South Bow Corp Stock

Good day, and thank you for standing by. Welcome to South Bow Q2 2026 Results Conference Call and Webcast. [Operator Instructions]. Please be advised that today's conference call is being recorded.

I would now like to hand the conference over to your first speaker today, Martha Wilmot. Please go ahead.

Thank you, Dana, and 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 2 and 3 markets. More broadly, the quarter reinforces 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 landholder engagement, permitting and execution plan. 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 continue 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 $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 $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 4.4x 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 $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.

Yes. Thanks, Van. Thanks, Richard. So 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.

So 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. We believe those principles, combined with the advantages of our corridor and the opportunities in front of us, position South Bow to continue creating long-term value for shareholders while meeting our customers' evolving market access needs.

With that, I'll now ask the operator to open the line for questions.

[Operator Instructions] Our first question comes from the line of Maurice Choy of RBC Capital Markets.

Just want to start with the incremental details you share about your successful open season. Obviously, there are many pipeline alternatives that are being proposed out there. So just curious whether at a very high level, what are your customers telling you about why your pipeline was one that -- or at least one of the ones that they supported?

Yes. Thank you, Maurice. Our customers -- we've indicated all along that we are a customer-led strategy and we had the opportunity to listen to what they like about our base systems and what they're really striving for. And obviously, having the highest netback that you can deliver is important to our customers. And so being -- having a competitive tool is very critical, which we delivered in our open season, very competitive toll over the long term with certainty around those tools over a 20-year period.

The second thing was getting to a market that was resilient. And we've consistently said that the demand in the Gulf Coast for Canadian crude into that refining market. was and is and will be resilient for decades to come. And so enabling a batch system to serve directly and a bullet down to the Gulf Coast is what our customers were looking for. In addition to that, we have since creating the initial system of Keystone being able to deliver to multiple delivery points and having that flexibility for our customers to deliver into different kind of exit markets is very critical for our customers.

And maybe you could finish off with a question on Liberty as well as Prairie Connector. You mentioned multiple times today in the past about permit durability, and that's been a key requirement. I wonder if you could just paint the blue sky scenario for us. What the ideal situation is for you in terms of permit durability. What does that look like? And just take one step further, like what are some of the things that your counterparty who can give you that durability still want to see before giving you that durable?

Maurice, I'd like to answer that by going back to first principles. As a developer, we've learned over the years that risk allocation in a project is really important, and there's risks that we should be managing and there's risks that our customers are undertaking, and there's risks that are not able to be mitigated by ourselves or our customers. And that's what we focus on in terms of the permit durability component. And so while we all take execution and development risk across the project with our partner, our customers have taken 20-year commitments and commodity price exposure through that period, ensuring that we have a permitted project in place that can remain durable through that period is something that we'll need others to step in on.

And so we've been working on programs in the United States that are well established to apply and to work through the process of seeking that durability in the United States. In Canada, there is -- there are fewer precedents, but we did achieve a precedent when we advanced previously projects, and we're trying to navigate those right now. And so we're going to be a little bit light on the details on what that looks like specifically, Maurice, but we were well advanced in those discussions to seek what we can achieve.

And what's important for us is that -- we don't want to expose our shareholders to risk that they shouldn't be exposed through the development of a project like this. So we've proven that commerciality is there. We've proven that there's a desire to have the project move forward. We believe there's been very constructive support both in Canadian governments as well as the United States government, and we're just trying to finalize what that -- what form that takes over the next number of months.

Our next question comes from the line of Sam Burwell of Jefferies.

Wanted to ask how much progress has been made on permitting at Liberty, given that you've characterized it as an existing corridor. So was there any preexisting permitting to leverage? And then maybe at a higher level, how much is baked into the FID time line and the way of contingencies, particularly in regards to permitting on the U.S. side?

Got it. It's Richard here. So with respect to the Liberty Bridge project, as we've mentioned, we acquired a significant amount of work that was previously done. And so we required that from Tallgrass and Bridger, which are owners of that work. And so that included corridor engineering, not number of rights are right-of-way agreements that have been established and that really puts you effectively a long way down the permitting process, right, by having all of that work that was completed previously. And so -- there's more to come on this, and we're working right now in consulting with the agencies that will ultimately grant new permits for that part of the route. And we'll have more to say at the times that we complete those permanent filings.

And then in terms of your question around what's involved for, I guess, time line contingency. We looked at and studied as to get Bridger, all of the statutory permitting time lines and the regulations that are acquired across the projects. And we've built those time lines into our schedule. We've also had consultations with the permitting agencies. And so our time line is according to those, and we believe that we're -- we maintain on track to reach an FID in mid-2027.

Okay. Great. And then another thing I noticed in the press release was the reference to evaluating inorganic opportunities. I mean not expecting you guys to say what you're going to buy and when. But maybe just like a little bit of color on sort of the scope and just do you have the bandwidth internally to pursue acquisitions while you're executing Prairie Liberty in the whole scope of that project?

Yes. Thank you, Sam. The first and most important thing is that when we look at inorganic opportunities, they're within the same risk preferences and kind of capital allocation principles that we've been demonstrating since our IPO. We do have the capacity internally. We've added team members through the year. We have a great team in place to evaluate opportunities. And we're seeing that with the strength of the growth prospects in our organic business, that makes our currency through inorganic potential. But developing organic is obviously our priority. We've demonstrated that through the successful open season and moving that forward and build multiples are much more accretive to shareholders than acquisition multiples. But want to be clear that we think that there could be complementary assets that we could add to the portfolio that match that joint strategy of both organic and inorganic going forward.

Our next question comes from the line of Jeffrey Tonet of JP Morgan Securities.

This is Eli on for Jeremy. Just wanted to touch on long lead time item procurement, given a pretty expedited construction window here. Can you just frame whether you're already ordering and placing down payments on some of that equipment? And then maybe how much of a role do government subsidies play in those decisions?

Yes. Eli, I think we've been clear that we wouldn't expose our shareholders to kind of material expenses or otherwise until we have the permit variability in place. And so with that in mind, we're obviously managing our plan towards FID to secure the necessary durability to make some long lead purchases. We're not at that point today, but we've obviously spoken to all our suppliers and contractors to get us comfortable around our mid-2027 FID time line for the project.

Got you. And then maybe there's been a lot of discussions of stakeholder consideration so far on the call today. But if we think about some of the activity we've seen in Montana, partners project. How did that kind of factor into your overall decision to maintain the FID? And what kind of conversations are you having with your partner on that sort of opposition from the stakeholder?

Yes. Eli, we're not going to speak on behalf of our partner, but you could appreciate, even through Richard's remarks that we're well aware of all the permitting requirements and the importance of ensuring that stakeholders across our projects have the opportunity to be consulted through the normal regulatory processes. And so this is just par for the course from our perspective of how you advance the project. And so we are and our partners well aware of what those consultation requirements are. So those were already built into our schedule and our time frame of how to pursue and get ready for an FID decision.

Our next question comes from the line of Aaron MacNeil of TD Cowen.

Maybe I'll follow-up on Maurice's question on permit durability. There's been some discussion of a potential DOE loan. Is that a necessary prerequisite in your view for permit durability? Or are there other potential avenues to deliver that kind of certainty that you need to proceed with a formal FID? And if so, what does that actually look like?

Yes, Aaron, thanks for the question. The way we've been thinking about it is like almost an insurance tower, a stack of various programs, methods commitments by others to help secure the risks that we believe that those providers are best positioned to provide that permit durability. So in the United States, there are existing programs that we're working through. As I mentioned in Canada, there are less precedence on that front, but we've been -- we would not have as per my remarks, we've been in these discussions for well over a year. Obviously, we haven't gotten to conclusion on those discussions, but we wouldn't have proceeded with an open season if we didn't feel that we had customer support or broadly a pathway to secure what we needed in order to put -- allocate capital on behalf of our shareholders to move forward.

Okay. Fair enough. Do you see the potential for permitting reform either before the midterms or during the lame duck session as a potentially positive catalyst for either the Bridger expansion or Liberty Bridge projects or are you essentially too far along in both of those processes for it to matter. And if you are too far along, like can you speak to how permitting reform might help you sort of down the road on incremental projects in the future?

Well, Aaron, I'm not a political expert, but we are a member organization of the American Petroleum Institute and API on our behalf and on behalf of all of our contributing members and participants have been actively working on the permitting reform file in the United States and believe that, that, in general, has achieved broadly bipartisan support in many, many aspects. And I can't comment on to whether or not it moves forward at a pace that supports what we're actively pursuing, but it certainly is a consideration that we've had for the last year.

Our next question comes from the line of Ben Lund at Goldman Sachs.

Good morning, and thank you for the time. I wanted to pick up on the broader picture, but more so on the demand for Canadian heavies. We've seen a lot of moving pieces in the market, but curious if you can speak to what you're seeing in terms of real-time demand signals down at the Gulf Coast so far in the third quarter? And then also, is there any appetite to increase and add incremental throughput capacity or delivery points on the Gulf Coast to capture more of the value when the Prairie barrels arrive?

Yes, absolutely. That's -- those are both great questions. We ran a 90-day open season, and there is a lot of macro activity going on during that period of time. and our customers are clearly as they are taking on the risk of commodity exposure into that market over the next 20-plus years. are much more acutely aware of their views of the outlook of that market. But competitively, sourcing reliable Canadian barrels out of a resource that has very low maintenance and maintenance capital to see those barrels and that supply be resilient in a variety of market environments really fits well with serving that Gulf Coast environment.

To your second question, since the development of our base Keystone, we've set, we've continually looked at adding different delivery points and consistent with the Prairie Connector project, our team has been in conversations of seeking different delivery points and markets to provide that flexibility for our customers. to manage their exposure over the next 20 years. We do have marine access from our systems. And so we're continuing to look at those options as well as other refinery connections in the Gulf Coast.

That's helpful. And maybe just a quick one on the intra-Alberta side. But beyond Blackrod Phase 1 and the opportunity for Phase 2, it seems like Grand Rapids and White spruce are positioned well to capture the growth in the basin. I'd be curious how conversations are progressing with the producers in the region on incremental production. And then maybe how you'd frame up the way these types of projects compete for capital against the larger Prairie Connector and Liberty Bridge products. And even the kind of M&A that was mentioned earlier.

Yes, Ben, if you take us back to January of 2025, there's a lot of uncertainty from the geopolitics around our business. Our customers were we're not in a position to grow in the capital markets that they were supported by we're looking for shareholder returns via buybacks and dividend growth. Fast forward a year, we have to very constructive governments, which has encouraged the capital markets as well as our customers to seek that growth. So we're very fortunate to have pre-invested capital in our Grand Rapids corridor that is positioned very well. Even in the event Prairie Connector didn't advance the growth in the basin has allowed us to begin discussions around leveraging that pre-invested capital in our corridors in the Grand Rapids and in [ Hardisty ] to seek the potential seeing more barrels move and whether that's through West Coast solutions or out east or south VR systems. We have seen more opportunities and more discussions in the intra-Alberta than we did at the time of spin for sure.

On the inorganic side, that means some of the inorganic assets that are in intra Alberta probably have a little bit more value to them because they have a good growth outlook as well. And so we're just being cautious and we'll be very disciplined on our approach on the inorganic side.

Our next question comes from the line of Theresa Chen of Barclays.

Bevin, would you elaborate a little bit more on your view of WCS growth over both near and medium term? Per your earlier comments and in the press release, it looks like production remains below total pipeline egress right now. But shippers are in active negotiations with the Canadian government and themes. How do you see the path forward for WCS production moving over the next several years, what do you view as the key catalyst or constraints that will determine the pace of growth?

Yes. Great question, Theresa. So we had an outlook and going back to when we launched in that -- my comments around what the environment was like in 2025. we felt at that point in time, the basin had grown about 1 million barrels a day over the 10 years prior. And we felt that with the TMX pipeline coming on that we were around 250,000 barrels a day long egress, but that the growth in the basin through optimization capital primarily would see that, that supply/demand or an egress balance, get into a situation where we're short egress by kind of 2027.

Now there's been some additional capacity developed shifting our view maybe perhaps to mid-'27 where we'd see that the basin will have exceeded the capacity. And I've connected here very recently in the last few weeks with the CEOs of a number of our customers, and they share the same view that there or their base assets will be able to grow to achieve growth out of their assets to exceed what's currently available. And that's what really underpin the desire of our customers to underwrite our Prairie Connector project as they see that from their base assets.

Longer term, we see our project as a way to ramp into the larger aspirations that are occurring in Western Canada to see other egress markets. And consistently, I think if you read the quarterly releases of our customers, they've all been able to demonstrate very significant improvements in operating costs and maintenance capital cost to underwrite that growth. So we see the environment as being very constructive to support not only our base business but also ongoing growth out of -- in the Intra-Alberta market.

And on the topic of capacity, to digest this magnitude of potential growth across your assets? Your comment about currency, your currency as a potential tool for inorganic growth. Can you just elaborate more on potential financing options for both inorganic and organic? Currently of one consideration, but also possibly deep pools of private capital that may be available to you. Any thoughts there?

Yes. Theresa, at our Investor Day in November, we laid out, I call them the colors of the rainbow there. Obviously, there's equity, there's our shares, but there's also the pools of capital that have been very active, say, on the private insurance or investment-grade joint venture capital. The debt capital markets have been very constructive. And we've seen a number of processes this year. Some haven't come to conclusion, but we've been monitoring them closely. And so I'll pass it to Van to kind of describe kind of how we generally think of our capital stack.

Yes. So out of the gate, obviously, our debt was at around 5x net debt to EBITDA. We brought that down to 4.4x. And so if you model it out, and take the credit rating agencies into account. You can come to a conclusion on how much additional debt we can take on. And then besides that, we'd have to look at equity for that insurance capital or hybrids or other forms of capital. So as Bevin mentioned, we're looking at all forms and we also are ensuring that the credit rating agencies are involved and are up to speed on our thoughts.

Our next question comes from the line of Keith Stanley of Wolfe Research.

First I wanted to start, it's obviously very early days on this proposed 1 million-barrel a day West Coast pipeline backed by the government. But how does that project being on the table impact how you think about Prairie Connector as well as, I guess, the timing for when and how you'd recontract Keystone, if it does at all?

Thanks, Keith. Certainly, our customers that were part of that trilateral agreement, we're well aware of the ambitions of the government on other egress solutions. And even in that intimate knowledge of where that was going, they bid in very confidently into our open season on Prairie Connectors. So we believe our commercialization is very solid there. What's important on recontracting, Keith, is irrespective of whatever solutions come up in the future is where you're delivering those barrels and at what cost. And we believe that we can continually be the most competitive solution for those barrels.

And a West Coast solution, I mentioned to Theresa that we were really targeting the optimization barrels that were going to come in the basin, not the new greenfield projects. to underwrite Prairie Connector. And so any material as the West Coast solution moves forward, and we're encouraged by the basin growing and our customers growing but those would require a very significant greenfield investments. So new production streams in addition to the ones that are currently on our base systems. So these are incremental barrels, and we don't believe that there that's mutually exclusive to our systems to see our barrels move away. So as long as we do our job and provide the best customer solutions at a very competitive rate, we think that there's room for both.

Got it. That makes a lot of sense. Second one on Prairie Connector, just to follow up. Are there ways to achieve the government assurance of permit durability beyond U.S. legislation that we might not be thinking of, you mentioned kind of like a stacked insurance-type pyramid to figure this out. Maybe there's executive branch options. Just I guess my question is, are there multiple paths to get to the permit durability? Or is it one really that you have in mind?

No. I think, Keith, as I mentioned, there are multiple paths. Going back to my risk allocation comments, there are many beneficiaries not only ourselves and our customers, but many jurisdictions benefit from the economic benefits that this project will deliver. And so matching the right risks that are in the project to the right beneficiary is the path that we're taking. And so those are -- there's many of those discussions. And if I describe the pie of my day, it looks very different than it did 1.5 years ago and same with our team we're active on many fronts.

Our next question comes from the line of Sumantra Banerjee of UBS.

Great to see the guidance raise. And aside from the market volatility that we've been seeing and also you've talked about the pressure restrictions potentially being lifted before I was curious if there's anything else that may put you towards the top end of the guidance?

We've seen the first half of the year, I referred to, there was a lot of macro environment volatility. That provided some additional opportunity that the front half of the year we may about -- we outperformed kind of our own budget expectations. But inventories in Hardisty and Cushing are at kind of all-time lows. And so we think that our guidance reflects our view that the second half of the year will be modest compared to the first half of the year, things that could drive us to the upside is would be just different events where those arbs open up. And the goal of our team, our system operating factor in this last exceeded our expectations as well. So having our systems open and available for spot volumes. As Richard pointed out, we had some record volumes. So we know what we can do. But right now, we're tempered by kind of inventory levels and the broader macro that's out there.

That's very helpful. And then also wanted to touch upon Black Rod, that $10 million that you called out in the press release for the growth CapEx, just curious about what activities are needed for that and the completion?

Yes. So it's Richard here. With respect to Blackrod, we're well into final wet commissioning activities. And so the capital that we're consuming in 2026 for the project. It's really just finalization activities of the project to get it into service like we expect to be through all the wet commissioning activities here within the next month or two. And then beyond that, it's just simple final reclamation of the site.

Our next question comes from the line of Praneeth Satish of Wells Fargo.

So I realize it's still very early and Prairie Connector hasn't reached FID. But assuming the project does move forward as planned, how much future expansion capacity could the system support? Could it Prairie Connector and Liberty Pipeline be expanded towards the original 800,000 barrels per day that Keystone Excel was designed to move or could it move even higher? And then as we think about the expansion economics, I guess, is it reasonable to assume that any expansion would fall towards the low end of your 5 to 7x build multiple, given that it's mostly brownfield?

