South Bow Corporation 2026 Q2 Earnings Call

Please go ahead. Thank you, Dana.

Welcome everyone to South Bow's second 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 include forward-looking information and statements that 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.

Good morning, everyone. We appreciate you joining us today. While we're proud of our safe and reliable operations, strong financial performance, and improved outlook for 2026, the defining achievement of the first half of the year was the success of our open season and the momentum we've continued to build across our growth portfolio. Securing 465,000 barrels a day of 20-year customer commitments from a broad producer group was a significant milestone for our team and, more importantly, a strong endorsement from our customers. This demonstrates the value of our corridor, the strength of our market position, and the continued need for additional egress capacity to support growing Western Canadian crude oil production and deliver significant long-term economic benefits. These commitments are also a critical enabler for our customers.

The production growth associated with these commitments will help generate the cash flows needed to enable ambitious, larger scale investments across the Western Canadian sedimentary basin in the years ahead. Achieving commercial success has enabled us to move into the next phase of development as we advance the work required to support a final investment decision, which we are targeting for mid-2027. Over the coming months, we will focus on stakeholder engagement, execution planning, cost refinement, financing, and securing the permit durability needed to support that decision. As we've said previously, permit durability remains a key requirement for South Bow. The infrastructure we operate today and the infrastructure we are looking to develop will be needed for decades to come, spanning multiple governments and market cycles while delivering significant long-term economic benefits.

That's why it's critical that the certainty needed is in place to support these investments through the duration of their construction and throughout their operations. We have considered that requirement at every stage of this process, and we would not have launched the open season or advanced commercialization activities if we did not believe there was a credible path to securing the certainty needed to support a project of this importance and this scale. As with all growth opportunities, we will continue to evaluate the opportunity through the same disciplined low risk framework that defines South Bow. With that, I'll hand it over to Richard to provide more detail on our operational performance, integrity activities, and the progress we're making across our growth portfolio.

Thanks, Bevin. Safe and reliable operations, strong asset integrity, and disciplined execution remain the foundation of our business. Starting with pipeline integrity, we continue to make meaningful progress on the remedial actions associated with the Milepost 171 incident. The data and insights gained through this work are being incorporated into our ongoing integrity management programs, helping to strengthen system integrity and support long-term safe and reliable operations. We remain encouraged by the progress we've made and continue to expect pressure restrictions to be lifted in a phased manner through the end of 2026 and into 2027 as this work advances. Turning to operations, Q2 was another solid quarter for the business. Performance on the U.S. Gulf Coast segment of the Keystone Pipeline System was particularly strong as disruptions to global crude oil trade drove increased demand for connectivity to refining and export markets.

During the quarter, we established new throughput records on the U.S. Gulf Coast segment, reflecting close collaboration across our commercial and operational teams and highlighting the value of our corridor. Our team and assets continue to respond effectively to changing market conditions while providing customers with reliable access to the PADD II and three markets. More broadly, the quarter reinforced the strategic value of South Bow's corridor. As Western Canadian production continues to grow, our customers increasingly value competitive market access, which we provide to North America's strongest demand markets. That same demand for market access underpins the growth opportunities we are advancing today, bringing me to our proposed Prairie Connector Project and the joint development of the Liberty Bridge Project with our partner, Bridger. As Bevin outlined in his earlier comments, our efforts today are focused on advancing the work required ahead of a final investment decision.

To support disciplined planning and efficient execution, South Bow and Bridger are coordinating efforts while leveraging execution expertise and direct experience across our respective geographies. For Prairie Connector, our team continues to advance stakeholder engagement, execution planning, and other development work streams. For Liberty Bridge, which would utilize an established corridor on privately held land to connect the Guernsey Hub and Cushing, our teams are active across a number of development work streams. That effort is focused on stakeholder and landowner engagement, permitting, and execution planning. As we advance these projects, South Bow and Bridger will continue to bring the same operational, technical, and commercial rigor that underpin our businesses. With that, I'll turn it over to Van to discuss our financial performance and updated outlook for 2026.

Thanks, Richard, and good morning. Our second quarter results demonstrate the strength of South Bow's underlying business. Strong operational performance and elevated demand for capacity on the U.S. Gulf Coast segment of our system translated into another quarter of solid financial results. At the same time, we continued to strengthen our balance sheet, return capital to shareholders, and advance our growth priorities. Our strong results during the first half of the year reflect the competitive positioning of our assets and the efforts of our team to deliver value through a dynamic market environment. As a result, we have increased our full year normalized EBITDA guidance to CAD 1.04 billion within a range of 2% at the upper end and 1% at the lower end. We have also increased our full year distributable cash flow guidance to CAD 665 million within a range of 2%.

Our strong earnings and cash flow generation continue to support balance sheet improvement. At the end of the second quarter, our leverage ratio improved to 4.4 times net debt to normalized EBITDA, reflecting a continued progress towards our highest capital allocation priority. This continued improvement in our financial position strengthens our ability to pursue growth opportunities while maintaining the disciplined capital allocation approach that defines South Bow. Accordingly, we have increased our growth capital outlook for the year to support development activities associated with the Prairie Connector and Liberty Bridge projects. These investments are focused on advancing the development activities required to support a final investment decision and are being evaluated through the same disciplined capital allocation lens that guides all investment decisions at South Bow. Finally, our board of directors approved our quarterly dividend of CAD 0.50 per share yesterday, reflecting our ongoing commitment to returning capital to shareholders.

With that brief overview of our financial performance and outlook, I'll turn it back to Bevin for closing remarks.

Thanks, Van. Thanks, Richard. Before we move to questions, I'd like to briefly touch on an important board leadership transition that we announced yesterday. As part of our board of directors' ongoing succession planning process, Hal Kvisle stepped down as chair of the board and George Lewis was appointed chair. On behalf of the entire management team and myself personally, I'd like to thank Hal for his leadership, counsel, and mentorship through South Bow's launch as an independent company and congratulate George on his appointment. We look forward to continuing to work closely with both Hal and George as we execute on our long-term strategy. In closing, and looking more broadly at the first half of the year, I believe South Bow continues to demonstrate the strengths that differentiate our business.

We have delivered safe and reliable operations, strengthened our financial position, and advanced our growth portfolio in a disciplined manner. At the same time, we continue to advance opportunities that build on the strategic advantages of our corridor and the capabilities we have collectively developed through decades of operating critical energy infrastructure. These opportunities have the potential to strengthen our competitive positioning and support the next phase of growth for both South Bow and our customers. The success of the open season reinforces our view that customers strongly support the additional egress capacity needed to grow Western Canadian crude oil production, and that South Bow is uniquely positioned to help meet that demand. As we look ahead over the coming months and quarters, our priorities remain unchanged. We will continue to focus on safe and reliable operations, disciplined growth, and financial strength.