SOBO

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2026 results conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press star one one on your telephone, you will then hear an automated message advising your hand is raised.

To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Martha Wilmot, Director of Investor Relations. Please go ahead.

Thank you, Michelle, and welcome everyone to South Bow's first quarter 2026 earnings call. With me today are Bevin Wirzba, President and Chief Executive Officer, Van Dafoe, Senior Vice President and Chief Financial Officer, and Richard Prior, Senior Vice President and Chief Operating Officer.

Before I turn it over to Bevin, I'd like to remind listeners that today's remarks will include forward-looking information and statements, which are subject to the risks and uncertainties addressed in our public disclosure documents available under South Bow's SEDAR+ profile and in South Bow's filings with the SEC. Today's discussion will also include non-GAAP financial measures and ratios that may not be comparable to those presented by other entities. With that, I'll turn it over to Bevin.

Yeah. Thank you, Martha, and good morning, everyone. We appreciate you joining us. South Bow 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 Blackrod Connection Project into commercial service, continuing remedial pipeline integrity work on our Keystone Pipeline and conducting the open season for Prairie Connector, which I'll 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 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. 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 U.S. 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, 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'll turn it over to Richard.

Thanks, Bevin. Good morning. I'll start with safety and pipeline integrity, which remain top priorities. During the quarter, we continued to progress our remedial work related to the milepost 171 incident, including a combination of in-line inspections and integrity digs across the Keystone system.

In parallel, we're 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've 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 600,000 barrels per day during the quarter, providing customers with an opportunity to move make-up 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'll finish with a brief comment on growth with broad macro changes supporting an increasing production outlook in the Western Canadian Sedimentary Basin. In that context, we continue to evaluate smaller-scale customer-led opportunities within our existing footprint.

These include either expanding into connectivity 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'll turn it over to Van to walk through our financial performance and outlook.

Thanks, Richard, and good morning. South Bow delivered normalized EBITDA of $257 million in the first quarter of 2026, which was in line with market expectations and modestly higher than the fourth quarter of 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 31st and in line with our expectations. As Blackrod 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've said consistently, the dividend remains a foundational component of South Bow's total return proposition. Switching briefly to growth and building on Bevin and Richard's comments, we've received a number of questions on how we think about funding growth at South Bow.

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, insurance capital and new equity, depending on the opportunity and the associated risk profile. Importantly, I also walked through the financing criteria that guides 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. With that brief financial overview and outlook, I'll turn it back to Bevin for closing remarks.

Thanks, Van, and thanks, Richard. To close, I want to come back to something I've said before because it really does define South Bow. 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've said consistently, growth at South Bow 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's fundamental to our strategy. With that, I'll now ask the operator to open the line for questions.

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question is going to come from Sam Burwell with Jefferies. Your line is now open.

Hey, guys. Good morning. Appreciate the disclaimer around Prairie questions, but I'll give it a shot. I wanna better understand, like, what the key hurdles are remaining prior to making a call on whether to advance Prairie. Just wanna get a sense of, like, what's non-negotiable 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.

Yeah. Thank you, Sam. You know, there's lots to consider obviously in evaluating the proposals received. You know, certainly, when we review, you know, what our customers have submitted, we have to confirm a number of things amongst our partners to ensure that we're all aligned in whether or not we take, you know, execute on those agreements that come in and move forward to the next step.

The next step is really to prepare for a potential investment decision on the project. Certainly, you know, the typical elements that you would evaluate before a FID are, you know, ensuring that your contracting strategy, your supply chain procurement, your cost estimates, the execution plan, all of those things are in line.

Also, we're kicking off significant permitting efforts across the system in the U.S. as well as doing the preliminary work in Canada. One thing, though, I want to remind everyone is As to 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. Now, we're seeing great alignment amongst the regulatory environment in both Canada and the U.S., but we cannot expose our shareholders to risks that they cannot bear, nor can we. Those would be the key gating items, Sam.

