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DATE

Friday, May 8, 2026 at 10 a.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Bevin Mark Wirzba
  • Executive Vice President and Chief Operating Officer — Richard J. Prior
  • Executive Vice President and Chief Financial Officer — Van Dafoe

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TAKEAWAYS

  • Normalized EBITDA -- $257 million for the quarter, described as "in line with market expectations and modestly higher than 2025," with Keystone segment's decrease offset by higher Marketing segment contribution.
  • Distributable Cash Flow -- $168 million, an increase quarter over quarter, driven by lower current taxes.
  • Net Debt to Normalized EBITDA Ratio -- 4.7 times at quarter-end, unchanged from December 31, described as consistent with management's expectations.
  • Dividend -- Quarterly dividend of $0.50 per share approved by the board, reaffirmed as a "foundational component" of the company's return strategy.
  • Normalized EBITDA Guidance -- Full-year outlook reaffirmed at $1.03 billion, with a stated range of 2%.
  • BlackRock Connection -- Project placed into commercial service, with ramping cash flows expected to modestly improve leverage profile in the second half of 2026.
  • Praisie Connector Open Season -- Bids closed at end of March and under a 60-day evaluation period; company stated it would "use the full 60-day evaluation period to reach a commercial determination."
  • Keystone Pipeline System Operating Factor -- Achieved 95% in the first quarter, resulting in throughput above 600 thousand barrels per day.
  • Keystone Gulf Coast Capacity -- Ability to move in excess of 800 thousand barrels per day, near maximum design per current system configuration.
  • Pressure Restrictions -- Process to lift restrictions will begin later in the year on a phased basis, with full removal expected to extend into 2027.
  • Marketing Segment EBITDA -- $9 million achieved in the quarter, attributed to taking advantage of market volatility.
  • Growth CapEx Capacity -- Management cited $150 million per year of free cash flow available for investment, increasing to about $180 million as BlackRock cash flows ramp up.
  • Leverage Target -- Path to achieve sub-4 times net debt to normalized EBITDA within five years, currently ahead of schedule per management.

SUMMARY

South Bow Corporation (SOBO 1.17%) confirmed its full-year 2026 financial targets and presented data supporting ongoing operational reliability and throughput capacity across key infrastructure assets. Management emphasized the critical strategic evaluation underway for the Prairie Connector project, noting the outcome and next steps will be communicated following the 60-day review, and highlighted advancements in pipeline integrity efforts, including successful deployment of new inspection technology. The company reiterated balance sheet discipline, stating that incremental free cash flow from new projects will fund organic growth, and indicated that capital allocation priorities remain anchored on sustaining the dividend, maintaining investment-grade credit metrics, and supporting customer-led expansion across existing corridors.

  • South Bow Corporation stated that the Gulf Coast segment of Keystone is currently operating at design capacity near 830 thousand barrels per day. "We are seeing very strong throughput on it here in the second quarter," was attributed to geopolitical-driven export demand.
  • Management indicated the process to lift Keystone pipeline pressure restrictions will initiate later this year on a segment-by-segment basis, but full restoration is not expected until 2027.
  • Board-approved strategies specify that any large-scale capital project financing will consider "cash on hand, issuance of capital, and new equity," to preserve dividend stability and maintain leverage neutrality.
  • South Bow Corporation confirmed that, despite modest quarter-over-quarter Marketing EBITDA gains, "any potential upside" is expected to remain within full-year guidance, describing the Marketing group as "the shipper of last resort."

INDUSTRY GLOSSARY

  • Open Season: A defined window during which a pipeline operator solicits non-binding or binding commitments from customers for future shipping capacity on a proposed or existing line.
  • Barrels per Day (bpd): The daily volume of crude oil or liquids transported, a central operational metric for midstream infrastructure operators.
  • Take-or-Pay Contract: A commercial agreement requiring customers to pay for a certain volume of pipeline capacity regardless of whether it is fully utilized.
  • In-line Inspection Tool: A device (often called a "pig") run inside a pipeline to detect anomalies, corrosion, or other integrity threats.
  • Distributable Cash Flow: Operating cash flow available to distribute as dividends, after deducting maintenance capital expenditures and other required outflows.
  • Investment-Grade Credit Profile: A measure of creditworthiness indicating ratings at or above BBB-, supporting access to lower-cost capital markets.