Yes. Great question, Praneeth. We're leveraging our pre-invested corridor, which was permitted for those higher volumes as you suggest. We've decided an approach to capitalize Prairie Connector at a lower level to -- that could be underwritten by the 465,000 barrels a day that we achieved through the open season. but it is -- the systems are designed that could be easily expanded in the future to capture north of that 800,000 barrels a day in the future, and those would certainly be to build multiple at the low end or even below the end of our normal range, given all we would need is additional pumping capacity. So we're matching our system designed from up in Alberta ex-Hardisty all the way down to the Gulf Coast as a similarly sized system.

I was just going to say, and I think I know one of the first questions was what made our project different. I think that expandability was a very high appeal to our customers. in that they could see the ability to have contingency for our system to grow at very low rates. So that was another feature of our project.

Makes sense. And maybe staying on the project. So when we think about the time line from mid-2027 FID to year-end 2028 in-service date, I mean, does seem like a bit of a compressed time line there. Looking at the schedule, I guess that would be 2 construction windows. But can you help us understand if Prairie Connector and Liberty, can they be done in a single construction season? Or would it require 2? And just trying to get a sense of how much cushion there is there in that time frame?

Yes. I would say, at this point in time, we're focused on the base plan and the base schedule, which would be a targeting a mid-2027 FID. And then as you point out, that gives us 2 construction seasons to build these pipelines. And we're not, at this stage, considering contingencies and accelerated schedules or different plans to that.

Our next question comes from the line of Benjamin Pham of BMO.

You mentioned you're advancing the Prairie Connected project. You've now mentioned the joint development of the Liberty bridge. Can you talk about your wellness or really the lack of bonus on the Bridge side of things. with respect to why you didn't want to jointly develop that piece of the project?

Well, Ben, this is a highly coordinated effort in project. There's clearly we're putting together 3 very good projects, all underwritten by customers and leveraging the strengths of each of our organizations. And so -- you could appreciate that by the time we get to FID, there will be much more clarity around how the overall execution and the structure of our plans going forward. We have our -- obviously, in Canada, we have our permits that we're maintaining, and those have been maintained by us. Bridger has an expansion project that logically fits within that scope. And jointly, we're advancing the development of a different project. And so collectively, we feel that -- that is a good approach to developing a project that can serve the needs of our customers. So there's not much more magic to it other than kind of we're working on what's in our backyards and working on 3 separate projects that are highly coordinated together.

Got it. And I know there was a question earlier on the funding side of things, whether it's product connector or other initiatives on the go. Can you clarify the -- I know you mentioned the credit as when you think about the 4x target are you aligning with the agencies where your -- you take the hybrids and then the project debt balance sheet? Can you clarify that? How that works if you're aligned with the credit rating agencies?

Yes, Van, it's man here. We keep the credit rating agencies up to speed, so they are mark-to-market on our modeling on Prairie Connector. And so there's different ways to use I'd say, nontraditional debt instruments. And again, we're working with the credit rating agencies to ensure our investment-grade rating stays where it is.

Okay. And just a follow-up on that related. You mentioned some comments on private capital as an opportunity in JVs. So I recollect when Selves spun off from trap, there was quite a widespread between private and the public markets and that's what drove the public spin-outs. Can you characterize your comments on how that's changed, if any, over time? Now we're talking about what ESG, the outlook portfolio is much more positive than it was a few years ago as that gap closed in noticeably?

Ben, I think it's very circumstantial to the to certain assets. There's certainly a significant increase in the pool of infrastructure capital globally. When we talk to private markets, the inflows that have come into those infrastructure funds is very, very significant. Obviously, you see a huge pull on those funds into the activities of data centers and other things. But the pools of capital flowing even into assets like ours are significant.

So the markets are converging between private and public to a degree. But it's really focused on kind of the risk preferences and the commercial profile of the assets is very, very important for those private markets. And so when we refer to investment-grade joint ventures, it's long-life, highly contracted assets that are key. The capital is not flowing to merchant assets or things that have risk references that look differently to our business.

I'm showing no further questions at this time. I would now like to turn it back to Bevin Wirzba for closing remarks.

Yes. Thank you all for joining us today and for your continued interest in South Bow. We look forward to updating you on our progress in the months ahead and enjoy the rest of your summer.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter 2026 Results Conference Call and Webcast. [Operator Instructions] 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.

Yes. 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 remain 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.

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, 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, and 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 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'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 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'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 4.7x. That is unchanged from December 31 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, issuance 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.

[Operator Instructions] And our first question is going to come from Sam Burwell with Jefferies.

I appreciate the disclaimer around Prairie questions, but I'll give it a shot. I want to better understand like what the key hurdles are remaining prior to making a call and whether to advance Prairie. Just want to get a sense of like what's 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.

Yes. Thank you, Sam.

There's lots to consider, obviously, in evaluating the proposals received. Certainly, when we review 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 -- execute on those agreements that come in and move forward to the next step. And the next step is really to prepare for a potential investment decision on the project.

And certainly, the typical elements that you would evaluate before FID are ensuring that your contracting strategy, your supply chain, procurement, your cost estimates, the execution plan, all of those things are in line. But also we're kicking off significant permitting efforts across the system in the United States as well as doing the preliminary work in Canada.

One thing, though, I want to remind everyone 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 United States, but we cannot expose our shareholders to risks that they cannot bear nor can we. So those would be the key gating items, Sam.

Okay. Perfect. And then a follow-up would be curious, what's the current max capacity on the Gulf Coast portion of Keystone? And how easily and cost effectively could that potentially be expanded?

Sure. Sam, it's Richard Prior here. So we're able to move in excess of 800,000 barrels a day on the Gulf Coast leg. Like remember, it was originally designed as part of the -- as part of what was going to be the Keystone XL system. And so it could move 830,000 barrels plus. I'd say at this point, it's pretty much max designed.

There may be some modest amounts of optimization or using things like drag-reducing agent that we could kind of top that up a little bit, but it's at the upper end of what it can move. And we're seeing very strong throughput on it here in the second quarter. And so I think we'll see when we release our second quarter results, what kind of top end capacity we're able to move on the Gulf Coast section.

The next question will come from Maurice Choy with RBC Capital Markets.

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 to see how you think this durability of higher demand will be for the remainder of the year. But also more importantly, are you seeing any different submarkets within this region that's asking South Bow to consider expanding into?

Well, Maurice, I'll start, and maybe I'll ask if you could repeat the last part of your question. I think neither Richard and I really caught that. But before you do so, we're seeing volumes, as Richard has pointed out, flowing very high on our Gulf Coast segment right now. Just to remind everyone, Cushing volumes, though is what drives that and those flows and the Cushing volumes are reducing, and we're getting -- so our outlook is that much of the volume growth that we've seen has been macro driven here of late. And so we don't anticipate to see that level of strength through the back half of the year. But maybe if you could repeat the last part of your question, please?

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

Yes. Great question. And we're in constant dialogue with our customers about increasing the amount of connectivity, both on the receipt end of our pipeline, but certainly on the delivery end, as you point out, in the Gulf Coast. And we're trying to make sure that as our customers that move barrels on the pipeline can efficiently as possible, reach end market destinations, whether that be refineries or whether that be additional marine terminals. And so 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 and as many end users as possible.

And 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 ceasefire type of environment? Or is that more of an extend to a year-end type of environment?

Thanks, Maurice. Yes. So 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.

And our next question will come from John Mackay with Goldman Sachs.

I will try one on Prairie Connector and feel free to punt if needed, given the disclaimer. But 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 not just the kind of portion of the line down to the border, but kind of interest 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.

Yes, John, we're still baking the cake on a few elements of that. And so as I mentioned in my remarks, we're not going to really add. Obviously, we have our system that is -- 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 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 for me. You guys got Blackrod online with a good kind of, I want to say, proof of concept, but a good example of what you can do on that portion of the system. I understand it's still early days after the oil price spike. But just curious what conversations have been around about next potential projects up there, whether or not the pace of conversations has picked up with where oil has gone.

Yes, John, that's a great question. 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. So 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. And so our team has 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 prebuilt for receiving those barrels and then delivering them. We have a connection directly to TMX off of that Grand Rapids route. So we're looking at multiple 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're evaluating Phase 2 as well. So these are all constructive elements to leveraging our invested corridors in intra-Alberta.

And our next question will come from Jeremy Tonet with JPMorgan.

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 where you guys are at and how we should expect that to progress through the rest of the year?

Yes. Thanks. It's Richard Prior. I'll field this one. So 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. And our view at this time is that it's going to put us in a position where later this year, we're going to be able to start removing pressure restrictions in a phased basis.

So it will probably be -- 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. But it's really just the process segment by segment of running inline inspection tools, analyzing the data, completing associated digs, verifying the integrity in each segment and completing the engineering analysis and then in certain cases, working with our regulator to lift those pressure restrictions.

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

Yes. So we've been able to move in excess of our contracted volumes in the last quarter, actually, like we've had very high operational performance. We had a more measured amount of maintenance work in the first quarter. And so we were up at about 615,000 barrels. So that is beyond contracted capacity. A lot of that in the first quarter was makeup rights. So we did move a few spot batches.

I'd say as this year continues and then you get into next year, we see differentials 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 going to be back up in that, call it, 625,000 barrel type throughput volume that we'd be able to move.

And the next question will come from Benjamin Pham with BMO.

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 [indiscernible] 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. As I mentioned, we do see 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. That was able -- and then last year and this year, another growth of kind of 100,000 and 150,000 barrels a year -- per annum. So by what Richard was mentioning, by the end of this year, we see that 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 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.

And that looks to add over the course of the next 5, 6, 7 years, probably another 1 million barrels a day. And that's what's underpinning, I guess, the expansion potential that we're seeing. And so those barrels have to move, and they're all originating in the oil sands. And so there's a number of operators that have systems that can collect those barrels. We'll try to put forward the most competitive solutions. 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. But we'll still look to see how we can participate broadly in that growth.

Got it. And just maybe just tied to your balance sheet and even thinking about any project you sanctioned today, the timing of CapEx and how it trends the next from years now, you probably don't have a pretty big need for CapEx if you do announce an organic growth project. But 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?

Yes, Ben, I'll start and then I'll pass it to Van. When we spun, we reserved. Obviously, our #1 capital allocation priority is to reduce leverage. We had a target of getting down to 4x within 5 years. We're a little bit ahead on that schedule based on the current base plan, and Van can give those details. But we did reserve as you -- 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 million with Blackrod coming on. And right now, we're not deploying capital, so we're building up cash on the balance sheet. So that's the high level, and maybe I'll turn it to Van to kind of go through a little bit more detail.

Yes. Thanks, Ben. I think first and foremost, keeping an eye on our investment-grade rating and making sure that, that is that is maintained and actually a view to get to BBB flat over time is something that we are looking at. So we'll take that into account when we are financing these projects. I think our original value proposition at that 2% to 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 of the big chunkier ones that we would need some different financing besides our cash flow.

And when you think -- just to add on to that, Ben, the types of projects that we're investing in are all aligned with our risk preferences. And 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.

And the next question will come from Sumantra Banerjee with UBS.

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 I wanted to ask about the puts and takes that you're looking into and what could potentially change this view down the road?

Well, it's a great question. And 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.

And 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. So I think the next gating item, in particular, is beyond what we could service with Prairie Connector would be 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. So I know you mentioned Blackrod cash flows ramping up would help with the leverage to go down during the balance of the rest of the year. Just curious about anything -- any other factors that we should consider there?

And so if you think about that normalized debt-to-EBITDA ratio, obviously, there's two components of that. So year-over-year, our EBITDA would increase from [ 25 to 26 ]. And 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. So it's that combination of increased EBITDA year-over-year and increased cash or decreased net debt.

And 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.

Welcome to our to our Annual General Meeting of the shareholders of South Bow Corporation. I am Bevin Wirzba, Director, President and Chief Executive Officer of the company and I will preside over this meeting as required by the bylaws of the company. As this meeting is being held virtually via live audiocast, we think it is necessary to set out a few rules for the orderly conduct of the meeting. For the purposes of this meeting, voting on all matters will be conducted by electronic ballot through the Lumi platform. Only registered shareholders and duly appointed proxy holders are able to vote by electronic ballot. Note that any votes cast by electronic ballot during the meeting will supersede any votes previously submitted by proxy.

We recommend that those that have already voted by proxy and do not wish to change their vote, do not vote on the polls taken during the meeting. Guests, including nonregistered shareholders who have not duly appointed themselves as proxy holder are able to attend and listen to the meeting but are not able to vote at this meeting. We will now open the voting for all of the resolutions. When you are asked to vote on the Lumi platform, please vote through the Lumi platform. We will provide you with all voting results for all resolutions at the end of the meeting. Questions or objections in respect of a motion can be submitted by any registered shareholder of the company or any duly appointed proxy holder using the Lumi messaging interface -- please note that there may be a delay before the moderator will be able to see a submitted question.

Therefore, at various intervals throughout the meeting, we will pause briefly for between 5 and 10 seconds to allow you to ask your questions using the messaging interface. If you do not respond during the brief pause, you can indicate that you have a question using the messaging interface, and we will pause the meeting until you have had an opportunity to submit your question. Although questions can be submitted throughout the meeting, they will be addressed at the appropriate time during the meeting.

Please limit your questions to topics related to today's subject matter and keep your questions short and to the point.

Due to the time constraints, the bulk of questions will be addressed at the end of the meeting, and we will not have time to answer every question which is asked. For each question we answer, we will read the question and provide an oral response. Any questions which were already answered or that are redundant or repetitive will not be answered.

The company has arranged for Kate Fischer, the company's Corporate Secretary and Jillian Acton, Senior Legal Counsel to move and second motions today, respectively. We will now proceed with the formal portion of the meeting.

Pursuant to the company's bylaws, the Corporate Secretary of the company, Kate Fischer, will act as Secretary of the meeting. Stephen Bandola of Computershare Investor Services Inc. will act as scrutineer of this meeting. The purpose of today's meeting is set out in the management information circular of the company dated March 13, 2026, which I will refer to as the circular.

I have before me an attestation from Computershare and an attestation from Broadridge Financial Solutions, Inc. as to the mailing of the applicable meeting materials to security holders, including the notice. I direct that the secretary annex such affidavit to the minutes of this meeting as a schedule. Copies of the circular and other meeting materials are available under the company's profile on SEDAR+. Unless there is any objection, I will dispose with the reading of the notice.

No objections have been received.

As no objections have been received, I dispense with the reading of the notice and will now move to the scrutineer's report and quorum of the meeting. The scrutineer has provided me with the preliminary report regarding shareholder attendance at the meeting. A quorum for any meeting shall be two persons present and each entitled to vote there at and representing either in their own right or by proxy or as a duly authorized representative of the institutional shareholder 25% of the issued common shares of the company carrying voting rights at such time. The scrutineers' report shows a quorum of shareholders of the company to be present, and I, therefore, declare the requisite quorum to be present at the meeting.

I direct that the secretary annex the formal scrutineers' report to the minutes of this meeting as a schedule. As the first item of business on the agenda for today's meeting, I now present to the meeting the audited consolidated financial statements of the company as at and for the fiscal period ended December 31, 2025, together with the auditor's report to the shareholders thereon. Copies of such documents have been mailed to the registered shareholders and beneficial shareholders who requested such documents and are also available on the company's SEDAR profile.

Are there any questions dealing with the financial statements or the auditor's report?

No questions have been received.

As there are no questions, I will proceed to the next item of business. The next item of business is the election of directors. Our bylaws contain advanced notice provisions, which provide a procedure to be followed for the nomination of directors at meetings of shareholders of the company. In accordance with the advanced notice provisions, the only individuals entitled to be nominated as directors at this meeting are the persons named in the circular, each of whom is consented to act as a director if elected.

Accordingly, the nominees are Chansoo Joung, George Lewis, Leonard Mallett, Robert Phillips; Sonya Reed, Shannon Ryhorchuk, Mary Pat Salomone, Frances Vallejo, Don Wishart, Bevin Wirzba and Hal Kvisle are hereby nominated as directors of the company to hold office until the next annual election of Directors or until their successors are elected or appointed, subject to the provisions of the Canadian Business Corporations Act and the bylaws of the company.

Are there any questions on the election of directors?

No questions have been received.

As there are no questions and in accordance with the advanced notice provisions of the company bylaws, -- no further nominations may be made at this time. I now put the motion to the shareholders of the company. Voting will proceed electronically.

[Voting]

The next item of business is to appoint KPMG LLP as the auditors of the company and to authorize the directors to fix their renumeration. May I have a motion on that matter.

I move that KPMG LLP be appointed as auditors of the company and authorize the directors to fix their remuneration.

I second the motion.

Are there any questions?

No questions have been received.

As there are no questions, I will proceed. I now put the motion to the shareholders of the company. Voting will proceed electronically.

[Voting]

The next item of business is a nonbinding advisory vote by way of an ordinary resolution supporting our approach to executive compensation as described in the circular. May I have a motion on the matter?

I move that the nonbinding advisory vote by way of an ordinary resolution as described in the circular be approved.

I second the motion.

Are there any questions?

No questions have been received.

As there are no questions, I will proceed. I now put the motion to the shareholders of the company. Voting will proceed electronically.

[Voting]

I have now been advised that the scrutineer has completed the tabulation of votes for all resolutions based on the tabulation, I can confirm that the requisite approvals have been obtained for the election of the 11 nominated directors, the appointment of auditors and the nonbinding advisory vote of executive compensation. The voting results of this meeting will be posted on the company's SEDAR+ profile after this meeting.