Okay, perfect. Follow-up would be curious, what's the current max capacity on the Gulf Coast portion of Keystone? How easily and cost-effectively could that potentially be expanded?

Sure. Sam, it's Richard Prior here. We're able to move, you know, in an excess of 800,000 barrels a day on the Gulf Coast leg. Like it, you know, remember, it was originally designed as part of the Keystone XL system. It could move 830,000 barrels plus. I'd say at this point, it's pretty much max designed. There may be some, you know, modest amounts of optimization or using things like drag reducing agent that we could kinda top that up a little bit, but it's at the upper end of what it can move.

We're seeing very strong throughput on it here in the second quarter. I think we'll see when we release our second quarter results, you know, what kind of max top end capacity we're able to move on the Gulf Coast section.

All right. Awesome. Thank you, guys.

Thanks, Sam.

Thank you. The next question will come from Maurice Choy with RBC Capital Markets. Your line's open.

Thank you, good morning, everyone. Just sticking with the theme about the U.S. Gulf Coast segment of Keystone. I know you mentioned the Q2 being a little bit higher than Q1 because of the higher demand. Just curious as to see how you think this durability of higher demand will be for the remainder of the year. Also more importantly, are you seeing any different sub-markets within this region that's asking South Bow to consider expanding into?

Maurice, I'll start and maybe I'll ask if you could repeat the last part of your question. I think neither Richard nor I really caught that. Before you do so, you know, we're seeing volumes, as Richard has pointed out, flowing very high on our U.S. Gulf Coast segment right now.

Just remind everyone, Cushing volumes, though, is what drives that ARB and those flows and the Cushing volumes are reducing and we're getting, you know, our outlook is that, you know, much of the volume growth that we've seen has been macro-driven here of late. We don't anticipate to see that level of strength through the back half of the year. Maybe if you could repeat the last part of your question, please.

Just thinking about, you know, as the, as this part of the pipeline extends south, are there any customers or sub-markets within this U.S. Gulf Coast that is asking South Bow to expand, you know, more like fingers and toes?

Yeah. Good, great question. We're in constant dialogue with our customers about, you know, increasing the amount of connectivity, you know, both on the receipt end of our pipeline, but certainly on the delivery end, as you point out in the Gulf Coast.

You know, we're trying to make sure that, you know, as our customers that move barrels on the pipeline, you know, can efficiently as possible, you know, reach end market destinations, whether that be refineries or whether that be additional marine terminals. I'd say we're 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, as many end users as possible.

Thank you. Just to finish off, Van, you mentioned that any potential upside from marketing is expected to fall within your guidance range. Can I just ask how you would characterize the market conditions and the landscape that underpins this view differently? Is that a CSAR type of environment or is that more of a, you know, extended a year-end type of environment?

Thanks, Maurice. Yeah. For marketing, if you remember, what we did when we spun out is we reduced kind of 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 wouldn't expect that to progress throughout the rest of the year. What you'll probably see, we'd rather have our customers take those volumes and so our marketing group is kind of the shipper of last resort when no one else will take it.

Understood. Thank you very much.

Thank you. Our next question will come from John Mackay with Goldman Sachs. Your line is open.

Hey, team. Good morning. Thank you for the time. I will try one on Prairie Connector, and feel free to punt if needed, given the disclaimer. I guess I'd just be curious to hear some of your thoughts on kind of what the overall structure of this could look like.

Are you guys planning or is this part of the process to think through forming a kind of total JV where you guys will own, you know, not just the kind of portion of the line down to the border, but kind of interests south of the border? I understand there's moving pieces, but maybe just walk us through kind of what the structure of this could look like over time.

Yeah, John, we're still baking the cake on a few elements of that. You know, as I mentioned in my remarks, we're not gonna really add. Obviously, 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 obviously have the permitted right-of-way and existing pipe that's been constructed in Alberta and, you know, working with partners to determine the balance of the scope in the right way. Obviously, we're looking to execute this with as little risk as possible, and that's key to structuring our arrangements with our partners.

