun, we were allocated a significant amount of debt and a very meaningful and sustainable dividend, but at a very high level and at payout ratios maybe a bit higher than we like. Van, you can talk through our journey on deleveraging and dividend growth.

Van Dafoe: Sure. Thanks, Bevin. Our payout ratios on a DCF basis and on an earnings basis were higher than what we would like. We would like them to be, on a DCF basis, in the low 60s on a consistent basis, and, obviously, under 100% on an earnings basis. Until that time, we would not contemplate a dividend increase. On top of that, our journey to get to 4.0x leverage—again, we would not contemplate a dividend increase until we get to that point. Once we do, our plan would never be to forecast future dividend growth. If we decide we are going to increase our dividend, we would state that, and that would be our new dividend level.

Sumantra Banerjee: Got it. That is really helpful. Thank you so much.

Bevin Mark Wirzba: Thank you.

Operator: This concludes the question-and-answer session. I would now like to turn it back over to Bevin for closing remarks.

Bevin Mark Wirzba: Thank you for joining us today and for your continued interest in South Bow Corporation. We look forward to connecting with you in a couple of months’ time. Have a great day.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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