As that concludes the formal business agenda of the meeting, I declare the meeting terminated.

On behalf of the Board of Directors, I would like to thank you for attending today. The formal part of the meeting has now ended.

I now want to briefly touch on South Bow's performance as a stand-alone company and our focus for the year ahead. From day one, we were clear on our priorities, operate our assets safely, deliver predictable financial performance through disciplined capital allocation and grow our strategic corridor. I'm proud to say we are delivering and are doing that by living our values. In 2025, safety was never compromised.

Operational and financial discipline showed up in our results and decisions, strategic, financial and organizational were made with a long-term mindset. We focused on what we could control, strong execution, disciplined capital allocation and a clear framework for how we will create value over time. Equally important was continuing to build South Bow's team.

We empowered our people with clear accountability and enforced a culture built on respect, integrity and ownership. Our people stepped up and they continue to do so every day. I want to thank our employees for their commitment and our Board for their guidance. We are still early in South Bow's journey, but the foundation is firmly in place, and our identity is clear. We know who we are, how we operate and what we stand for.

We've entered our second year with momentum and confidence in the path ahead. In 2026, our focus is clear. We will prioritize safe operations and the integrity of our assets, advance our customer-led growth strategy and strengthen our competitive position by leveraging our irreplaceable corridor, maintain financial strength and discipline, disciplined capital allocation and continue delivering long-term value through a sustainable dividend and profitable growth.

On behalf of the South Bow Board of Directors and leadership team, thank you to our shareholders for your continued support and confidence in South Bow. We are excited about what lies ahead as we deliver on our strategic objectives. Have a great day, and we look forward to connecting with you again tomorrow morning for our first quarter earnings call.

Good day, and thank you for standing by. Welcome to the South Bow Fourth Quarter and Year-End 2025 Earnings Call. [Operator Instructions]. Please be advised that today's call is being recorded. I would now like to hand it over to your speaker, Martha Wilmot, Director, Investor Relations. Please go ahead.

Thank you, Victor, and welcome, everyone, to South Bow's Fourth Quarter and Year-end 2025 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.

Thanks, Martha, and good morning, everyone. We appreciate you joining us today. 2025 was an important year for South Bow. 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, continue 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'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 will be balanced with financial discipline. This is nonnegotiable for our team and Board of Directors. We remain committed to maintaining a strong balance sheet, 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. 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'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'll now ask Richard and Van to provide an update on the operational, commercial and financial aspects of the business. Go ahead, Richard.

Thanks, Bevin. I'll 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 0 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, on budget and 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 who 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 wells 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'll turn it over to Van to walk through our financial performance and outlook.

Thanks, Richard, and good morning. First, I'll speak to our financial performance in 2025. South Bow delivered solid results despite a challenging backdrop that included geopolitical and market uncertainty, tight pricing differentials and pressure restrictions following Milepost 171. South Bow delivered normalized EBITDA of $1.02 billion in 2025, slightly above our expectations of $1.01 billion, with a modest out-performance 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 reported distributable cash flow of $709 million, in line with revised guidance and more than 30% above our original guidance. This out-performance expanded our free cash flow position, enabling us to accelerate our de-leveraging 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 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 targets of 4x in the medium term. As we de-leverage, 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 per share through our sustainable dividend. With that brief financial overview, I'll hand it back to Bevin for closing remarks.

Thanks, Van. Thanks, Richard. To close, I'll come back to what defines South Bow. 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 can deliver. We're confident in the foundation we've built and the path ahead offers even greater opportunity. You can expect us to execute it, the right way. With that, I'll now ask the operator to open the line for questions.

[Operator Instructions] Our first question will come from the line of Theresa Chen from Barclays.

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?

Thank you, Theresa. This is Bevin, and thanks for joining the coverage group. So to direct our -- to your question on the Prairie Connector, we are in early stages, as I mentioned. We -- 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. So that's as much as I can share with respect to the outcome of the open season at this time.

Obviously, we -- in addressing your second question, the impacts of the other open seasons in Venezuela, my earlier remarks also focused on providing the most competitive solution for our customers. And we believe what we've put forward is a very competitive offering that should attract the attention that we're looking for. So 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 has leveraged, and we will continue to do so.

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 second half of 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?

Yes. Thank you, Theresa. Even initially after the incident, as Richard pointed out, we've been working very closely with our regulator and all the remedial efforts, and we've made tremendous progress on the digs and in-line inspections to-date. And early on, we did -- we were able to have some derates lifted already on the system as we progress. And so what we've described in our release is that we intend to continue those remedial efforts at pace, here this year so that we could see a lifting of the correction action order by the end of this year. We're very -- we're in active dialogue with the regulator to ensure that what we're doing and what we're finding informs the plans as we go forward.

In terms of the capacity that would be realized, it would be returning back to the kind of operational capacity that we delivered in previous years, which was, I believe, in 2024 and early 2025, we were just north of 600,000 barrels a day of delivered capacity.

With respect to your last part of the question, we -- our outlook in terms of our earnings and our guidance, the timing of this incident kind of occurred where arbs were quite tight with TMX coming on in the early part of 2024, the basin was long pipe by approximately 250,000 barrels a day. In 2025, we saw the basin grow north of 100,000 barrels a day and continuing to grow here in 2026. So we believe that our guidance, while it includes the impact of not being able to move as many spot volumes as we had hoped, the market really -- doesn't really open for us until early 2027. And at that point, we should be -- we're planning and targeting to have the derates lifted so we can take advantage of those arbs, as the basin grows and overtakes kind of the egress out of the basin.

Our next question will come from the line of Robert Hope from Scotiabank.

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?

Thanks, Rob. One of the benefits of having a strategy that focuses on our pre-invested corridors is that we're in a position where our permits are in place in Canada for the Prairie Connector, and we're working close with the Canadian energy regulator to manage through that. Obviously, it's early stages. So we're not going to share our timelines for a potential development timeline. 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 kind of objectives.

With respect to time line of the need for the project, you can see that from our customer base that most are announcing or are suggesting that they have growth ambitions over the next 3 to 5 years of quite materiality. And so being able to develop the project over the next -- in the midterm would be consistent with providing a competitive solution for our customers at the time frame of when they're intending to have their production growth.

All right. Appreciate that color. And then maybe as a follow-up, as we take a look at the -- what the Prairie Connector would connect into in the U.S. and the path down to the Gulf Coast. We've 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?

Yes. Great question, Rob. We won't speak on behalf of other developers. But 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, partners is really critical. And so 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've stated, is critical. We will not sacrifice our capital allocation discipline through advancing any project.

Our next questions will come from the line of Robert Kwan from RBC Capital Markets.

If I can just ask about your growth initiatives. I'm just wondering, is there a preference? Or do you -- how do you think about the role of joint ventures and partnerships versus just outright acquisitions kind of over and above the organic initiatives?

Yes. Thank you, Robert. Within our strategy, we've always said that leveraging that pre-invested capital on the ground and organic allows us to develop projects at that 6x to 8x EV to EBITDA build multiple and Blackrod was demonstrated at the low end of that range. And so clearly, organic development that fits the needs of our customers with the same risk preferences that we've been able to achieve with even our base operations is far more accretive for our 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 the diversity and provide some additional synergies to the business. Now obviously, those aren't being -- those won't 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're targeting.

And if I could just finish asking about the open season. There's some language there about asking potential shippers to demonstrate market demand for incremental egress opportunities. So just wondering what we should take away from that specific wording. And then how should we think about this with respect to the existing Keystone capacity in your contract rollovers or expirations that would occur in roughly the same proximity as this initiative?

Two great points, Robert. First of all, 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. And so by -- the language is really pointing to that, our customers are 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 this capacity.

On the second point, with respect to base Keystone operations and impact potential of re-contracting, the way we think about it is we're really developing a corridor. And the Prairie Connector would be in addition to that corridor, and it really serves the same customer base and the same demand markets. And so 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 Canadian -- Western Canadian oil sands production down to the Gulf Coast.

Our next question will come from the line of Sam Burwell from Jefferies.

Another open season question, but maybe from a different angle. Like are there any learnings to be had from what happened with the original Keystone XL, like especially on the U.S. side, I mean, anything that went wrong on that project that's within your control to perhaps do differently with this one? I mean, obviously, the route will be different, and it's different in many ways. But just curious like what gives you more confidence in this project its success where Keystone XL didn't?

Sam, great question. I was around and many of our team were around during that initial or the last attempt. And so there are a tremendous amount of learnings. With subject to the permit that we have, we're developing it in a very consistent manner to that permit requirements. But our conversations with our customers and how we can work with them through a commercial offering, we're leveraging a lot of those learnings and those commercial discussions that obviously are confidential at this time.

Certainly, there were -- as I mentioned in my opening remarks, is that the policy environment in North America has been far more constructive. The unfortunate events that are ongoing in Iran and what we've had in the tragic events in Ukraine really have demonstrated that energy security and establishing energy corridors is critical. And so those realities are a great backdrop for us to provide maybe a solution that increases energy security in North America between the great resource up in Canada to the strong demand markets in the U.S. Gulf Coast.

Okay. Understood. And then the -- like sort of tying on to that, like the Bridger proposal mentioned that presidential permits required to cross the border. So just curious, like that was obviously an issue with Keystone XL that everyone knows about. But is there a point in time or a point in construction or some threshold met whereby the presidential permit is kind of iron clad and can't be revoked. And like just has anything changed with that dynamic since 2021 when Biden effectively put the kibosh on Keystone XL?

Yes. Per my earlier remarks, Sam, we're only going to talk to our component of a project, which is delivering service from Hardisty to the border and my comments around risk allocation and structuring and your earlier comment around lessons learned. So there's a lot of things going into the commercial dialogue right now, amongst ourselves and then directly with our partners, and I'll leave our partners to speak to their own business.

We've really focused on finding a solution that we can deliver for our customers, the allocation of risk that makes sense for all stakeholders in this approach. If we're not able to achieve those, that risk allocation that we all believe that we need, then the project just won't advance.

Our next question will come from the line of A.J. O'Donnell from TPH.

I'm going to sneak in one more about the Prairie Connector, maybe just talking about your existing -- leveraging your existing corridor. I think we know that you guys have some pipe already in the ground in Canada. But let's 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. I'm wondering if you could speak to what's needed on your U.S. Gulf Coast infrastructure in order to be able to accommodate potentially 450,000 barrels a 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.

Yes. A.J., the Keystone system in this corridor has been built in phases, Phase 1, Phase 2, Phase 3. And Phase 2 and 3 was the extension of the Keystone System to Cushing and then to the Gulf Coast. And Phase 3 of the system, the Gulf Coast was sized and built for the original -- the expansion of that system, which is what we're now building into with our Prairie Connector. And so it's just a continuation of that sequenced expansion of the broader Keystone system is what we're intending.

There are some -- we did build capacity on that Gulf Coast section for increased volumes. There will be some facility modifications through our base Keystone system that will occur. But this is all just a continuation of kind of that sequenced expansion of our base corridor.

Okay. And then maybe just one more, shifting to Marketing. I realize it's a smaller portion of your business, but spreads have been on the move, particularly WCS Houston is trading pretty far back from Brent and WTI right now. Curious if you could speak to kind of what is going on at WCS Houston and if you're seeing any opportunities either in the short or medium term to potentially capture some upside there, either through marketing or maybe storage opportunities?

Yes. A.J., great question. We're always in a dynamic crude oil market, as It appears in the last few years with some macro volatility earlier this year with Venezuela now with the war that's ongoing in Iran. We've 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 kind of reevaluate how we leverage our Marketing affiliate and again, back to a customer-led strategy.

The whole strategy around our Marketing affiliate is really to kind of reduce the overall operating costs and variable tolls for our customers. And so we don't try to take advantage purposely on any of the swings that we see down in Houston on the WCS. We do manage and contract Marketlink because we still have capacity there. And so we have seen some movements, as you say, but it's really a nonmaterial part of our strategy. We're focused on our -- 90% of our business is contracted and just managing that as best we can.

Our next question will come from the line of Ben Fullerton from TD Cowen.

I guess I had my associate run this one. It's Aaron MacNeil here. You guys highlighted Blackrod as a successful project in the context of the balance sheet 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?

Yes. Thanks, Aaron. At our Investor Day, we kind of laid out a number of the different financing strategies, whether it's financing a project at the asset level or whether it's partnering with other capital sources. We will look at the specifics of any kind of capital project to ensure that we manage the cost of capital as well as, match it to the execution risk.

I think the point I'd like to make, though, is when you think about us developing projects, going back to my comments around within our risk preferences means that when you're -- we're not going to take risks that wouldn't allow us to debt finance something, and that can be a base case for people to look at, is you have to have the conditions and the contract terms and the investment-grade counterparties and the risks mitigated to a level that can attract debt level financing that aligns with our risk preferences. Now that might not be the best way to finance it, but the principles around managing the risks are consistent with any kind of financing approach. And so we wanted to make clear to our market in November that there's multiple solutions on that front. But I want to just remind that we go back to our risk preferences and making sure that anything we develop meets those criteria.

And Aaron, it's Van here. We'll also keep with our de-leveraging journey to get to 4x kind of by that midterm 2028. So we're not deviating from that.

Okay. That's helpful. And then switching gears a bit. we've been fielding a lot of questions on the Grand Rapids arbitration. I can appreciate that you're not going to speak to the ongoing legal matter, but I was just hoping you could help with some clarifying items. So 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?

Yes. So Aaron, Blackrod, we advanced as South Bow alone, PetroChina is not involved in that project. They were offered an opportunity to participate in it. And that's as much as I can say as part of the partnership agreement when we do pursue growth, that's obviously the 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.

The next question will come from the line of Robert Catellier from CIBC Capital Markets.

Most of my questions have been exhausted here, but I'll take a shot in the dark to see if you're 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.

Yes, Robert, unfortunately, you're not going to bait me with that. I'll take a pass. We're obviously in early stages. Our team has done a good amount of work, obviously, given it's an existing corridor, but we're not establishing any costs at this point in time.

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

We're really speaking to the Prairie Connector component is how we're looking to participate going forward, and we're still in commercial discussions ongoing. But as you could appreciate, with the scale of what would be contemplated in Canada, that's a very meaningful development for South Bow.

Our next question comes from the line of Jeremy Tonet from JPMorgan Securities.

Just wanted to turn to Slide 19, if we could, with the Blackrod and project ramp there. If you could just, I guess, remind us what gives you confidence to the ramp. As you laid out in the slide, it looks like the '27 contribution could be 3x to 4x the size of '26 with the project just online now. Wondering if you could walk us through that a little bit more?

Yes. Great question, Jeremy. We did the final tie-in well earlier this year. So our systems are fully prepared for our customer to begin the ramp-up. The sequence of events that we're not in control of are obviously on their end, whereby they would -- they've already been steaming their asset. Once the wells start producing, they'll fill their tankage and infrastructure, fill the pipeline and then fill our tankage. And then that's when the production will actually start hitting the Grand Rapids corridor. So there's a buildup that takes to effectively get through commissioning and filling the existing infrastructure, and that happens through the balance of the last half of this year.

Now we have made comments in the market previously. I'll just remind folks that the commercial agreements that were agreed to between ourselves and our customer were to acknowledge that ramp in terms of their production growth. And then in 2027, our outlook is that we'll have a full year contribution of that EBITDA given the commercial agreements.

Got it. Understood. And if we think about '27 in totality, are there any other major moving pieces as we think about growth at that point in time?

Well, I'll refer to my previous remarks, Jeremy, where, we're working hard this year to move through the corrective action order and complete the remedial efforts, which would then allow us to have -- if those -- if the order is lifted, then we would return to being able to be 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're experiencing. And just to remind you that, so 94% of our base system is take-or-pay, and we reserve 6% for spot capacity. So that is the capacity we're targeting to leverage in 2027.

Our next question will come from the line of Patrick Kenny from NBCN.

Just maybe back on the funding plan for Prairie Connector, assuming a successful open season here. Just wondering if you can confirm your desire for the Alberta government's 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.

Thanks, Patrick. Certainly, you're kind of referring to the model that was pursued historically. And I believe The Premier has been pretty clear that she wants private developers to develop projects. And so we're pursuing Prairie Connector as South Bow today.

As with respect to your question around loan guarantees and other commercial matters, I'll just refer back to my comments that we're looking at the risk framework and allocating risks appropriately amongst the customers and us as a developer and broadly other stakeholders. We feel that we're in a different environment today where we're able to have those discussions and ensure that we've got good alignment of where those risks should be allocated.

Got it. And then maybe on the 60-day review period following the March 30 deadline, how should we think about this period just in terms of the binding commitment? 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? Or would these binding commitments basically be taking on the full stroke pen risk, so to speak, beyond March 30?

Well, as you point out, Patrick, there's a lot going on that, 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 ourselves on this open season, but considering the broader framework that the Federal and Alberta Government are putting together. And that is obviously consistent with the timeline of what we're pursuing.

I'm not able to speak to kind of those conditions or those discussions because not a part of them. But our time line with having a binding open season and the time frame there is just the regulated approach of how you develop a project. And that's why we've really been thoughtful around 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. So these are not small decisions by anyone. I think the basin customers have relayed that they're under the right policy environment, there is an ability for them to grow. And so we'll have to defer to them whether they feel that they have the confidence to grow into the capacity that we're we're offering.

Our next question will come from the line of Benjamin Pham from BMO.

Maybe to start off on potential acquisitions. Can [ you both ] provide an update on your appetite and observations on acquisitions since your Investor Day? I'm also particularly interested in valuation levels on M&A versus organic growth?