Full Conference Call Transcript

Bevin Mark Wirzba: Thank you, Martha, and good morning, everyone. We appreciate you joining us. South Bow Corporation delivered solid first quarter results underpinned by strong operational performance and stable cash flows, despite heightened geopolitical and market uncertainty. During the quarter, we advanced the strategic priorities we laid out for the year. These included placing the BlackRock Connection project into commercial service, continuing remedial pipeline integrity work on our Keystone pipeline, and conducting the open season for Prairie Connector, which I will address in a moment. Throughout this work, we remained focused on safe and reliable operations and disciplined capital allocation. Before I turn it over to Richard and Van, I want to address Prairie Connector directly and set expectations for today's call.

We closed bids for the open season at the end of March as planned, and we are currently in a 60-day evaluation period. As you can appreciate, these are significant decisions for South Bow Corporation and our customers, being made against a complex macro, regulatory, and policy backdrop. We intend to use the full 60-day evaluation period to reach a commercial determination. So, while I expect our analysts will have many ways to ask about it on today's call, we do not have anything further to add beyond what we have already disclosed.

At the conclusion of the 60 days, we will communicate the outcome of the open season and outline potential next steps if the project continues to be advanced. As a reminder, the concept behind Prairie Connector is to move Canadian crude oil from Hardisty, Alberta, to the Canadian-U.S. border, where it could connect with downstream pipeline systems serving multiple U.S. markets, including Cushing, Oklahoma, and destinations on the U.S. Gulf Coast. Last week, a presidential permit was issued to Bridger Pipeline for cross-border facilities that would transport the Canadian crude oil we are proposing to move into the United States.

This represents a meaningful development in the permitting process for cross-border energy infrastructure, and one that has understandably attracted its fair share of attention. That said, we are continuing to work diligently to ensure any project we advance is within our risk preferences, and that risks are allocated appropriately among the parties best positioned to manage and mitigate them. Our team brings deep pipeline development experience across multiple jurisdictions and projects, some more famous than others, and we are applying all those learnings to find an allocation of risk that makes sense for all stakeholders. Recent global events have reinforced that secure, reliable energy and the infrastructure that delivers it truly matter.

At South Bow Corporation, we are encouraged to be part of the conversation and to support our customers in increasing competitive, responsible Canadian energy in a world that continues to need more of it. With that, I will turn it over to Richard.

Richard J. Prior: Thanks, Bevin, and good morning. I will start with safety and pipeline integrity, which remain top priorities. During the quarter, we continued to progress our remedial work related to the mild post-01/1971 incident, including a combination of in-line inspections and integrity digs across the Keystone system. In parallel, we are working closely with our in-line inspection technology providers to enhance tool performance and detection capabilities, including advancing the development of a new phased-array ultrasonic tool, which we have now completed three successful runs with. We are encouraged that this tool enhances our overall detection capabilities and will be an important component of our ongoing integrity program.

Overall, we are pleased with the progress we have made under the remedial work plan. Based on the work completed to date, we expect pressure restrictions to be lifted in a phased manner, with the process beginning later this year. Turning to operations, our first quarter throughput was driven by strong operational performance and ongoing optimization of our systems. The Keystone pipeline operated with a 95% system operating factor, enabling us to transport more than 600 thousand barrels per day during the quarter, providing customers with an opportunity to move makeup barrels as well as limited spot movements. As the quarter progressed, we started to see strong demand for capacity on our assets, most notably on the U.S.