Right. That's absolutely fair. Just second one from me. You guys got Blackrod online with a good kind of, I wanna say proof of concept, but good example of what you can do on that portion of the system. Understand it's still early days after, you know, the oil price spike. Just curious what conversations have been around about, you know, next potential projects up there, whether or not, yeah, the pace of conversations has picked up with where oil has gone. Thanks.

John, that's a great question. You know, while there's been a lot of focus on Prairie Connector, we've actually been focused on just the balance of the increased egress potential out of the basin, which is great for our customers. You know, peers are moving west and east to satisfy or fill those expansions, including our own.

There'll be a need to expand intra Alberta systems. Our team's been looking at our pre-invested corridor in the Grand Rapids, as you pointed out, where Blackrod is. That corridor is permitted and so we would look to see if there is opportunity to attract barrels into that system. I recently visited the site last week at the Heartland facility where it was pre-built for receiving those barrels and then delivering them.

We have a connection directly to TMX off of that Grand Rapids route. We're looking at multiple solutions. Intra Alberta was great to see our customer, IPC, be so successful with their first phase and encouraged by their comments on their quarter that they're evaluating phase 2 as well. These are all constructive elements to leveraging our pre-invested corridors in intra Alberta.

That's great. Thank you.

Thank you. Our next question will come from Jeremy Tonet with JPMorgan. Your line's open.

Hey, good morning. This is Eli on for Jeremy. Just wanted to touch on the pressure restricting lifting process on Keystone. Can you just remind us the key milestones there and then, you know, where you guys are at and, you know, we should expect that to progress through the rest of the year? Thanks.

Yeah, thanks. It's Richard Prior. I'll field this one. First of all, I'd just say we're making very good progress. We're very pleased with the work that's been done to date on our remedial action program.

Our view at this time is it's going to put us in a position where, you know, later this year we're going to be able to start removing pressure restrictions in a phased basis. It'll probably be, you know, look like a segment by segment basis. I think the process to remove all of the pressure restrictions on the pipeline is probably going to go into 2027 until we can lift it in its entirety or lift them in its entirety.

It's really just the process segment by segment of running in-line inspection tools, analyzing the data, you know, completing associated digs, you know, verifying the integrity in each segment, and, you know, completing the engineering analysis and then in certain cases, working with our regulator, to lift those pressure restrictions.

Got it. That's helpful. You know, maybe just thinking about the outlook for, you know, interruptible volumes back on Keystone, whether that's later this year or next year. Can you remind us the key differentials that, you know, make that economic for shippers and, you know, kinda how you see volumes above contracted resuming, you know, throughout this decade? Thanks.

So, we've been able to move in excess of our contracted volumes in the last quarter actually. Like we've, you know, had very high operational performance. You know, we had a more measured amount of maintenance work in the 1st quarter, so we were up, you know, at about 615,000 barrels. So that is, you know, beyond contracted capacity.

A lot of that in the 1st quarter was makeup rights. So we did move a few spot batches. I'd say, you know, as this year continues you get into next year, we see differentials, you know, continuing to widen out as more crude production comes on in Alberta and we'd see demand increasing for uncommitted space on the pipeline.

I would say once we get all of the pressure restrictions removed, I think we're gonna be back up in that, you know, call it 625,000 barrel type throughput volume that we'd be able to move.

Great. Thanks.

Thank you. The next question will come from Benjamin Pham with BMO. Your line's open.

Well, good morning first of all. I know you touched base on some of the regional pipe outlook, which seems quite positive still. Can you comment, with all the export projects on the egress being announced, including yourself, do you get a sense that there could be a meaningful pent-up demand of a regional pipeline build-out, assuming one or more of these projects are sanctioned?

I think, Ben, this is Bevin. You know, as I mentioned, yeah, we do see Well, you know, what's been encouraging, if you look at the growth CAGR of the basin over the last 10 years, it's been around 3%, approximately 1 million barrels of growth. Then this last year and this year, another growth of kind of 150,000 barrels a year per annum.