Yes, Ben, I think as articulated in the Investor Day and even in my earlier remarks, we're pushing all the [ bots ] down the field, both organic and inorganic, certainly organic with leveraging our pre-invested corridors has better valuations. But to complement and diversify our business, we've been in active dialogues to try to move down the path on inorganic opportunities.

In both cases, as per even my last response to a previous question is, we can put forward the most competitive organic opportunities for our customers, but it still takes our customers to decide if they can commit. And 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. So we're managing a kind of multipronged approach where we're advancing conversations on organic and inorganic in parallel.

And maybe just a quick follow-up on that. You haven't -- it sounds like you haven't seen just with the market valuations expanding meaningfully since your Investor Day that the spread between the two, they haven't widened since that time?

No. I think, obviously, we've seen a flight to the energy sector and in particular, to hard assets like infrastructure. So many have moved. I think that has just kind of raised the confidence in shareholders in the space and the investment proposition that infrastructure has. So I think 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. So yes, valuations have improved, but I think the strength and the thesis around infrastructure investment has strengthened as well. So I think that's -- if anything, it's a slight tailwind for us.

Got it. And maybe a follow-up on the Prairie Connector and you had the Big Sky proposal about a year ago. Are you able to maybe compare and contrast the two? Is it just simply more the downstream is changing, Canadian is unchanged?

And then secondarily on the Canadian permits, is that just simply a matter of reaffirming that with the CR? Is there -- you mentioned earlier in your commentary, I just want to clarify that portion of it.

Yes. So in contrast to Big Sky, I think the most important thing is the macro environment. Obviously, at the time that we pursued Big Sky in January of '25, 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 wasn't clear and didn't provide the signpost for our customers to legitimately view growth, any kind of meaningful growth as an alternative.

So fast forward a year later, all those three things have materially moved in the favor of a more constructive environment to consider a development. We did find out that our -- this 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 advantages. So that would be the comparison.

With respect to the permitting situation, I mean, these are very complex developments. The largest of the permit requirements, as you say, are held with the Canadian 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 as we -- if we're able to begin developing the project. There are no other material permits that are required at this point in time.

Our next question will come from the line of Sumantra Banerjee from UBS.

I was just curious about how you mentioned that you materially exited the TSA with TC and were you able to see some workflow optimization? I was just curious about any specific examples of the optimization you could talk to?

Yes. Thanks, Sumantra. Our team had three objectives last year in addition to always, table stakes of safe operations, and that was -- and one of those objectives was exiting the TSAs as soon as we could. And that ties to one of our key objectives this year in terms of now optimizing our business workflows and processes. So we've already begun seeing some optimizations occur, even since October when we were effectively off of the TSAs. And we've got a number of work streams along that front in each of the areas.

And an easy example would be in terms of supply chain and procurement in 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're able to establish new procurement. We've got on financial planning and analysis and working on our systems, we've got a really good work stream on even building a new process around budgeting and real-time analysis of our financials and costs, giving the tools to our teams so that they can really run the business as efficiently as possible. So we see 2026 as a big year of standing up all those optimizations. And there is obviously, we're leveraging the latest technology in AI where it's appropriate and where it can help us make those processes more efficient.

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Got it. That's really helpful. And I just wanted to shift towards capital allocation really quickly. I know you outlined your priorities in the release, but just wanted to ask about how you're looking at balancing dividend growth versus reducing the leverage?

So I'll start, but I'll turn it over to Van on our dividend policy. We're -- what I just want to remind folks is that we're going to stick to our capital allocation philosophy with respect to building out this business. And when we spun, we were allocated a significant amount of debt and then a very meaningful and sustainable dividend, but at a very high level and at payout ratios maybe a bit higher than we'd like. But maybe, Van, you can talk through our journey on de-leveraging and dividend growth?

Sure. Yes. Thanks, Bevin. Our payout ratios on a DCF basis and on an earnings basis were higher than what we would like. We'd like them to be kind of on a DCF basis in the low 60s on a consistent basis and obviously under 100% on an earnings basis. So until that time, we would not even contemplate a dividend increase.

On top of that, our journey to get to 4x leverage, again, we wouldn't contemplate a dividend increase until we get to that point. And 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.

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

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

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

Good morning, everyone. And welcome to South Bow's Inaugural Investor Day. I'm Martha Wilmot, Director of Investor Relations. We really appreciate you being here and your support of South Bow's Investor Relations program over the last year and a bit. I also want to welcome all of those who are joining us via live webcast. So up here with me today are Bevin Wirzba, South Bow's President and Chief Executive Officer; Van Dafoe, Senior VP and CFO; Richard Prior, Senior VP and COO. We also have additional members of our executive team and the other half of our IR team, Ben Pike in the room.

So our agenda for this morning, we'll go through our presentation materials followed by a Q&A session. And then we'll have 2 breakout sessions where you'll have the opportunity to ask questions of some other members of our team. So the first session will be with Gary Salsman and then Mark Yeomans to talk about our asset integrity and safe operations at South Bow. And then the second session will be with Blaine Trout and Richard to talk about our growth outlook.

And so with that, I'll hand it to Bevin.

Yes. So thank you, everyone, for coming. Really appreciate you taking the time. I know you -- a lot of you had to travel to come, so I really appreciate you making the effort. I'm so excited about our business and thrilled to have the team that we have and the Board that we have to go on this journey. The first year was tough. Doing a spin is not something you want to do every day, but we're now done the spin. We're done spinning. We're South Bow and we're going forward.

And so I wanted to say that why am I so excited about this business? It's just a business that just makes total sense to me. It's -- we're connecting the strongest supply of heavy oil in the world to the strongest demand of heavy oil in the world, and we're an integrated part of our customers' value chain. So I don't know many businesses, particularly in infrastructure that can be part of an integrated value chain in that way. So we're really happy to be there.

Another key aspect of what I'm really -- what makes my days go very well is I feel like we're a partner with our customers, that the relationship with our customers has moved in such a great direction. There's a lot of things we're going to talk to -- through this presentation to show you some great points of reference that we're actually not only just -- not accreting value just to shareholders, but we're accreting a lot of value to our customers, and that's important to us. And when we focus on our business as owners, every dollar and cent matters, and it matters to shareholders and it matters to our customers. And that's really important to me.

So on this slide, just really quickly, we wanted to tell you where we came from. So from July of 2023, when we made the announcement of the intention to spin the business, there was a lot of concern in the market, how is this team going to actually do this? What will it look like? What will be its value proposition? What will be -- what's its goals and ambitions over the next number of years? When we set out that announcement, we also made a marker of a number of milestones that you can see on the screen. We've achieved every single milestone that we've committed to as a team and delivered upon those. And so whether it be getting a very positive shareholder vote to initiating a massively new capital structure at a great starting point of the business. But also we had to build much of our team from scratch.

I was talking to our directors last week at our Board meeting. All of them started on the same day. We're -- they're now a year in the business with us, just over a year, and we feel like a real integrated team between Board and management, which is really exciting. And so we intended to launch on October 1 last year. Yesterday, we were very fortunate as a team to ring the bell upstairs on the NYSE. We listed on the NYSE on October 8, 2024. And as of basically in the last 48 hours, we just got off the last of our material TSAs. I know I mentioned to some that we had SCADA still left. That is now done. So we are completely a separate and new independent company, and we can now start talking about our future.

So I've been asked even in the last couple of days, why are we even having an Investor Day. We've asked you to trust us through this spin through the year. And we haven't really talked a lot about where we want to go as a business. And trust to me is sincerity, reliability and competence. And we're here to be held accountable on all of those aspects. And so we have our team here. We'll have the breakouts. Many of you have heard from Martha, Ben and Van and I mostly in terms of the capital markets, but you have Richard and Gary and Mark and Lori and Blaine and Kevin are in the room as well. And so you can ask us anything, and we'll be genuine in terms of how we respond to you. So please bring your questions. We do intend to answer everything that we get with as much clarity as we can provide.

So if you look at what's South Bow at a glance, we are an irreplaceable corridor. There is no other corridor that will ever be established like this in the infrastructure space, and as I mentioned, it connects the strongest supply of heavy oil in the world. That is actually a growing basin. There's not a lot of growing basins in the world left of oil, and we're serving a growing basin to a very strong demand market in the Midwest and the Gulf Coast. When this business was established, it was created to serve that market and first deliver into the Patoka, Illinois market. That demand -- but the demand in the Gulf Coast was so strong, it allowed us to underwrite an extension down to the Gulf Coast, which is now where most of our product gets moved to and that we serve.

Yes, there are other systems that serve these markets. But there are no other systems that serve these markets the way we do. We're the only market-based bullet system that has batched and market-based rates. We do so in an unrivaled time, and we do so very, very reliably. And our business over the last 6 years, we'll talk to it even in terms of our safety performance continues to get better and stronger. And when you think about the other elements of the fundamentals that are so important, the greatest source of GDP growth in Canada coming up will be the growth in the energy section, and the greatest demand growth of a very strong and growing economy in the United States will be served by our systems. And so we think that, that is a very enduring business model and a platform that we can now leverage to grow materially going forward.

So another key aspect of our business was that we took deliberate steps to not have dis-synergies through the spin. And that's very important because we're a customer-focused business. So when we spun out of TC, we could have easily passed through incremental costs through our customers that were spin related. We purposely came out in a very lean model, which we've since even optimized further to be on a journey where we're going to be reducing the cost of our business materially, which accrete back against to our customers, which then again make us way more competitive going forward as a business.

And so in our first year as a team, we've executed really well. You think about we've assembled a high-caliber Board of Directors. We've made one of the big commitments that we made to our shareholders was in the first year, we'll get the right people on the bus in the right roles growing in the right direction. We've made a bunch of tweaks. We did that deliberately, and we feel like we've assembled the right team to deliver this business. We also committed to always operate safely. We've got a great track record in the past year plus in terms of our safety performance, but we also executed extremely well.

Our Blackrod project was delivered to a mechanical completion in the last few weeks. We're still just cleaning up the last little bits of it. But we did that on time, on budget with a very strong safety record. And that was something that we proved to the market that we can go execute to what we said we're going to do. We also safely responded to our -- an incident at Milepost 171. And what was most important to me was that the communities that -- where we were in and the regulator that regulates our business was confident in us bringing that system back into service within 7 days, and that was a record for us.

Now we believe and we'll spend a lot of time talking about our pipeline integrity that, that journey, we've learned a lot over the last year. Our system is the most studied system in the world from an oil pipeline perspective. And we have utmost confidence that we can ensure that we can continue to improve our record in terms of our safety on the system.

From a capital markets perspective, as I mentioned, we've made a bunch of commitments to you, and we've lived up to every single one of those commitments. And I believe that we've been rewarded because of that. If you look at our total return performance, we were one of the top-performing infrastructure names in the segment. And that is not only capital appreciation back to our shareholders, but we have a very meaningful and sustainable dividend that is part of that value proposition.

Okay. We spent a lot of time as a team establishing the values of our company, which have proven foundational to how we approach our work. I'm wondering if you can each describe our values in action, starting with you, Richard.

Okay. Thanks, Martha. And so maybe before I talk about we are safe for our first value, I'd just expand a little bit on just -- it was a really neat process at South Bow, where we involved every single leader in the organization around creating the values for our company. So that was from the CEO all the way through to the people who manage our field operations teams. We got everybody together. We workshopped on what was really going to embody South Bow and what were values that all of our organization could relate to, would resonate with and were just said in plain speak and in plain words, so that all of our employees could see themselves in our values.

I'd start with we are safe. Like I think this is a key critical value for our company. And this means that we are safe and that our workforce will be safe. We will be safe in the communities where we have operations and that we will keep our assets safe. And if I look at 2025, we've achieved now 1.5 million work hours without a single recordable incident or injury. So that means with all the construction work, our Blackrod project, our maintenance program and all of our operations, nobody who's working on the South Bow system has been hurt this year. And that's something that we're very proud of, and that's something that is extremely important to us as a company.

And I'd just say the ingredients for that have been, number one, just seeing all of our employees really live our values. Like I could say it's not just the teams in the field, it's the commercial teams, it's the finance teams that are looking at, is what I'm asking for safe and can it be executed safely. And I see that in practice every single day. We've put a lot of effort into what we call decluttering or simplifying our safety processes. Safety processes, over time, can get very complex because they're normally built by responding to when things go wrong. But when you have 10 and 12 page safety documents to complete pretty standard procedures, that overcomplexity actually tends to create issues.

So we've taken -- we've gone on a journey to try to simplify things and put accountability into the hands of the workers that are performing the work. And then it's been a very big focus of us to keep the majority of our organization just focused on the day-to-day business and not distracted by all the work that Bevin mentioned with the spin. And so that -- we've realized that in our safety results. I think we've also realized that in our business performance through the year-to-date.

So with that, I'll pass it to -- who's doing, we do the right thing?

I'm doing that. Yes. So doing the right thing, I think how we think about that is going beyond just following the rules. It involves all our stakeholders. And so I'll just give you one example of that. There's many, but I'll just give you one. So once we spun, we inherited some physical and financial marketing contracts from our former parent. If you remember, in early this year, President Trump, there was some threats of large tariffs for Canadian oil, amongst other things. And what that did is there was a potential that our financial trades weren't effective and wouldn't match our physical trades. So if tariffs went through, South Bow could have suffered some serious financial losses. So what we did is we made a conscious decision to reduce that risk. We unwound some of those transactions, and we took small losses to ensure that we didn't incur a big loss. I think what we did as well is we were transparent with the market, and we disclosed those decisions and the rationale behind those decisions.

Yes. Thanks, Van. So I'll take the last 2. So we take pride in what we do. We have what we call a single light post that we're all driving to. When we were part of a much larger organization, we relied on different teams within that organization, but they weren't necessarily focused on getting to our one light post. So as a team, we have our legal teams, our finance teams, our operational teams, our HR teams, our field teams, we have just one goal. We have one direction that we're all rowing to, and we take pride in making sure that everything that everyone does gets us closer to our goal.

If it doesn't get us closer to our goals, and we'll talk about the attributes that we aspire to as a business in the presentation coming forward, anything that can get us closer to our goals we will lean into as a team. And we're just one -- we are one team. There are no individual medals in our business. And that's -- the last value is that we win as a team. And even in our cross-functional approach to resolving big problems.

When we -- when you're managing a spin, we had some legacy issues that we had to clean up. I talked to our team about we climbed a mountain, but we didn't just climb a mountain with 1 backpack. We had 2 or 3 backpacks on. We had to have solved multiple things that were just a part of our business that we inherited and to set us on our course forward. So as a team, we helped get up that mountain. Now we've been able to shed those extra backpacks, and we've got just one mission going forward. And a great example of that was, another big accomplishment this year of the team was we had a long-standing litigation with some of our customers, very important customers. We resolved that, and it wasn't just resolving it with our customers. We resolved it with our former parent because they were involved in part of the indemnification of that. So we take that cross-functional approach as winning as a team. There wasn't one winner, but we accomplished these goals as a team.

So those are our values, and we could go on and on about proof points on every single one of them, but I hope that gives you a sense of what's driving us and how -- and we use these values on a day-to-day basis on making sure that we do the right things in the right ways to help deliver the right value for our customers and our shareholders.

So with a very busy first year behind us, Bevin, what's the team focused on as we enter our second year as a public company?

Yes. So we're pretty simple people. So we only set ourselves simple goals. The one table stakes every year is safe operations. We had a great first year. we will have a better second year as our goal. We will always try to get better at the way we operate our systems and simplify and declutter as Richard said. So that's going to be always table sakes.

But the 3 things that we've committed to our shareholders is we've been working. We've got a good team that's been working on how to grow this business. We really believe that our foundation is one that can be grown. And so we're going to -- in this year, we've increased our scorecard weighting on the growth pillar because we want to mature and execute on a growth portfolio of both organic and inorganic opportunities. We believe that if we template the way that we can do business with customers and the way we approach our business, that we can be very successful in both organic growth like we've demonstrated through Blackrod, but also inorganic opportunities where we can fold other assets and revenue streams into our business which will then also help lower our variable toll by spreading our governance costs around more revenue lines. That, again, will make us more competitive for our customers.

And the second big bullet is we got off all of the TSAs. We had to let a lot of things break. We have a lot of manual processes still. Now this year is about optimizing and really getting -- like, for example, we have our new ERP system. It's a brand-new system. Now we've got to build the right supply chain approach to using that ERP system going forward. So ensuring that everything we do from a business competitiveness perspective is in our workflows. And just as we're decluttering our safety practices or decluttering our company bureaucratic practices. We're trying to be extremely lean, very flat, and we value everyone on the team is -- in the same way.

And then finally, our commitment to you is you've hired us or the shareholders have hired us to manage the capital allocation. We have not wavered on our capital allocation priorities, and we'll continue to deliver on them. We have actually -- we've -- and Van will give an update later, but we committed to get our leverage. We got handed a debt and a dividend level. We're committed to managing through those levels. We had a target of getting our leverage down to 4x by the end of '28, that now has a '27 in it. We're a year ahead, 9 to 12 months ahead on our schedule on our delevering. And so having that financial discipline, making the right choices of where we allocate capital between organic and inorganic is critical and a key expectation of our shareholders.

So maybe, Richard, it would be great for you to talk through -- oh, wait a second, strategic overview side. Okay. So we'll go -- before I pivot to Richard, an important element of our first year is I mentioned that our Board all started on the same day. We wanted to ensure that we spent the year with them in each Board meeting, and we had a separate June strategy session with the Board to make sure that we were really aligned on our strategy going forward. We don't have a lot of time to be misaligned. We have a strong and competitive growth objective. We wanted to make sure that in each area that we were aligned with our Board on the key attributes of our business.