Gulf Coast segment, with recent geopolitical events driving an increase in demand for export barrels. With the modest widening of Cushing-to-U.S. Gulf Coast differentials, we have been seeing higher throughput on our MarketLink asset in the second quarter. I will finish with a brief comment on growth. With broad macro changes supporting an increasing production outlook in the Western Canadian Sedimentary Basin, we continue to evaluate smaller-scale, customer-led opportunities within our existing footprint. These include either expanding interconnectivity that would direct more barrels onto our systems or deliver barrels off our systems into new destinations.

As Bevin noted, we will advance these opportunities with the same level of discipline that we are applying to Prairie Connector and to our inorganic growth strategy. With that, I will turn it over to Van to walk through our financial performance and outlook.

Van Dafoe: Thanks, Richard, and good morning. South Bow Corporation delivered normalized EBITDA of $257 million in the first quarter of 2026, which was in line with market expectations and modestly higher than 2025. While normalized EBITDA in our Keystone segment declined due to lower maintenance activity in the period, this was more than offset by higher contributions from our Marketing segment. Our expectations for 2026 remain unchanged, and we are reaffirming our normalized EBITDA outlook of $1.03 billion within a range of 2%. Based on our current outlook, any potential upside from the Marketing segment reflecting current market dynamics is expected to fall within our guidance range.

Distributable cash flow of $168 million increased quarter over quarter, driven primarily by lower current taxes in the period. We continue to maintain our full-year distributable cash flow outlook of $655 million that we will use to fund our dividend, strengthen our balance sheet, and, where appropriate, allocate capital towards growth. Turning to leverage, we exited the quarter with a net debt to normalized EBITDA ratio of 4.7 times. That is unchanged from December 31 and in line with our expectations. As BlackRock cash flows begin to ramp in the second half of the year, our leverage profile will improve modestly through the balance of 2026. Lastly, the board of directors approved our quarterly dividend of $0.50 per share yesterday.

As we have said consistently, the dividend remains a foundational component of South Bow Corporation’s total return proposition. Switching briefly to growth and building on Bevin and Richard’s comments, we have received a number of questions on how we think about funding growth at South Bow Corporation. At a high level, our approach is straightforward. Any growth we pursue will be evaluated through a disciplined capital allocation lens. At our Investor Day in November, I outlined a range of potential financing alternatives for large-scale growth opportunities, including cash on hand, issuance of capital, and new equity, depending on the opportunity and the associated risk profile. Importantly, I also walked through the financing criteria that guide our decision-making.

These include adhering to our capital allocation priorities, protecting our dividend sustainability, preserving our investment-grade credit profile, maintaining leverage neutrality, and delivering per-share accretion.

Bevin Mark Wirzba: Thanks, Van, and thanks, Richard. To close, I want to come back to something I have said before, because it really does define 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 the world to some of the most attractive refining and demand markets. That positioning matters, and it matters to our customers. Canadian producers have clear ambitions to materially grow their asset bases. With our customer-led strategy, our focus is on putting forward the most competitive solutions to support that growth while staying firmly aligned with our capital allocation principles and risk preferences.

As we have said consistently, growth at South Bow Corporation will be balanced with financial discipline. We are committed to maintaining a strong balance sheet and delivering a meaningful and sustainable dividend while investing in growth. That balance is central to how we run this company, and it is fundamental to our strategy. We will now open the call for questions.

Operator: Thank you. To withdraw your question, please press star 11 again. Our first question is from Sam Burwell with Jefferies. Your line is open.

Sam Burwell: Hey, good morning. I appreciate the disclaimer around Prairie questions, but I will give it a shot. I want to better understand what the key hurdles are remaining to making a call on whether to advance Prairie. What is nonnegotiable prior to making a call before the end of the evaluation period relative to what could get sorted out prior to an FID down the line?

Bevin Mark Wirzba: Thank you, Sam. There is a lot to consider in evaluating the proposals received. When we review what our customers have submitted, we have to confirm a number of things among our partners to ensure that we are all aligned on whether we execute on those agreements and move forward to the next step. That next step is really to prepare for a potential investment decision on the project. The typical elements you would evaluate for FID include ensuring that your contracting strategy, your supply chain procurement, your cost estimates, and the execution plan are all in line.