By, you know, what Richard was mentioning, by the end of this year, we see that the egress will then be, kind of tapped and then these expansions are being contemplated to address the outlook, which is, again, if you add up, you know, what we're hearing from customers, it may not be a 3% growth CAGR, but even a 2% growth CAGR is kind of what we've been hearing.

That looks to add over the course of the next five, six, seven years, probably another million barrels a day. That's what's underpinning, I guess, the expansion potential that we're seeing. Those barrels have to move, and they're all originating in the oil sands. There's a number of operators that have systems that can collect those barrels.

We'll try to put forward the most competitive solutions. You know, we have maybe a little bit more of an advantaged position on the west side as opposed to some of our peers who have great positions on the east. We'll still look to see how we can participate broadly in that growth.

Got it. This just may just tie to your balance sheet and even thinking about any project you sanction today, the timing of CapEx and how it transacts from year to now. You probably don't have a pretty big need for CapEx if you do announce an organic growth project. My question more specifically, like, 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 or equity or partnerships?

Yeah, Ben, I'll start and then I'll pass it to Van. You know, when we spun, we reserved, obviously our number one capital allocation priority is to reduce leverage. We had a target of getting down to four times within five years. We're a little bit ahead on that schedule based on the current base plan, and Van can give those details.

We did reserve, as we were planning around $150 million per year of free cash flow to invest in the business. That will now grow to closer to $180 with Blackrod coming on. Right now we're not deploying capital, so we're building up cash on the balance sheet.

That's the high level, and maybe I'll turn it to Van to kind of go through a little bit more detail.

Thanks, Ben. You know, I think first and foremost, keeping an eye on our investment-grade rating and making sure that that is maintained, and actually a view to get to BBB flat over time is something that we are looking at.

We'll take that into account when we are financing these projects. You know, I think our original value proposition at that 2%-3% growth, we view that being able to be funded through our distributable cash flow. We have that additional free cash flow to be able to do that. It's more the big chunkier ones that we would need some different financing besides our cash flow.

When you think, just to add on to that, Ben, you know, the types of projects that we're investing in are all aligned with our risk preferences. When you're building long contracted take-or-pay agreement style investments, the financing is more straightforward than something that has a lot of merchant or otherwise shorter tenure risk on it.

Okay. That's great color. Thank you.

Thank you. The next question will come from Sumantra Banerjee with UBS. Your line's open.

Hi. Thank you for taking the question. I know in the press release that you mentioned that you expect the WCSB crude oil supply to still grow modestly throughout the rest of the year. I'm just curious, given the recent geopolitical events and wanted to ask about the contingent takes that you're looking into and what could potentially change this view down the road?

Well, it's a great question. You know, we brought forward the Prairie Connector opportunity to customers to address really what we saw as more of the optimization growth within the basin. The additional technology that our customers are using, extended well pairs, those types of things that didn't need a significant amount of capital as well as regulatory reform.

I think if you look at the releases by our customers in the past week, they've all pointed to ensuring that the policy and regulatory environment, particularly around emissions, are resolved in order to see them invest significant capital to grow the basin to meet that global desire for Canadian crude.

I think the next gating item in particular is, you know, beyond what we could service with Prairie Connector, would be, you know, more clarity amongst in the regulatory and policy environment.

Got it. That's helpful. My quick follow-up is I know you also mentioned previously that you expect leverage to tick down in the rest of the year, especially with Blackrod cash flows ramping up. I'm just curious about other puts and takes that we should consider there as well.

Could you repeat the back half of that, please, Sumantra?

Sure. I know you mentioned Blackrod cash flows ramping up would help with the leverage to go down for, and, during the balance of the rest of the year. Just curious about anything, any other factors that we should consider there.

If you think about that normalized debt to EBITDA ratio, obviously there's two components of that. Year-over-year, our EBITDA would increase from $25-26. 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's that combination of increased EBITDA year-over-year and increased cash or decreased net debt.

Got it. That's helpful. I heard it over.

Thank you very much.

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.

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

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