So we're going to walk through. We have an attribute table that was agreed to with our Board. We're going to give you a highlight of what those attributes look like. It's obviously not all the attributes that are guiding our strategy, but it's going to at least point you to where we're headed. So we'll start on the operational strategy side.

Sure. So the components of the operational side, like starting with safety. Our focus here is just to continue year-over-year to improve and month-over-month and day-over-day really to improve the safety performance of our company. We're shifting our focus to more the forward-looking indicators. We're trying to pivot from looking backwards with statistics to like what can we do to get ahead of issues and incidents before they happen. And when you do have issues and incidents because mistakes will happen and accidents will happen, like how do you fail safely. Like how do you design your programs such that when there is a misstep, nobody has to get hurt. It's just a misstep, and we move on from it. And so we have a big focus on what we call like sticky. That's our saying in our organization, it's called stuff that can kill you or stuff that can hurt you really. And it's how does everybody like get focused on those like high consequence things as a forward look to make sure that we remain as safe as possible.

On the asset integrity side, and I'm going to get into the asset integrity side on some future slides in some more detail. But we're second quartile performance right now. And our aspiration or our goal here is be an industry-leading performer in the top decile of this. And I'll touch on some more details in some further slides. When you look at system availability, this is one where we have been on a journey since we really started operating the Keystone system when we were originally operating about -- in the mid-80s in terms of a system operating factor, to now over time, we've incrementally improved that to being in the 90s. We're at a 94% system operating factor at this point this year.

And what that does is that, a, that enables us to be more competitive. It enables us to move more barrels through our system. We've actually been able to contract more barrels on our Keystone system, largely in part because of the operating availability and reliability that we've been able to generate on running our pipelines. And then as has been touched on our cost structure, we are -- we've taken a number of steps already as part of the spin to drive our cost structure down. We're continuing to take steps. We think that this is an area that as a smaller, more focused company can be a competitive advantage for us. And if we can continue through organizational enhancements through how we execute our programs to the systems and tools we used, continue to drive our cost down. That is a reduction in our variable toll that passes through to our customers. It helps improve their netbacks, which is a win-win.

And then some of that also is improved financial performance for South Bow because it doesn't all show up in the variable toll. And I think on the cost structure side, like as we get to the point next year where we start to lift pressure restrictions, we're really going to see the benefits of some of this cost optimization work that we've been doing.

Yes, that's great. From a portfolio perspective, what's our light post is we've committed to paying a meaningful and sustainable dividend. So when we think about what we allocate capital to, we're going to remain in that same low-risk profile. We believe that just as when we added the Port Neches Link, when we added the Blackrod connection, those are on both tenor and risk profiles that are very consistent to our base Keystone system. And so that we don't want to change. We're not going to shift into a more risky cash flow profile or just to grow quicker. We're going to maintain our disciplined approach to our risk.

The number of revenue streams now is 3. It's really dominated by one, as you can appreciate, a lot of people view us as a single asset risk. We believe that the benefit of going into multiple revenue streams is one where we can then spread our governance costs, all that cost optimization over multiple revenue streams, which makes our base business that much more competitive going forward. We also believe that our approach to how we want to run our business can find synergies in the inorganic opportunities where we can pass those savings back to our shareholders.

From a geographic split perspective, right now, 30% of our revenues are generated in Canada, 70% in the United States. We don't see a great need to change or move that in any specific direction, but we are going to be -- remain focused on Canada and U.S. opportunities. It's amazing. I wouldn't have thought that when we launched a little company like South Bow that we'd be approached to consider opportunities outside of North America. We can just be focused in this corridor, in this kind of industry and be very successful. So we don't see any need to deviate from that.

And then from a marketing segment contribution, we're going to maintain that at a very low level. There are some of our peers that have much more meaningful marketing exposure. We don't think that those revenue streams are as valuable as contracted assets. And so even on our Marketlink asset, we've increased the focus on moving those revenues into contracted positions as opposed to using our marketing affiliate.

We've turned the corner on the losses that Van has highlighted earlier. We see that, that marketing segment can be a great way to keep our pipe full and our costs very efficient for our customers on the system. So it's a very important part of our business, but it won't be an outsized part of our business. So I'm going to transition over here to Van, who can go through some more attributes of our strategy from a financial perspective.

Yes. Thanks, Bevin. And so you heard Bevin say it this morning and you've heard us say it over the last year, we did not choose our debt levels and our dividend obligation. We knew they're high, but we're also confident that this management team could manage it. We saw a path to reducing leverage and delivering that 2% to 3% growth within free cash flow. And we've talked about our capital allocation priorities, and those are our top 2. It's our highly contracted EBITDA profile that gives us that confidence. With respect to size, we feel that growing our enterprise value accretively benefits both the shareholders and our customers.

Bevin talked about the fact that if we have governance costs over multiple revenue streams, that will benefit us. I had a few comments about kind of the audacious nature of tripling our size, but we think that, that's attainable and helps us be a better company. With total return proposition with our 7% to 8% yield, our 2% to 3% EBITDA growth, we deliver a double-digit return to our shareholders, and we do think that is compelling.

Great. So over to you, Martha.

Well, I'll just intro it to you. South Bow's capital allocation priorities are well understood, but they are worth repeating. So Bevin, how is the team thinking about capital allocation in the context of the strategic attributes we are targeting?

Yes. I think we -- first and foremost, we have to make sure that we can live to the commitments that we have set already. And so that is paying our base dividend. We believe that's a very important part of our value proposition. It is giving a return to our shareholders as we build this business and as we grow. It's reliable. It will show up every quarter. So that's -- it's an important part of our value proposition. When we think about strengthening our financial position, we -- it's easy to be distracted by the growth objectives, but we've been challenged often is also if you do grow, are you going to reverse your course on where you're headed to with your balance sheet strength? No, we will not. Anything that we pursue going forward on an organic or an inorganic way, we will maintain our focus on getting that leverage down to the right spot.

And why is it important to us? It's not just to -- we believe lowering interest payments is accretive to the equity investor as well. But what's more important is making sure that we're not run at a razor edge in our business. There can be a lot of volatility in the macro environment. This year alone, the trade war that was in the background between a number of nations. These are not little things that could affect our customers in a variety of ways. So getting to a 4x target in the medium term is still very important to us. And we want to not only maintain our investment-grade level, but we're looking to find ways to see whether we can see that our rating improve by a notch.

And why that's important is our customers are not just multiples of our size. They dwarf us in their size, and they expect to be dealing with investment grade and investment-grade service provider. And so we want to relay the confidence back to our customers through our strength of our financial position. And when we think about growing in our corridor organically or inorganically, we want to leverage that pre-invested capital that we have in the ground that we've carried with us through the spin. So I mentioned the extension of the Gulf Coast, down to the Gulf Coast. So that was -- it is an unoptimized system at this point.

There's a lot of future value that we can unlock in that system going forward that the shareholders have already paid for. When the business was originally contracted in just real round numbers, 600,000 barrels a day were contracted to go from Hardisty to Patoka, Illinois. 400,000 of those barrels now are choosing to be directed permanently or temporarily down to the Gulf Coast. So when we go through our process to even recontract in the future, leveraging that value of that Gulf Coast system will be important. Similarly, in Alberta, our corridors in the Grand Rapids and the investments that we've made there, that allowed us to advance Blackrod at a very competitive price for our customer.

And so when we think about anything that we do, we think about it on a per share basis. We're -- yesterday, our team, we met with a number of shareholders, and we were challenged on a few things. And we said, no, we're really stingy on our share count, with increasing share count that comes with increasing dividend obligations. We want to make sure everything that we do is accretive on a per share basis for our shareholders going forward. And while we've had strong capital appreciation, we got challenged that our 2% to 3% growth rate was kind of uninspiring to some people. Well, we can consistently deliver that with our free cash flow, and we won't turn away other business.

And so when you saw the ambitious goal of being 2 to 3x our size in the next 5 years, we believe we can do that, and we won't turn down opportunities, and we'll find ways of financing it outside of our free cash flow that is accretive to our shareholders.

We'll just flip over to Van here.

Okay. Flip it over to Van. Sorry. Go ahead, Van.

Yes. So as I mentioned earlier, our distributable cash flow provides necessary funds for our dividend, for our debt reduction and for our growth capital. And so it's really, really important to self-fund those 3 things and not rely on outside capital to prosecute our value proposition. That being said, any large organic or inorganic opportunity would be separately financed, and we'll get into that, how we would do that a little bit later. So South Bow's stable cash flow underpins our sustainable dividend.

Our current dividend payout ratios are on the high side. And again, we don't have to overemphasize that, but we are committed to bringing those down. A good example of that, our distributable cash flow payout ratio, you noticed the wins that we had on DCF this year and next year from originally $535 million as guidance up to $700 million that we just announced. So that helps to bring that ratio down. And on a net income basis, in the 2027, 2028 time frame, that will be under 100%. And again, that is our target.

Our debt. Our debt as well is at the higher end of the benchmarking, and we're committed to bringing that down. As we showed before, our target is 4x, and we'll get there in the next few years. Until then, we're confident and comfortable that our BBB- rating is intact. And again, that's because of our long-term highly contracted EBITDA profile. I'd say a focus of ours is maintaining our investment-grade rating, and we look to upgrading to a BBB flat over the long term.

Okay. We're going to switch gears here. So we've spent a lot of time with investors and analysts leading up to the spin going through South Bow's asset integrity program and even more so this year with the Milepost 171 incident. So Richard, asset integrity has been and always will be a key focus for the team. Can you describe our approach to asset integrity and safe operations at South Bow?

Yes. Yes, absolutely. So first of all, just like our goal, as I said earlier, is to be an industry leader in asset integrity and pipeline integrity. And we're taking a proactive approach across our integrity management and our risk management of our systems. We employ about 50 full-time resources that are subject matter experts and highly regarded professionals in the pipeline integrity space, like that's all that they do every single day. And we're investing around $150 million every year in our pipeline integrity programs across the board. And that includes running in-line inspection tools, integrity digs, analyzing data and all in the name of keeping our assets safe.

We take an approach of working with our industry peers, working with our industry associations around how we benchmark ourselves, how we set performance targets with respect to pipe integrity. If you look at the 2 charts on the right, on my right, we're -- if you look at the 10-year average for industry versus the 5-year average, industry as a whole is improving with respect to pipe integrity. It's improved about 20% if you take the 10-year compared to the 5-year. But South Bow relative to industry is also improving.

We're up -- our performance has improved about 40% if you compare the 10-year performance to the 5-year performance. And so that, as I mentioned earlier, it ranks us kind of second quartile, and we want to be way over on the left side of this graph. But it's certainly been a journey for us to continue to improve, and this is a very, very big focus of ours, and we're setting aggressive targets for ourselves to improve our pipe integrity performance. And then we're taking the approach of partnering with industry in technologies with the leading industry vendors and applying those technologies to our pipeline integrity programs.

So like one example that I would talk about is our partnership with our in-line inspection provider. And so we're working with them where we have just had the newest in tool technology built and adapted so that it can run across our whole Keystone system. This uses what's called phased array ultrasonics. This is the latest in ultrasonic technology. It's very similar technology to what you see in the medical field, like if you were to get a 3D ultrasound, it's that kind of vision that you can see like inside of the pipe. And so it's extremely high resolution. It produces a significant amount of data that our vendor and our own integrity engineers can really look at and analyze like what is going on with the pipe.

And I think it puts us on the leading edge across industry in terms of what we're doing, especially on long-seam pipe integrity, which is an area that we've had a couple of issues on. Another thing that we're working with industry vendors on is just on our -- I'll give an example is our aerial patrol process. Like we've partnered with a provider that has got like the latest in leak detection cameras and software. And so like when we're doing aerial patrols of the pipeline, which on Keystone happens every couple of weeks, like it can identify like the almost trace amounts of hydrocarbons that you would see out there so that we can get ahead if there's a leak or identify it as soon as absolutely possible.

And we haven't -- since we started applying this, we haven't had anything on or any issues in Keystone. But as evidence it's working, like we've been able to see like extremely small like diesel spills on a farmer's field where they would be probably refueling a tractor or something using this technology. And then it also takes imagery of the whole pipeline right away. And every time you fly it through AI and advanced analytics, it compares the runs and it will tell you like has there been encroachment? Has there been geotechnical issues? And so we think applying these kinds of technologies really puts us on the forefront of the pipe integrity space.

Yes. So Richard, we're doing a lot of great work. My confidence level has increased so significantly seeing what we've been able to do, but we did have an incident this year. So what can you tell our shareholders about what we've learned from Milepost 171?

Yes. So to me, just -- I'll quickly just spend a minute to one, I do want to acknowledge the local first responders, our emergency response, our project managers, engineers, environmental team and the control center for the tremendous work they did in this response. Because of their efforts, we were able to limit the issues to a single piece of private landowner property. The control center and our field operations, they identified that we had an issue and the system shutdown started within 2 minutes. In under 9 minutes, we had the pipeline isolated. So all the valves are closed and any ongoing impacts are stopped. And then we had hundreds of people mobilized to the site.

And over a course of 7 days, we were able to get to the point where our regulator, PHMSA, approved the restart of the pipeline and getting the pipeline back into service that quickly minimizes the impacts both to our customers and the crude oil markets. And then I'd say the efforts continued through cleanup, and the cleanup and remediation was completed within a couple of months to the point that a release that happened in April, the landowner of that site was able to get their crops on and planted and yielding crops by the summer.

And so it was -- I think we're definitely -- our goal is not to have these issues, but we are proud with how the response was. With respect to the initial findings, we have conveyed that this was an axial crack. That means it's a crack along the pipeline on what's called the long-seam weld. So that is a weld that's made at the pipe manufacturers facility while they are actually rolling the pipe.

Likely, the crack was induced during transportation between the pipe mill and the site. But we're -- some of the details will come out with that in the root causes assessment, which we are expecting is probably going to be posted here within the next couple of weeks. We were actually expecting that would have already been communicated. But with the U.S. government shutdowns, a number of things got delayed at PHMSA, including the publication of this report. The metallurgical studies have already confirmed that the manufacturing process of the pipe, though, it was completed within all applicable codes and standards, and our own analysis of the operations of the pipeline suggests that the pipeline was operating within all of its design requirements at the time of the failure.

We'll probably go to the next slide. But although the RCA hasn't been released yet, we didn't wait for the RCA in order to get started on our remedial work programs. And we started with like almost immediately after the incident, certainly once we had the failed component of the pipe is going back and relooking at all of the pipe integrity runs that we had completed on the section. We had numerous integrity runs that were previous on this section, reanalyzing that data all in light of the fact that we had now seen an actual failure. And we did discover that there was a gap in what the in-line inspection data was able to see in terms of this specific causal factor. And through our remedial work programs, we've identified that gap, but we've also now put in measures to close that gap, and we are confident that we have got measures to prevent further reoccurrence.

We've started a pretty comprehensive additional integrity program. We've run 6 in-line inspections. We've completed 37 integrity digs. That work is going to continue through the remainder of this year, and it will continue on through next year. And as we do all this work, we're being very transparent with the regulator PHMSA, and we're providing all of our efforts and the actual information that we're gathering in real time to PHMSA. And we're confident that at some point in 2026 that we'll be able to start removing the pressure restrictions, probably in increments and probably in components across the pipeline system. But at some point next year, we'll start returning the Keystone system into baseline operations, and that will give us more ability to move in addition to our contract space and get more spot barrels and uncommitted barrels flowing on the pipeline system again.

I'd maybe just point out in the bottom right graph, the thing with our integrity program is we've got 4,900 kilometers of pipe, 4,700 kilometers of that is going to be run with inspection tools this year, almost 4,800 kilometers next year. So almost the entire pipeline system is being inspected on an annualized basis. And then in addition to that, there's a comprehensive integrity assessment program that goes along with those tools -- tool runs. So -- and all of this is with the goal of identifying issues and preventing further incidents.

Okay. So the market fundamental backdrop is a critical piece of South Bow's growth story. Richard, you again, can you speak to our outlook for the supply and demand for heavy crude oil?

Sure. And so if you look at the supply side story, I think all of you are very familiar with the WCSB. It's a phenomenal resource, 160 billion barrels of reserves, 5.5 million barrels of production. And this is long-term steady-state production that has very low decline rates. Significant capital investments were put in place with the initial production. And we forecast that this basin is just going to continue producing for many, many years to come. And that with the majority of our business attached to the WCSB, whether it be receipt barrels onto Keystone or Alberta systems that move barrels with the basin, we think we're -- this is just such a world premier crude oil production area that we're very fortunate to have our assets plugged into.

And then if you were to look at the demand side of the equation, we're delivering into the PADD 2 and PADD 3 markets. Again, in the United States, very resilient markets where there is likely going to be refining declines in the U.S. are probably going to come in PADD 1 and PADD 5, and we think PADD 2 and PADD 3 are going to remain very steady for a long period of time. PADD 2 is consuming almost 100% of its heavy crude needs from Canadian sourced crude oil. PADD 3 is getting about 2/3 of its crude oil from Canada. And so we see opportunity actually for up to another 700,000 barrels a day that could -- of Canadian crude that could potentially displace imports that the Gulf Coast is bringing in from Mexico, Venezuela and the Middle East.

And with increasing production in Canada, even if the Gulf Coast refineries don't take all of that crude, there's such a wealth of infrastructure on the Gulf Coast in terms of marine facilities that you can get crude onto that we see that there's a long-term home for all the barrels that are currently moving into the Gulf Coast, but then lots of upside for additional barrels that could expand that market in the Gulf Coast. And we really continue to think that, that is the natural and best home for the Canadian barrel.