We are also kicking off significant permitting efforts across the system in the United States as well as doing the preliminary work in Canada. One thing I want to remind everyone of from my remarks is that there are other elements that remain in the project outside of just commercial risk. We need to ensure that we manage and mitigate any last-mile risk that could occur on the project in the future. We are seeing great alignment in both Canada and the United States, but we cannot expose our shareholders to risks that they cannot bear, nor can we. Those would be the key gating items, Sam.

Sam Burwell: Okay, perfect. As a follow-up, what is the current max capacity on the Gulf Coast portion of Keystone, and how easily and cost-effectively could that potentially be expanded?

Richard J. Prior: Sure. We are able to move in excess of 800 thousand barrels per day on the Gulf Coast leg. It was originally designed as part of what was going to be the Keystone XL system, and so it could move 830 thousand plus. I would say at this point, it is pretty much at max design. There may be modest amounts of optimization or using things like reducing agent that could top that up a little bit, but it is at the upper end of what it can move.

We are seeing very strong throughput on it here in the second quarter, and I think when we release our second quarter results, you will see what kind of top-end capacity we are able to move on the Gulf Coast section.

Sam Burwell: Alright. Awesome. Thank you.

Operator: Thanks. The next question will come from Maurice Choy with RBC Capital Markets. Your line is open.

Maurice Choy: Thank you, and good morning, everyone. Sticking with the theme about the U.S. Gulf Coast segment of Keystone, you mentioned the second quarter being a little bit higher than the first quarter because of higher demand. How do you think about the durability of this higher demand for the remainder of the year? And more importantly, are you seeing any different submarkets within this region that are asking South Bow Corporation to consider expanding into?

Bevin Mark Wirzba: Maurice, I will start, and maybe I will ask if you could repeat the last part of your question. I think neither Richard nor I really caught that. We are seeing volumes, as Richard has pointed out, flowing very high on our Gulf Coast segment right now. Just to remind everyone, Cushing volumes are what drive that arb and those flows, and Cushing volumes are reducing. Our outlook is that much of the volume growth we have seen has been macro driven of late, and we do not anticipate seeing that level of strength through the back half of the year. Could you repeat the last part of your question, please?

Maurice Choy: Just thinking about as this part of the pipeline extends south, are there any customers or submarkets within the U.S. Gulf Coast asking South Bow Corporation to expand more connectivity, like additional fingers and toes?

Richard J. Prior: Great question. We are in constant dialogue with our customers about increasing the amount of connectivity, both on the receipt end of our pipeline and certainly on the delivery end in the Gulf Coast. We are trying to make sure that our customers that move barrels on the pipeline can as efficiently as possible reach end-market destinations, whether that be refineries or additional marine terminals. We are in a number of discussions about adding additional connectivity at the southern end of our pipeline so we can continue to serve as many markets and end users as possible.

Maurice Choy: Thank you. And just to finish off, Van, you mentioned that any potential upside from Marketing is expected to fall within your guidance range. How would you characterize the market conditions and the landscape that underpin this view? Is that a CSFOO-type of environment, or more of an extended year-end type of environment?

Van Dafoe: Thanks, Maurice. For Marketing, if you remember, when we spun out we reduced the sandbox that Marketing plays in. This quarter, the $9 million in EBITDA took advantage of some market volatility, and the team was able to capture some value there. I would not expect that to progress throughout the rest of the year. We would rather have our customers take those volumes, and so our Marketing group is the shipper of last resort when no one else will take it.

Operator: Thank you. The next question will come from an analyst with Goldman Sachs. Your line is open.

Analyst: Hey, team. Good morning. Thank you for the time. I will try one on Prairie Connector—feel free to punt if needed given the disclaimer. I would be curious to hear your thoughts on what the overall structure could look like. Are you planning—or is this part of the process—to think through forming a total JV where you would own not just the portion of the line down to the border, but interests south of the border as well? There are moving pieces, but could you walk us through what the structure could look like over time?