Yes. So I'll just talk through a little bit with -- there's a lot of discussion going on right now in a lot of circles around pipelines. It's now a fun thing to talk about again. And there's a lot of focus on matching those fundamentals that Richard talked about, the supply growth and the demand quality that exists down in the PADDs 2 and 3. We've seen over the last decade, in a decade where things were extremely challenging, and it wasn't really fun to talk about pipelines and infrastructure, the oil sands grew basically 1 million barrels a day of production.

So in an environment where it wasn't necessarily a strong and easy environment for that growth, the quality of those resources are such that we're seeing that growth. And we believe that over the next 10 years, we could see again another 1 million barrels of growth potential out of that basin. The first 500,000 of that actually doesn't need a lot of capital to be even sanctioned. If you've listened to the recent quarters of our customers, many have announced optimizations, new solvent technology, new well designs, well pairs performing at IP rates much higher than they used to.

The consolidation in the industry has also been occurring, making operations more efficient. And so we believe that the first half of that growth really is just going to be coming from optimization. And so you've heard quite a lot about our competitors having optimization projects. That's great for industry. The industry needs to be able to get its commodities to market. But it's not capturing the long-term growth, the material long-term growth, it's getting the early low-hanging fruit optimization barrels. So if our customers want to unleash more growth, if they see that as a reality with some of the latest discussions that are ongoing with our federal government, we believe that we're in a great position to see very strong competitive growth outlooks in the basin that we would look to serve.

If you think about -- it's not just our base Keystone system that is important, but gathering within the province of Alberta to get those barrels to the other systems will be another key area of growth. And so that's why our team is really focused on the competitiveness of our tolls. We are market-based rates. So when you hear us talk over and over and over again about making sure that we're a low cost and an efficient provider, that will maintain our leadership position in being the path that is always wanting to be chosen first that we're not the back end of the stack, we're the first in the stack.

We've talked about our connection from supply/demand. We've talked about maintaining very competitive tolls and commercial structures. We are the most direct path. We have firm surface offerings, which allows customers to know that their barrels are committed. They don't have to rely on historical rights or worry about apportionment. They've got firm contracts. Our transit time is very fast. In a commodity market that's often backwardated, having product on a system for longer than a month is another risk exposure for a lot of our customers. So we get to the Gulf in the fastest transit time, and we are a batch system. So the crude -- so the refiners that take the product off our systems know exactly the barrel they're getting, and then they can optimize the barrel on how they crack it and optimize their netbacks. And so we believe that we can maintain this unrivaled kind of position. We have a unique structure that we will preserve, and we already have approval from the CER and FERC on renewals on the same structure. So that is not at risk in the future as well.

So I'm going to talk now about growth, how we get to some of our ambitious targets. So I'll -- we would never -- I mean, we often get asked even on conference calls, what are you looking at? Well, I don't know any company that would tell you what they're looking at. That would be kind of uncompetitive. So we're not going to tell you what we're looking at. But we're going to tell you kind of the scope and scale of what we've been evaluating, the number that we've been screening and that we -- I mentioned earlier, we were climbing up a mountain with a bunch of backpacks, but we were evaluating opportunities while doing that. So we're not starting from a flat foot today. We've been in data rooms. We've been in commercial discussions with our customers. And so I'm going to get Richard to lead off because really what's important is listening to our customers. So perhaps, Richard, you can share with us like what you're hearing from our customers.

Yes. And I think if you were to look at the conversations we're having with our customers now and over the course of the year versus the conversations we were probably having the year prior to that and the year before that, there's a lot of dialogue going on right now about opportunities. There's excitement, I would say, coming from our customers about the prospect to grow the WCSB. We have a constructive and productive policy environment, I think, in both Canada and the United States more so than we've had in many, many years. And so we're really hearing our customers start to talk about egress and what they need to do beyond likely the 2027 time frame when egress is expected to firm and tighten again, and then you're going to see a likely widening of differentials.

I'd say we're screening certainly more opportunities than I was expecting to be screening at this point when we had first announced the spin. It's -- our current customers are trying to talk to us about receipts and deliveries and optimizations and anything we can do there is a win-win because that helps pull more barrels through the system. It helps set us up better for recontracting in the long term, and it's generally for our customers, creating better economics or better netbacks for them. We're -- I certainly look at our footprint and our assets, and we're engaged with all the Canadian producers around those egress conversations, and we'll see where they lead. But we think we're very well positioned to offer competitive solutions that are -- have similar types of terms than you see on the Keystone system and offer great netbacks for our customers and the ability for the basin to grow.

On the U.S. side, there's a lot of conversations we're having about continuing to optimize. The refiners are always looking at how do they optimize their refining slate? So how do we get more delivery connections? How do we allow them better connectivity? And there's some things that we're considering on the system that could perhaps enhance or optimize the flows so that they can do some more things and maybe we can even get some more barrels down our existing infrastructure.

And so we've got screening -- the screening things in the millions of dollars that are on the connectivity side to things in the hundreds of millions of dollars that are optimizations of our systems, things that we can do within the province of Alberta to things that go into the billions of dollars that create either expansions of systems within Alberta to move barrels from the production area into the hubs or create incremental egress from the province.

And I think it's really important that we get asked a lot, are you focused purely inorganically, like an M&A strategy or organically? And I said at the outset of this business of spin, you never want to have your value proposition underwritten by inorganic opportunities because you can't control someone doing a transaction with you. So our base value proposition is our organic strategy, which delivers the 2% to 3%, which gives us the opportunity to support that sustainable and meaningful dividend, but we'll augment it.

If you have growth within your company, that growth is also part of the meaningful currency that you're using to attract other people to take your equity perhaps in an exchange if you're doing an inorganic transaction. So we see them as very complementary, the inorganic and the organic, but it's really that our front foot is on the organic path. That's what's going to drive the most meaningful returns to shareholders. When you can invest at a 6x build multiple, it's a lot cheaper than investing at inorganic multiples.

And so don't take our messaging when we -- yes, we will need both angles to get to our end goals in the end of the day. We won't be able to build up to that 2 to 3x the size in the next 3 to 4 years, but think of the inorganic as complementary and likely will also come with other growth opportunities that will become organic in nature. So maybe -- and one thing, a great example of that, and we put it in our proxy to demonstrate it was Blackrod. So maybe, Richard, if you can go through where we got to on that.

Yes. And one thing I would just touch on as I provide an update on Blackrod is for a company of our size and stature, we've been very fortunate to have -- to leave TC Energy really with a very capable project development and execution organization. We have a team of people who have built landmark projects across North America, whether that includes our Keystone system and our Grand Rapids system, but we have a team that has built extensive infrastructure in the Appalachian Coastal GasLink. So whether it be our maintenance capital program or a multibillion-dollar investment, I feel that we're very well positioned both to develop and execute on these projects.

And when I talk about these resources, we have people that -- who've done front-end First Nations consultation, environmental work, land work, permitting, construction and execution. So it's a very, very capable resource base that we have in order to go ahead and develop and execute successful organic projects. But -- so with -- and that -- I think we saw that play out on the Blackrod project. This was announced just prior to our spin. We have started to put this project into service actually. We put the gas line into service a few weeks ago. It's achieved mechanical completion. We're on time and on budget. And I expect that we're going to put the final touches on this and have this project commercially in service in the first quarter of next year on time and on budget and with a safety performance record that I'm very proud of because this was a project where we had 0 incidents and 0 injuries across the board.

And so I think very successful. It's going to be at the lower end of our 6 to 8x build multiple. And yes, it will ramp up. It's in service starting next year through the next couple of years as our customer ramps up their production. And then just on intra-Alberta growth, with the 1 million barrels of potential production increases that we talked about in the WCSB, that is going to require incremental infrastructure within the province as well. There's going to be more pipelines needed to move barrels from the producing areas into the hubs.

We see the existing corridor that we have right now between our White Spruce and our Grand Rapids system being a prime example of an area where we can capture some of that growth. There's upwards of 400,000 barrels of potential production increase that could touch that corridor. And we -- this is an area where -- another area where we have a pre-capitalized investment and that this was permitted and originally developed to be a bigger system. It was originally going to be a 24-inch system that -- a 20-inch system that flowed diluent north and a 36-inch system that flowed crude south. And we still have the permits and the initial scope put in place. And so that's an area that we could certainly expand, and I think we'd be very well positioned to capture some of that.

And then there's going to be other infrastructure opportunities within the province, both on the organic side. And I think there's going to be some very interesting things on the inorganic side within the province of Alberta that we'll keep a very close eye on. Just touch on our connectivity into the U.S. markets. We're -- outside of this map, we're very well connected at Cushing. We've got our own terminal at Cushing, and we're connected to the key terminals there. So our customers can both deliver barrels into the markets that Cushing serves, but also that we can receive barrels from the other hubs so that we can move them down Marketlink.

On the Gulf Coast, if I look at the Houston market there, we have our own terminal. We're connected to all the refineries in the Houston area. We're also connected now down to the refineries in the Texas City area via a joint venture that we have in place with ONEOK. And then in the Port Arthur area, we've got connectivity to the major terminals and hubs as well as into the Valero refinery, and we have a shared asset that we own with Motiva that connects into their refinery, which is the largest refinery actually in the area.

And so we think we're very well positioned that our customers can get their barrels into all the locations that they need to get to, whether that's a refining consumer or a lot of the terminals that we're connected to also have marine access. And so they can get their barrels onto the water if needed.

That's great. So I'll just touch on a few things on the inorganic side, just so you can hold us accountable to the discipline that we'll have when we do pursue these. So as I mentioned earlier, we're not going to sacrifice any of our capital allocation principles and priorities that we've made. Those are priority. Part of those, as you know, is leveraging our pre-invested capital. So if we can find opportunities that deliver more volumes into Cushing or into other areas that help us leverage that pre-invested capital, that's great. We're not going to sacrifice our leverage targets. So anything that we do will either be leverage neutral or accretive, not dilutive.

When you think about what we're trying to do with that growth is really find ways to strengthen the competitiveness of our base business because the largest prize that we have is preserving that base business over the next 20, 30 years plus. We will stay within the same risk profile. And what is great about the market that we serve is that the resource that we serve, those customers can underwrite long-dated contracts because their resource is long-dated.

On the refining side, they want to secure long-dated contracts to ensure that they get the product that they want into their refineries. And so we have a natural -- we're not in a basin that's a high decline basin where it's a -- it's an area dedication type transaction or a shorter-term higher risk opportunity. So we're looking at things that match and pass that same logic test. Often, you'll hear from folks, does it pass the map test or the screen test. That's what we're looking for.

I've talked about accretion on a per share basis, making sure that we don't grow the plaque within our business, that corporate overhead. When you grow a business, it's easy to start adding extra things. We're going to be very disciplined by keeping the plaque down within our organization and remain very lean.

And then I'm going to turn it over to Van, who can talk about the financing.

Great. Thanks, Bevin. Yes. So as we've mentioned this morning, our distributable cash flow funds our base value proposition, and that is our base dividend, our EBITDA growth and our deleveraging. So any large organic or inorganic opportunity would be funded separately outside that distributable cash flow. So this slide just represents some of the list of potential funding sources and would pick from this list depending on the new assets' attributes. So all these financing options have pros and cons, and we'd weigh those as we think about using them. I will say that Kevin and our finance team, we're working with our capital providers to look at all these options and make sure that we're ready to pull the trigger if we need to immediately. I'll say as well that when we're funding any of these large projects, and Bevin pointed this out before, maintaining that investment-grade status is table stakes, and we won't compromise that.

All right. We've already discussed our priorities for the second year at South Bow. So having just released our 2026 guidance last week, Van, could you highlight some of the key points?

Sure. Yes. So we mentioned this on the earnings call. Our normalized EBITDA guidance for '26 of $1.030 billion within that tight range of 2% and that's an increase of $20 million from 2025 guidance, and we talked about what that is. That's mainly marketing EBITDA, getting those losses behind us and having slightly positive EBITDA for our marketing business. Blackrod EBITDA coming in the later quarter of 2026, and that's partially offset by lower Keystone EBITDA, and that's decreased maintenance capital and some tighter differentials on Marketlink.

With distributable cash flow, we started 2025 at $535 million, and we've increased that over the year to $700 million, and that's due to tax and 2 pieces within tax, the One Big Beautiful Bill, which allows us to deduct additional interest expense. There was a cap on that and that -- how we get to that cap has changed. And the second thing is our tax team identified some tax pools that we were able to accelerate. So those tax pools, we were using over a long period of time, and we found the opportunity to use them over the next 2 years. So you'll see tax savings compared to our normal current taxes of around $175 million for 2025 and 2026. And then 2027, we will go back to a more even current tax number.

And what I will say is if you're thinking about net income, our effective tax rate doesn't change all that much. It's really just a flip between current tax and deferred tax. Our DCF guidance for 2026 is $655 million. So again, that's down from the $700 million this year, and that's because we don't get the same tax benefit that we do in '25. With growth capital, we've guided to $10 million. And the only reason that is, is because we haven't sanctioned any growth capital. So once we do that, we will update our guidance. That $10 million is just finalizing Blackrod.

Okay. And Richard, there are some operational considerations incorporated into our outlook for next year. So what kind of environment should investors and customers be rooting for in order for South Bow to exceed our guidance of $1.3 billion (sic) [ $1.03 billion ]?

Yes. And I think the key takeaway from this is that it is pretty tight. We're in a kind of a plus/minus 2% error bar here. I think the 2 big drivers that would move things either left or right of that are going to be timing of removing the pressure restrictions. There is some uncertainty with that. And with removing the pressure restrictions that will enable us to flow more uncommitted barrels. I'd remind you that some of those uncommitted barrels are going to be consumed with makeup rights. Some of them are going to be spot. And so there's a little bit of variability there, but it's tough to pin down an exact time frame on when pressure restrictions would be lifted because we're going to have to work with the regulator, and we're going to have to complete our remedial work plan and our integrity work.

And so as we develop that, we'll -- and as we execute on that, we'll provide more information. And then the second component is the arbs or the differentials. We don't take a market position with our forecast, we look at the forward curves on the differentials, and we'd use that to help come up with our guidance. And they could be wider, they could be tighter, like sometimes there is things within market, there's just even operational things within industry that can either shrink or widen the arbs. And so those are probably the 2 major drivers of what's going to impact our EBITDA in 2026.

Okay. Thanks, Richard. Okay. So Bevin, we've covered several aspects of our business, including our strategy, our capital allocation priorities and our growth outlook. So what final thoughts would you like to share with everyone today?

Yes. I just wanted to remind everyone, often even as a management team, we were just fighting through a lot of stuff through the spin, and it was easy to get focused on all the challenges and all the hard things that we've done. But really, if I look back at the ledger of what we've accomplished, we've got off our TSAs. We've completed Blackrod. We settled a litigation that was long lasting over 6 years. We've done tax optimization. We've created more space in terms of cash flow to -- we had a pretty tight amount of cash flow to use to grow our business. We've expanded that in the near term as we wait for the EBITDA to show up from Blackrod.

We've made the hard decisions around some of the organization, made some of those calls. We're not afraid of getting this business in the right spot. We've identified a ton of growth that we're confident in, and that's why we relayed that confidence in this presentation. And we've got great alignment as a management and Board. We've done all those things while doing the main takeaways of operating safely, prioritizing how we do that day in, day out and ensuring that the integrity of our assets is the first focus of our business. We're leveraging this corridor that we've inherited.

Many -- as Richard said, many of the folks on our team have been on the team since the beginning. We rang the bell earlier this year in the TSX and a control room operator rang the bell, who was part of that first starting the Keystone system and the person that co-ranged the bell with them is one of our safety leads down at the Houston Tank Terminal. We're a business that extends from Fort McMurray down to the Gulf Coast, and we've been really delivering a strong business through that. We've got a strong portfolio strategy. We're pairing it with strong fundamentals that are not -- that are undeniable as we go forward. And we will be disciplined in terms of our capital allocation.

We're not a shiny toy team. We're not going to be coming back and changing directions. What you see is what you get. We're probably not going to have an Investor Day next year. We'll just -- we'll update you on the strategy as we go. And if there's any material things that we think we need to have a good discussion over, we'll definitely have an Analyst Day again in the future. But we felt that we wanted to talk about what we've accomplished in our first year to give you the confidence that as we set our goals going forward, that you can trust that we'll be very transparent and we will deliver a strong return going forward.

So why invest in South Bow? I'll tell you what I tell our field team, do you think our system is going to run for the next 7 years? Do you think our system is going to be recontracted? Do you like getting a 7% to 8% yield? It means that you basically get this company for free if you hold and reinvest alongside us. And so we have a strong and sustainable base dividend on a business that is a strategic franchise in a premium corridor. You can't get -- you can't buy this asset anywhere else in the infrastructure space. Irreplaceable assets with a compelling growth profile.

There's a very strong alignment between our 2 nations that we serve, Canada and the United States. Energy is undebatable that, that corridor is really important between our 2 countries. And that we're very disciplined and focused on our financial strength and maintaining that investment-grade rating as a company. And so we serve a robust marketplace, and we're really excited about growing this business over the next number of years. So that's why I'd invest in us.

Okay. Thanks, Bevin, Richard and Van. So we're going to turn it to Q&A. We've run over a little. So we've got enough time to answer all your guys' questions. So Ben is at the back of the room with a mic. So if you want to raise your hand, I saw Catellier go up the fastest, so we can go to Rob first.

Rob Catellier, CIBC. I guess I'll start with the one that we were talking about this morning. There's been a lot of rhetoric on the political front about a potential liquids pipeline to Alberta's West Coast, and you've obviously described the advantages of your system and the economics there. So I'll just throw the question to get you started on it. But what -- under what conditions would South Bow consider investing in a liquids pipeline to the West Coast? And then I'll have a follow-up.

Well, thanks, Rob. It starts with customers. Customers have to see line of sight of being able to underwrite a project for multi-decades, and it would have to be at material scale. I mean, the scope and scale of a West Coast pipe, Richard mentioned a few of us were a part of building a West Coast pipe. So know what it takes to go up and down a few mountain ranges. It's not for the faint of heart. But it really starts first with customers feeling confident that they actually have the barrels to commit to a project of that scope and scale.

Secondly, it needs very strong alignment with governments and regulators, provincial, federal and indigenous governments to ensure that there is an alignment of a need to support and make a pathway clear. We have already committed a number of individuals to support the Alberta government with a few of our peer companies to do an evaluation of that project. But really, we see it as a long-term project that will take many, many years to develop, if at all, but needs to have all of those conditions that the CEO's letter that was signed to the federal government really have to be acknowledged and resolved. So there's many, many things that would have to come ahead. Our approach to our business is we see a tremendous amount of growth in the near term. And really, you need that growth to create the cash flow to support the development of those big, large projects that would help underwrite the longer-term West Coast pipeline.

Okay. My second question was just on diversification. In your operational and portfolio attribute slide, you talked about the 3 revenue streams. I'm just curious, you also talked about wanting to get to significantly larger size. But I just wonder what the diversification goal and a diversified portfolio looks like to you.

Yes. So focused on risk preferences, focused on that we have an ability to deliver on a business attribute. So are we afraid of operating the gas pipeline that serves Blackrod? No, we've operated gas pipelines before on our team. Are we afraid of refined products? Are we afraid of other crude systems? We're more focused on finding the solutions that our customers want and enduring businesses that are similar to kind of our base business.

So we have evaluated a lot of things. You would expect that the vast majority of what we've looked at are crude opportunities because we're focused on our corridor and leveraging our pre-invested capital. But we're not afraid of looking at other things. There are asset classes that we certainly don't have any competitive advantage in. So I can be pretty clear we're not going to get into the NGL business probably. There's enough people doing that. But we have a nice runway of other assets and asset classes that we could get into, whether that be pipes, terminals and other commodities within that space.

Rob, do you want to hand the mic over to Keith -- oh, sorry, Ben has got it. Yes, Keith.

Keith Stanley with Wolfe Research. I want to start on the EV goal, aspirational goal of going $10 billion to $30 billion. And I think you said 3 to 5 years, Bevin, which would require probably a lot of M&A to get there and hit that target. So the stock has done well. How confident are you, though, that you can find opportunities to acquire that would be accretive to your stock valuation while also focusing, as you said, on assets that are similar in risk profile to what you currently operate? So very low-risk assets that generally trade at pretty high multiples.

Yes. Great question, Keith. That's certainly not one we haven't thought a lot about. We set a goal, we say internally 2 to 3x the size. If you don't try to get to 3x, you won't get to 2x. So we do see that it is an ambitious goal, but there are a tremendous amount of opportunities that we've already been looking at that we believe that we can add value strategically and accretively to our business.

There are a number of assets that are held within private financial sponsors, we're a great marker of what a crude system valuation should look like. That sets a level or a valuation that could be very competitive in those financial situation -- in those private financial situations. And so -- and we're willing to partner with other infra providers or infra capital players along that journey.

A lot of the history of our parent company was going it alone on assets like 100%. We believe that we can partner with others very strategically to get access to other larger opportunities. And so I think you'll see that as part of our mix as well that we won't just be going alone at things, but we may be partnering with others on that journey. But again, that organic first front foot has to be there to set that pathway to allow those opportunities to exist.

And then I had a question for Richard. Just on the -- what are your expectations as the pressure restrictions are lifted on being able to move uncommitted or spot volumes, keeping in mind, Enbridge has announced, I think it's 430,000 barrels a day by 2028. So do you see an opportunity to have a lot more uncommitted barrels come on to the system over the next few years? Or is it more of a longer-dated opportunity?

Yes. Good question, and we'll see what transpires in terms of timing of bringing other egress capacity on, where #1 focus right now is putting the conditions in place so that we can physically move the barrels, and that's removing the pressure restrictions and getting the pipe set up to be able to -- we're able to move all of our contracted volumes right now. And I think in 2026, we're going to see us be able to take an increasing amount or we'll be able to have an increasing amount of capacity to move beyond that.

Like I think if you look at the attributes that Bevin went through about the system in terms of transit time, delivery optionality, delivery flexibility, all the markets that we serve. And then you also look at the fact that we do have a marketing affiliate as well that participates in the market. I am confident that we will be able to move barrels and keep the system pretty full. And even historically in the past, when there hasn't been as much for constraints, we've been able to keep the Keystone system pretty much chock-a-block full.

We'll go to Praneeth there.

Praneeth, Wells Fargo. I'll just kind of combine these 2 questions in 1. But I guess, I think you mentioned getting to leverage of 4x by the end of 2027. Maybe if you could just talk about what CapEx assumptions you're assuming there? Is that based on what you have contracted today, which is a low amount? Or does that assume additional FIDs? And then the follow-up question is, I guess, when should we expect new FID project announcements? How close are you in some of these potential discussions? And can it come before the next earnings call?

So I'll start and then pass it to Van for the first question. So FIDs, it takes 2 to do a dance on both organic and inorganic. And so we're in daily conversations with our customers on the organic side, and we're in daily conversations with counterparties on the inorganic side. So I can't tell you. I don't know. We've set a goal as an organization through our scorecard that will become public kind of in the new year once it gets formally approved, but we've increased the weighting on growth to the management scorecard. And the reason why we have is if we're not growing, we'll be the growth for someone else. And I think we have something special as a team, and I think we want to have that opportunity. Certainly, if we're not able to do it, then someone else will take that turn. So Van?

Yes. And so on the growth target, so we've mentioned that late '27, early '28, we'd get to that 4x. So there may be some capital spent, but there'll be no EBITDA associated with that growth capital. So we have Blackrod coming on full in 2027, but there's no other EBITDA growth from -- like from a growth project to get to those targets.

Maurice is right there.

Maurice Choy from RBC Capital Markets. The first question, and I'll just ask both of them at the same time. I think you had a comment earlier about potentially improving your debt credit rating by a notch. And the 2-part question, is it tied to tripling your company? Or is it separate? And quite frankly, how would you achieve that? What threshold would get you to the next notch?

And the second question is, why is getting bigger important to you? You mentioned earlier about sharing costs. You mentioned earlier about listening to your customers. I had to assume that your customers are speaking to every other provider and saying relatively same message. So why you -- why would you be the consolidator?

Yes. Great questions. So with respect to the credit agencies and their ratings, these are multivariate things. So first of all, it's separate from being 2 to 3x the size. It's just where we want to be because when we go to recontract, we want to be in a stronger position with our customers on investment grade. One of the key issues is business risk with credit agency. And when we have -- our contracts right now, they come due 2030, 2031. We've got a long runway before then.

Having multiple revenue streams, that's where it does tie to growth, diversifies the risk profile of the business and impacts that business rating within the agencies. And they all have different approaches of how they get there, and we've heard from them, and we're working very closely with them. But everything that we've conveyed to the rating agencies from the beginning, from the first meetings about the spin, we've accretively been better. So our debt was raised at a lower coupon. We didn't have Blackrod modeled into the project. We had a dividend increase as a proxy that we're not increasing the dividend. We've accelerated the pathway on getting our leverage down to 4x by that increased DCF.

So in every aspect of what we've shared with the agencies, we've done better, and we want to continually do that so that we give them confidence, they've only seen us operate for a year. We've now responded to an incident. That was one of their concerns. Would the insurance be there? Would we be able to respond? So it's all about just as we're trying to relay confidence to our shareholders, we have to relay confidence to our -- the agencies that we work with as partners in our business to establish the value of our credit. Why do we think we need to be bigger? I think in the last couple of weeks, we just saw the transaction with MEG couldn't happen. We saw NuVista. We've seen across the U.S., the midstream infrastructure space has been in massive consolidation.

We believe that we have a very strong foundation, and we believe we have a pathway to add businesses to us that make our base business even more attractive. And within that structure, I think we can relay more shareholder value back to our shareholders through that. And so what I mean by that is if you think about -- because we're the only market-based rates pipeline of scale going from the oil sands to the Gulf Coast, if we added another revenue stream, so it was a 30% increased revenue stream, but we didn't add a CFO and we didn't add another COO and we didn't add a different Board, we could spread all of our governance costs on that 30% increased revenue business, and that lowers our variable toll on our base business materially. And every $0.10 of our variable toll is worth $20 million of EBITDA. And so that is a strong prize for us that we could accrete back to shareholders over time. It's not an immediate price, but there is a long-term prize there for shareholders.

Take your pick, Ben.

Eli Jossen from JPMorgan. Maybe just thinking a little bit about the vertical integration opportunities. I know you talked about terminals and other products. But can you just talk about the way that vertically integrated businesses would benefit your pre-capitalized corridor and just what kind of synergies those would provide specifically?

Sure. Thanks, Eli. I'll start and then pass it to Richard. Really, the way the business was created on our base business, Keystone, it was really a bullet line and a lot of liquid systems and crude systems started with terminal operations and others. So we originated a little bit differently, but really, we're seeking to provide customer solutions. So I'll turn it to Richard to describe that.

Well, yes, it's pretty -- I think it's pretty straightforward with the vertical integration. Like just we're -- right now, we have one component of the flow path from a production source to a market. And the more components of that total flow path you have, like the better products that you can put in the marketplace, the better synergies you can create, the less value leakage that you have as the barrel transfers from one operator to another.

So like going -- like there's a point where vertical integration ends because you start to get into different risk attributes and different risk portfolios, especially if you get into gathering businesses or other things. But I think we can definitely extend the value chain beyond the mainline trunk line that we have right now into things where we can create commercial synergies that able us to put better products in the marketplace. So that's definitely something we have an eye on.

AJ O'Donnell from TPH. It seems like there's a pretty robust growth opportunity in the intra-Alberta pipelines connections. I was just wondering maybe if you could talk a little bit about the competitive nature for those projects. And because it's such already a pre-capitalized corridor, would you see returns kind of trend more towards that 6x versus the 8x?

Yes. And so yes, anywhere that you can take advantage of pre-capitalized investments, permits are very, very valuable things to have, rights of way are very, very valuable things to have in corridors. I think you set yourself up with a strong competitive advantage over alternatives. There -- with the growth that is anticipated in the province, there's definitely going to be new infrastructure required within the province to support that growth. And to answer your question, yes, like anywhere where we're able to use or take advantage of those pre-investments, we would expect the returns to be at the lower end of the range, if not even lower than the lower end of the range we provided.

Aaron -- oh, sorry. You'll be next Aaron.

Rob Hope, Scotiabank. Thanks for the Investor Day. And in the overall kind of project description, you did highlight incremental egress out of the province of Alberta. When we think about the base -- or the Keystone system, on a longer-term basis, how much incremental capacity do you think you could get on there, whether it be through optimization, pumping, DRA? Like what's the ultimate capacity, do you believe?

Yes. So we are -- like when we have pressure restrictions removed, the capacity on Keystone right now is slightly above 620,000 barrels a day. Incremental improvement beyond that with some investments are -- I'd say they're fairly modest. In order to get meaningful egress from the basin, it would require a more significant expansion than just pumping or DRA or optimizations of our system.

Aaron MacNeil here from TD Cowen. Can you provide any additional details in terms of like the sequencing of opportunities? And specifically, what I'm relating to is for, say, intra-Alberta pipelines, does the timing of an expansion on TMX matter? Do you need to see an FID before a customer would then sanction a project upstream of that with you? And what are the sort of lead times to build an expansion in the intra-Alberta pipeline segment?

Yes, I can start briefly. So Aaron, I think what we've seen very quickly this year is from really no dialogue from our federal government and even provincial government around opportunities and growth to one that there's a very significant active dialogue. And so those decisions and opportunities and the sequencing is a bit unknown to us, to be honest. Where we're advantaged is that we do have some pre-invested corridors that are already permitted. So we don't -- we can get right after it in some cases. And in other areas, we'll be happy to compete and move forward.

Fortunately, both Alberta and Texas, where we've had recent projects are good environments to build in. So intra-Alberta, if there was a scale, like if you look at Blackrod, we didn't even have it fully sanctioned by the time of the shareholder vote, it was an opportunity, and now it's already constructed. So within -- under 2 years, we went from sanctioning to in service. So that's kind of the time line that is available to us in Alberta.

Fair enough. And then maybe as a related question, and I know you're not going to speak to specific opportunities, but a larger oil sands customer recently talked about an expansion to their production. And I believe even mentioned South Bow at a recent Q&A. Like I presume that would be one of the bigger projects. But how far along are some of the bigger opportunities in that $1 million to $2 billion? And is it really just like typically, the smaller opportunities are further advanced, but can you give us a sense of the advancement of some of the larger versus smaller opportunities?

Well, it's interesting because I've -- through my career, I found that small things and large things both are hard to do. They both take time because they're meaningful in some way, right? But we're -- like I said, we're literally in daily conversations with customers and counterparties. Some have been underway for quite some time and -- but are still -- some are edging forward. We talk about using the word maturing our portfolio. And so we have been maturing it to get ready and to make our commitments. And so -- and that's why we've said a mark in the sand, we will get after it in 2026. Something will happen on one of those fronts. So...

Which is like all of the producers that are our key customers, they're very sophisticated companies. They've got people that know the pipeline infrastructure extremely well. They understand the time frame it takes to get things built. Like typically, the egress out of the province into markets away from the province has been the long lead item that people want to ensure is in place. I think all of the producers are not going to be caught flat-footed and not have a market to grow into.

And so stitching all these things together so that the timing all works with their growth aspirations and that you've got the pipeline and the infrastructure in place so that they can ensure that they get a fair netback for their production is it's all very complex, but all those dialogues and discussions are going on. And I think they're very productive and constructive right now. And it's just -- it's such an amazing opportunity for the basin that we haven't seen in a long time to see these opportunities in active dialogue. So that's great.

It's Ben Pham, BMO Capital Markets. First question, distributable cash flow per share, just given your focus on deleveraging and cash tax benefit, is there any thought process around guidance for DCF? And just your overall thought process, isn't that really your more key driver for the business going forward versus EBITDA, CAGR guidance?

And so we do -- Ben, we do guide, obviously, on distributable cash flow. And I agree that is important. And we talked about that a few months ago, you could have a company with the same EBITDA but with very different DCF because of capital structure and tax structure. So we pay a lot of attention to DCF for sure. We got wins in 2025 and 2026 and then back to more normal levels in '27, but then we have Blackrod coming on. So yes, we do look at it.

Okay. So it's more a go-forward figure versus a CAGR guidance?

Yes. And I'd say the CAGR guidance is a little tougher because there's more moving parts. If we start from the -- if we start from $700 million, obviously, our DCF is going down over the next few years. And so -- but if we started at the $535 million as original guidance and say what '27 or '28 would be, it would just -- I guess it's just a little harder to give a growth percentage to it because of the moving parts.

And we were completely unoptimized at the time of spin on a lot of that front. So we didn't even know what we had within even the pools or otherwise. We were basically spun without very much. And so we're just starting on that journey. So it's just a bit too unpredictable for us to give guidance that we could be held accountable to at this point.

Okay. That makes a lot of sense. And maybe just on Slide 28, the intra-Alberta growth potential. I'm just looking at this map, it looks like you're well positioned on that left side of the map there, a lot of those white flames. And on the right, it's most -- it seems like most of the optimizations. So how do you think about that in your comments around this first 500,000 barrels a day? Is that more to peers capturing that growth then? On optimization, you got more of the second phase then of growth for the laterals that kick in. Is that how we should think about that?

Well, I think it ultimately, I think, depends on which production projects get funded first. And our customers are evaluating amongst and stacking a number of priorities that they have. And so we'll have to see what decisions they make in the near term versus the midterm. So depending on which production growth increases happen, I think that some of them will very logically have got closer proximity to our pipeline, which we have some latent capacity on right now. And then as I talked about, we have some expansion capacity that we could build into. So we'll have to kind of see how some of that transpires. So -- but there are other pipelines that obviously, that serve similar parts of the corridor that we'll have to compete with.

And there are a number of SAGD operators that have historically and continue to this day truck their production entirely to Edmonton. And so there's opportunities to potentially aggregate that don't require optimization. It's just a different way of getting to market. So the credit quality of a lot of those original developers was very poor, and so they couldn't underwrite a pipeline. Credit quality of some of these operators has improved materially. So there may be other opportunities on that front.

Sam Burwell, Jefferies. One thing I just wanted to clarify on the tripling of enterprise value. I mean, is that inclusive of potentially large noncontrolling interest or JV partners interest in a potential project? And then also on the organic opportunities, would that $2 billion upper bound be your equity share, your total share of the CapEx or like the total project CapEx? Just trying to frame like how potentially large some of these opportunities could be and how it's reflected in the tripling of the EV.

Yes. So we didn't include partner capital or otherwise. Those are numbers that we would be exposed to. And that's why we went through the list of financing choices that we would consider in order to move a business forward. Things of scale in terms of new big projects, like you look at that Grand Rapids corridor, we extend right into the northern part of the oil sands, expanding that corridor to what it was originally envisioned is probably $1 billion to $2 billion with all the terminal assets that would go along with it. So they're all within the realm of possibility of what we could be pursuing.