Bevin Mark Wirzba: We are still baking the cake on a few elements of that. As I mentioned in my remarks, we are not going to add much further today. We have our system that we were just talking about at length in terms of the Gulf Coast segment that we operate and own. We also have the permitted right-of-way and existing pipe that has been constructed in Alberta, and we are working with partners to determine the balance of the scope in the right way. We are looking to execute this with as little risk as possible, and that is key to structuring our arrangements with our partners.

Analyst: That is fair. Second one for me: you got BlackRock online—good example of what you can do on that portion of the system. Understand it is still early days after the oil price spike, but what have conversations been around next potential projects up there? Has the pace of conversations picked up with where oil has gone?

Bevin Mark Wirzba: That is a great question. While there has been a lot of focus on Prairie Connector, we have been focused on the balance of the increased egress potential out of the basin, which is great for our customers. Peers are moving west and east to satisfy or fill those expansions, including our own. There will be a need to expand intra-Alberta systems. Our team has been looking at our pre-invested corridor in the Grand Rapids, as you pointed out, where BlackRock is. That corridor is permitted, and we would look to see if there is opportunity to attract barrels into that system.

I recently visited the site at the Heartland facility where it was prebuilt for receiving those barrels and then delivering them. We have a connection directly to TMX off that Grand Rapids route. We are looking at solutions intra-Alberta. It was great to see our customer IPC be so successful with their first phase and encouraged by their comments on their quarter that they are evaluating phase two as well. These are all constructive elements to leveraging our pre-invested corridors intra-Alberta.

Operator: Thank you. The next question will come from Jeremy Tonet with J.P. Morgan. Your line is open.

Jeremy Tonet: Hey, good morning. This is Eli on for Jeremy. I wanted to touch on the pressure restriction lifting process on Keystone. Can you remind us of the key milestones there, where you are at, and how we should expect that to progress through the rest of the year?

Richard J. Prior: Thanks. We are making very good progress and are very pleased with the work to date on our remedial action program. Our view at this time is that later this year we are going to be able to start removing pressure restrictions in a phased manner, likely on a segment-by-segment basis. The process to remove all of the pressure restrictions on the pipeline will probably go into 2027 until we can lift them in their entirety. The process is segment by segment: running in-line inspection tools, analyzing the data, completing associated digs, verifying the integrity in each segment, completing the engineering analysis, and in certain cases working with the regulator to lift those pressure restrictions.

Jeremy Tonet: Got it. That is helpful. For the outlook for interruptible volumes on Keystone, whether that is later this year or next year, can you remind us of the key differentials that make that economic for shippers, and how you see volumes above contracted resuming throughout this decade?

Richard J. Prior: We were able to move in excess of our contracted volumes in the last quarter. We had very high operational performance and a more measured amount of maintenance work in the first quarter, so we were up at about 615 thousand barrels per day, which is beyond contracted capacity. A lot of that in the first quarter was makeup rights, though we did move a few spot batches. As this year continues and into next year, we see differentials continuing to widen as more crude production comes on in Alberta, and we would see demand increasing for uncommitted space on the pipeline.

Once we get all of the pressure restrictions removed, I think we will be back up in that roughly 625 thousand-barrel-per-day throughput that we would be able to move.

Operator: Thank you. The next question will come from Benjamin Pham with BMO. Your line is open.

Benjamin Pham: Good morning. You touched on some of the regional pipe outlook, which seems quite positive. With all the export projects on egress being announced, including yourselves, do you get a sense there could be meaningful pent-up demand for a regional pipeline buildout, assuming one or more of these projects are sanctioned?

Bevin Mark Wirzba: Thanks, Ben. As I have mentioned, we do see encouraging signs. If you look at the growth CAGR of the basin over the last ten years, it has been around 3%, and then this last year and this year, another growth of about 100 thousand to 150 thousand barrels per day per annum. By the end of this year, we see that egress will be tapped, and expansions are being contemplated to address the outlook. If you add up what we are hearing from customers, it may not be a 3% growth CAGR, but even a 2% growth CAGR is what we have been hearing.

Over the next five to seven years, that looks like another 1 million barrels per day, and that is what is underpinning the expansion potential we are seeing. Those barrels have to move, and they are originating in the oil sands. There are a number of operators that have systems that can collect those barrels. We will try to put forward the most competitive solutions. We may have a bit more of an advantaged position on the west side as opposed to some peers who have great positions on the east, but we will still look to see how we can participate broadly in that growth.

Benjamin Pham: That ties to your balance sheet. Thinking about any project you sanction today, timing of CapEx, and how that translates to years from now—you probably do not have a big need for CapEx if you announce a growth project. More specifically, as you think about the balance sheet in a couple of years, how much CapEx do you think you can take on before considering asset sales, equity, or partnerships?

Bevin Mark Wirzba: I will start, and then pass it to Van. When we spun, our number one capital allocation priority was to reduce leverage. We had a target of getting down to 4 times within five years. We are a little bit ahead of that schedule based on the current base plan, and Van can provide details. We reserved around $150 million per year of free cash flow to invest in the business, and that will now grow to closer to $180 million with BlackRock coming on. Right now, we are not deploying significant capital, so we are building up cash on the balance sheet.

Van Dafoe: Thanks, Ben. First and foremost, we keep an eye on our investment-grade rating and making sure that is maintained, with a view to get to BBB flat over time. We will take that into account when financing projects. Our original value proposition at that 2% to 3% growth, we view as being fundable through our distributable cash flow. We have additional free cash flow to do that. It is the bigger, chunkier opportunities where we would consider different financing besides our cash flow.

Bevin Mark Wirzba: And when you think about the types of projects we are investing in, they are aligned with our risk preferences. When you are building long, contracted, take-or-pay style investments, the financing is more straightforward than something that has a lot of merchant or shorter-tenor risk on it.

Benjamin Pham: Okay. That is great color. Thank you.

Operator: Thank you. The next question will come from Sumantra Banerjee with UBS. Your line is open.

Sumantra Banerjee: In the press release, you mentioned that you expect WCSB crude supply to still grow modestly throughout the rest of the year. Given the recent geopolitical events, what are the puts and takes you are looking at, and what could potentially change this view down the road?

Bevin Mark Wirzba: It is a great question. We brought forward the Prairie Connector opportunity to customers to address what we saw as optimization-driven growth within the basin—additional technology our customers are using, extended well pairs, those types of things that did not need a significant amount of capital—as well as regulatory reform. If you look at the releases by our customers in the past week, they have pointed to ensuring that the policy and regulatory environment, particularly around emissions, is resolved in order for them to invest significant capital to grow the basin to meet the global desire for Canadian crude.

The next gating item beyond what we could service with Prairie Connector would be more clarity in the regulatory and policy environment.

Sumantra Banerjee: Got it. As a quick follow-up, you mentioned leverage ticking down through the rest of the year, especially with BlackRock cash flows ramping up. Are there any other puts and takes we should consider there?

Van Dafoe: If you think about the normalized net debt-to-EBITDA ratio, there are two components. Year over year, our EBITDA would increase from 2025 to 2026. On top of that, we are paying down debt or accumulating cash on our balance sheet. We currently have limited growth capital in our guidance for this year, so that would put more cash on our balance sheet. It is that combination of increased EBITDA year over year and increased cash or decreased net debt.

Sumantra Banerjee: Got it. That is helpful. I will hand it over.

Operator: Thank you. There are no further questions in the queue at this time. I will now turn the call back over to Bevin for closing remarks.

Bevin Mark Wirzba: Thank you, Michelle, and thank you to all the analysts who joined and asked questions. We really value your continued interest in South Bow Corporation, and we look forward to connecting with you again soon. Have a great day.

Operator: This does conclude today's conference call. Thank you for participating, and you may now disconnect.