We just don't have -- well, we haven't sanctioned any of them at this point, but we're saying that we're going to deliver a value proposition that is very meaningful in that 2% to 3% EBITDA growth with strong dividend. when we see opportunities within our corridor, we're going to compete for them, and we'll need to finance them from a different perspective because we don't have the full free cash flow available to do it off of our balance sheet. That's the message that we really wanted to convey today is that we're going to deliver a solid base value, and we're going to compete for bigger things, and we have an ambition to get to that larger scale because we believe that scale also will accrete more value back to the shareholder.

Okay. Understood. And you talked a little bit about recontracting, but just curious if you could give us a little bit more on the magnitude or scale of that opportunity over the next, say, 5 years? And is any benefit from recontracting embedded in the sort of enterprise value accretion?

No, none is in the enterprise value accretion. And fortunately, this year, as I mentioned, a big highlight was getting the resolution on our variable toll litigation behind us. We'll be working with customers over the next number of years. We don't -- there's -- we have quite a bit of time to determine our recontracting strategy and listen to our customers in terms of what they want. So we have -- we've still got just over 5 years of contract life on that 90% take-or-pay. So we've got a lot of time to make sure that we optimize that and give a good -- find a win-win with our customers.

Any more questions?

Okay then. So thank you for all the great questions. So please keep them coming in the breakout sessions. But with that, we're going to say goodbye to those joining via webcast. So thank you for tuning in and for your interest in South Bow.

Good day, and thank you for standing by. Welcome to the South Bow Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Martha Wilmot, Director of Investor Relations. Please go ahead.

Thank you, Marvin, and welcome, everyone, to South Bow's Third Quarter 2025 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, which may not be comparable to measures presented by other entities. With that, I'll turn it over to Bevin.

Thanks, Martha, and good morning, everyone. We appreciate you joining us today. South Bow's third quarter financial results once again demonstrated the resilience of our business with our stable earnings profile, allowing us to meaningfully deliver on our capital allocation priorities in our first year as an independent company. We have paid a sustainable dividend to our shareholders, funded our first growth project at Blackrod and strengthened our financial position.

We are also nearing the exit of all transition services with TC Energy, which we expect to finalize by the end of 2025, almost a full year ahead of schedule. We have become more efficient in the process and are realizing cost savings that drive a more competitive tool for our customers and a stronger bottom line for our shareholders.

The team has successfully managed several priorities while establishing South Bow as a stand-alone entity. And I'm pleased, maybe even a little relieved, if I'm honest, to say that we are now fully focused on our future strategic priorities of growing our business and enhancing our overall competitiveness while ensuring safe operations, financial strength and capital discipline.

Regarding our growth initiatives, I visited our Blackrod site last week, and I am incredibly proud of the team's success in executing this important project, set to be delivered on schedule, within budget and with an exceptional safety record. I am confident that we will continue to demonstrate this type of project execution excellence as we mature our growth portfolio with organic and inorganic opportunities. By adding more revenue lines through growth, we will become more competitive across our existing systems.

As we look to the future and the role of South Bow will play in serving our customers, we are encouraged by the dialogue taking place in Canada and the United States about advancing energy solutions. These conversations not only underscore the strength of the supply basin and the demand centers we serve, but also highlight the resilience of our customers' businesses. South Bow's assets are strategically positioned to serve their needs and we are focused on being the first choice for our customers.

As we evaluate opportunities to leverage our pre-invested corridors, it will be important to establish appropriate risk and return frameworks, and carefully consider our investment requirements, which include minimizing shareholder capital exposure, adhering to our capital allocation priorities and seeking permitting durability.

On safe operations and asset integrity, we have made significant progress in our remedial actions following the Milepost 171 incident. The work our team is completing increases our confidence in the integrity of our system. As we work towards returning Keystone to baseline operations and closing out the requirements of PHMSA's corrective action order. Richard will provide further details on this shortly.

Finally, we have laid out a clear set of priorities for our team as we focus our attention on our second year. These priorities include maintaining safe operations, maturing and executing on our growth portfolio, continuing to enhance our competitiveness and the ongoing demonstration of discipline in our capital allocation and shareholder returns. I will now ask Van and Richard to touch on the financial and operational expectations that come with these priorities. Richard?

Thanks, Bevin, and good morning. I first want to speak to the progress we've made on our remedial actions at Milepost 171, while we await PHMSA's publication of the root cause analysis. The findings from the third-party metallurgical lab report determined that the pipe and welds conform to industry standards for design, materials and mechanical properties, and our own records confirm the pipeline was operating within its design pressure at the time of the incident. Through the remedial work we've completed to date, we do not see evidence of a systemic issue, and we're confident we will address the system's long-term safety through actions we've already taken or through planned enhancements to our integrity programs.

To that end, since April, we've completed 6 in-line inspection runs that place a focus on the long-seam pipe integrity. Preliminary inspection results show no notable concerns, reinforcing our confidence in the integrity and reliability of our system. We have also completed 37 integrity digs with no injurious issues to report. Our investigative work will be ongoing through the end of this year and into 2026.

In parallel, we are advancing important work with our in-line inspection technology providers to address and resolve tool limitations and apply the latest and advanced technologies across our system to increase our ability to prevent future incidents. This work is being incorporated into our remedial work plan, which we will submit to PHMSA for approval.

I anticipate that the Keystone pressure restrictions will eventually be lifted in a phased manner. We're proactively sharing with PHMSA the results of all investigative work being performed with the goal to safely return Keystone to baseline operations in 2026 ahead of when market differentials are expected to widen and demand for uncapacity -- uncommitted capacity increases.

Switching gears to the Blackrod project. In October, we achieved overall project mechanical completion and placed the 25-kilometer natural gas lateral into service. These are both significant milestones, and I want to extend a sincere thank you to the team for the tremendous effort in safely executing this project. Facility commissioning work is underway, and we remain on schedule and within budget to place the project into service early in 2026.

Lastly, in October, all parties withdrew from the legal proceedings related to the variable toll disputes filed with the Canadian and U.S. courts and regulators. These proceedings had been active for nearly 6 years. And with the matter behind us, the team has now focused -- has turned its focus to new business opportunities to jointly create value for our customers at South Bow. And a reminder that as part of the separation agreement with TC Energy, South Bow was indemnified for this matter in addition to other matters that existed prior to the spin up to a liability cap of USD 22 million.

I will now pass it over to Van to discuss South Bow's financial performance and outlook.

Thanks, Richard. I'll start with our strong third quarter performance, which included delivering normalized EBITDA of $250 million. As expected, the marketing losses that we crystallized early in the year were largely offset by normalized EBITDA associated with higher maintenance capital expenditures in the period. Distributable cash flow of $236 million benefited from a current tax recovery of $71 million resulting from changes in U.S. tax legislation and successful optimization efforts from our tax team. To reflect these tax wins, we are revising our outlook for distributable cash flow to approximately $700 million for 2025 and our effective tax rate to range between 20% and 21%. We are reaffirming normalized EBITDA guidance for 2025 of $1.01 billion.

Turning to 2026. Our outlook is supported by our highly contracted cash flows and the structural demand for our services. We are forecasting normalized EBITDA of $1.03 billion within a range of 2%. The key drivers of the increase from 2025 include; for marketing, we're expecting normalized EBITDA will be approximately $25 million higher, reflecting the recovery from losses recorded in 2025. For intra-Alberta and other, we expect normalized EBITDA will be approximately $10 million higher, reflecting Blackrod cash flows ramping up in the second half of 2026. And for Keystone, we expect normalized EBITDA to be approximately $15 million lower primarily due to reduced planned maintenance capital expenditures following an active integrity program in 2025.

Distributable cash flow is forecast to be approximately $655 million within a range of 2%. As we consider the potential outcomes for the year, I'll note that normalized EBITDA and distributable cash flow will be influenced by pressure restrictions and price differentials. To exceed our baseline expectations, pressure restrictions will need to be lifted early in the year and price differentials would need to widen. On the other hand, the low end of our guidance range reflects a scenario in which pressure restrictions have remained in place throughout the year and pricing differentials have tightened beyond current levels.

Our capital program next year includes approximately $25 million of maintenance capital, reflecting a less active plan and approximately $10 million of growth capital to complete the Blackrod Connection project. We plan to update our outlook for growth capital once we have sanctioned our next development project.

Lastly, our Board of Directors has approved a quarterly dividend of $0.50 per share payable on January 15 to shareholders of record on December 31. The dividend remains an important component of our total return proposition. With that, I'll hand it back to Bevin for closing remarks.

Thanks, Van. After another solid quarter of financial and operational results and through the hard work and effort of the team in establishing South Bow, we have strongly positioned our business for longer-term growth and success. Our priorities for South Bow's second year are clear. We will maintain safe operations and continue progressing towards returning Keystone to baseline operations, mature and execute our growth portfolio of organic and inorganic opportunities, continue to optimize our workflows and increase our competitiveness and maintain discipline with our capital allocation and shareholder returns. We look forward to sharing more on this next week at our first ever Investor Day.

With that, I'll now ask the operator to open the line for questions.

[Operator Instructions] And our first question comes from the line of Sam Burwell of Jefferies.

So we got these latest list of major projects, I believe yesterday in the proposed crude pipeline that Alberta [indiscernible] was not on that, but I understand that you're providing some engineering and permitting support. So I'm just curious for an update on that. And then there were also some press reports, I mean, this is going back a little bit further about Keystone XL, a reboot of that being talked about in trade discussions between the U.S. and Canada. So with respect to that, just curious about what sort of existing infrastructure you guys might be able to leverage to expand crude egress capacity over kind of the medium and longer term?

Yes. Thank you, Sam. It's Bevin here. I mean, first off, one of our key capital allocation priorities is to leverage our pre-invested corridors that we have both in Alberta, the pre-invested capital that we made for the former Keystone XL project and then pre-invested capital along our system in the United States. So we're always evaluating ways of leveraging that pre-spend for other solutions.

Directly to your question on the West Coast project. Yes, we are providing some advisory support. Many members of our team have a long history in developing significant capital projects. And so we're lending some of that expertise to the provinces initiative there, but it goes no further than that.

With respect to trade negotiations, to be honest, Sam, that's way above our pay grade. We're obviously watching and encouraged by the ongoing dialogue between Canada and the U.S., but I can't really speak any more detail to what's going on behind closed doors that we're not a part of. So thank you.

Yes, of course, totally respect that. And then the commentary around marketing and tight crude spreads that certainly makes sense and squares with commentary from some of your peers. Just curious if you have a view looking out a little bit further when you think that spreads can widen out, inventories in Alberta can normalize and then we might start to see some contribution from spot volumes once presumably the egress has been lifted?

Yes. Our views have remained very consistent on that front. We anticipated with our -- with the TMX pipeline coming on that, that would relieve some of the egress issues that we had over the last number of years. But we're very encouraged by the supply growth that has been occurring by our customers. If you just listen to the last week of quarters from our customers here up in Canada, you'll have noted that they are all very encouraged by potential growth in their organizations. And so our outlook has us seeing conditions being a lot more favorable in effectively late '26, early '27, where we see that, that supply growth will exceed what currently exists for egress, making our systems likely to see more walk-up and spot needs.

Our next question comes from the line of Maurice Choy of RBC Capital Markets.

Can I just double-click on the tax optimization and the U.S. legislation changes. Can you share a little bit more about what these were? And if these benefits reflect in the guidance for DCF for this and next year would actually translate to benefits also beyond 2026? Or do you envision returning back to, I guess, the prior cash tax run rate level?

Yes, Maurice, it's Van here. Thanks for the question. The tax wins that we got were a couple of things. One is the one big beautiful bill in the U.S. that allows us to deduct additional interest. We have reached the cap on interest deduction. So that was extended. So that would be as long as that legislation stays, then we would continue to benefit from that.

The second piece was around tax optimization, and we identified some tax pools that we were able to accelerate. And so those tax pools were on our balance sheet, and they were there. We just accelerated them. So we'll get that benefit in 2025 and 2026. And then in 2027, we'll go back to more of a regular cadence. So it's really just a flip between current tax and our deferred tax.

Understood. And if I could finish with a question on the transition agreements. I think you previously mentioned that this transition will help improve your processes to be more efficient and realize cost savings for your customers through a more competitive toll, both of which I think you reconfirmed today in your prepared remarks. But you also mentioned that this could benefit the bottom line for shareholders. So are you able to quantify what that is and whether this is within the 2% to 3% EBITDA CAGR objective?

Yes, Maurice, it's Bevin. So our objective of getting off of the TSAs as quick as possible in our first year is that it was -- you're not able to really optimize many of the processes within the company until you're legitimately on your new systems. And a simple example of that would be supply chain and procurement on how you issue and pay invoices. And we delivered Blackrod very successfully, but it came with a very kind of clunky procurement system that we needed to use. So we're now as one -- just one example, being able to optimize that and the delivery. I did point out in my remarks is that we believe that we can accrete those savings and those optimizations through to our variable toll. But there are some of those cost savings that do then flow through as well down to EBITDA.

We have not included any optimization efforts into our 2% to 3% outlook with respect to EBITDA going forward. Those elements, we're still targeting to improve. We made good headway and at our year-end results. I hope to provide a good summary of what we found in our first year. But just for clarity, Maurice, we did not include that optimization into our EBITDA outlook guidance.

Our next question comes from the line of Jeremy Tonet of JPMorgan Securities.

This is Ely on for Jeremy. I wanted to circle back to the organic growth opportunity set. I know opening remarks mentioned the upcoming development project. Just hoping to get some more color on what types of projects you guys are looking at, which side of the border and maybe just whether Blackrod kind of represents the template for growth projects as you see it?

Thank you, Ely. I think we're obviously going to have that as a subject area for our Investor Day next week. But consistent to what we've said previously, we've been listening to our customers and trying to understand what kind of services they're looking for, for their businesses to be competitive. We were able to provide a great solution for IPC on Blackrod. And we're in a number of conversations, both in Canada and in the United States. And so we've seen probably the -- when we launched this business and made the announcement that the spin was occurring in mid-2023, I would say, since that time, the environment actually has become a little bit more constructive in both Canada and the United States. And so we're -- we've been maturing those growth opportunities. And that's one of our key priorities for 2026 is to mature and execute on the next organic and inorganic opportunities.

Looking forward to the Investor Day. And then just for the second question, I think you guys had a helpful slide showing 2026 guidance drivers. But just hoping to get some more context on how the kind of Milepost 171 remediation plan fits into potentially reducing that DRA and providing some upside next year. What does that process look like? And when might we expect a little bit of color there and maybe framing how that fits into the guide?

So, Ely, I'll start and then pass it over to Richard on the plans for this year. When you looked -- when we provided the guidance around the range, I just want to remind everyone that 90% of our EBITDA comes in every year through our contracted period. So we have a great solid base to start from. And we've been working very diligently around getting our system capacity back up. But at a very high level, what has allowed us to deliver all our contracts and deliver our base business is our system operating performance, our SOF has really hit it out of the park. And our teams have done a great job allowing our systems to be available for the volumes that we're moving today. But I'll pass it to Richard to just talk about our mitigation plans and the work that's left to do here as part of the Milepost 171.

Sure, yes. And I touched on in my comments, some of the work that we've completed to date. So we're implementing a comprehensive remediation program that's system-wide. We've completed so far 6 in-line inspection runs and 37 integrity digs. We'll continue that work through this year and into next year. And then what we'll end up doing is filing a -- all of this work as it's ongoing, but we'll file a remedial work plan with PHMSA and eventually work with the regulator around lifting the pressure restrictions.

Our goal is for that to happen sometime in 2026, it's hard to point to a precise timing for it. But as we work through the year, we'll -- I think we'll start to see pressure restrictions removed in increments, and that will allow us more access to uncommitted volumes, which we think will ramp up through the year.

And Ely, it's Van here. I think that even if pressure restrictions are lifted, with those tighter differentials, you won't see a ton of EBITDA from those spot volumes. So that's just another thing to point out.

Our next question comes from the line of Praneeth Satish of Wells Fargo.

So recognizing you're going to talk about your projects more at the Analyst Day. But as it stands today, do you think a placeholder assumption for CapEx in 2026 would be kind of in that $165 million range that you're spending in '25? Or do you think at this point based on the nature of the discussions that you're having in the pipeline that, that spend won't really hit in '26, and therefore, CapEx is likely to go down significantly in '26, even if you announce new projects. Just trying to get a better sense of what to assume for CapEx and what to assume for free cash flow next year?

Thank you, Praneeth. So we -- in our capital table, we only put capital that we have sanctioned. And so you'll note that we don't have anything sanctioned at present, but we're working towards maturing those projects forward. With what Van commented on in our tax optimization, we've created a bit more capacity with respect to free cash flow and just to be able to put towards capital. I would say that right now, we've consistently said that we need to invest roughly on average $100 million plus or minus every year in order to deliver our 2% to 3% EBITDA growth CAGR. And I would use that as probably a good proxy over the next few years.

If we do find something that's larger or more material, then we would love to finance that on a different basis. But I think for your modeling efforts, remaining kind of consistent to what we originally guided right out of the gate would be the best approach.

Got it. That's helpful. And maybe following up on one of those modeling assumptions. So I'm just trying to square the moving pieces here with the variable toll settlements and what the future P&L impact could look like at this point. I guess the way I read it is you've got maybe $33 million of remaining payments that SOBO would make over the next 6 years. But then you'd receive $19 million over the next 2 years and all of this, I think, is excluded from EBITDA. I just want to kind of double check that?

Yes, it's Van here. All that would be normalized out of our EBITDA. So that wouldn't be included. If you're talking about GAAP and cash, then yes, yes, you're correct.

I'm showing no further questions at this time. I'd now like to turn it back to Bevin for closing remarks.

Well, thank you all for joining us today. We appreciate your continued interest in South Bow and look forward to connecting with you next week at our Investor Day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.