South Bow Corp. Q4 FY2024 earnings call

• Outstanding safety performance in 2024, a record year for occupational and process safety. • Strong operational results with record system availability and throughput. • Successful South raise, IPOs on Toronto and New York Stock Exchanges, and attracting a top-tier board. • Capital allocation priorities include deleveraging, strengthening investment grade financial position, and leveraging existing infrastructure (e.g., Blackrod Connection project in Grand Rapids corridor). • Shifted marketing strategy to move more Marketlink business to contracted regulated portfolio to manage risk from tariffs and market volatility. • 90% of 2025 normalized EBITDA secured through committed arrangements for stable cash flows.

South Bow generated $1.09 billion of normalized EBITDA and distributable cash flow of $608 million in 2024. The highly contracted assets, significant demand for uncommitted capacity on Keystone early in the year, and continued strength in demand for capacity on the U.S. Gulf Coast segment contributed to these results. No detailed breakdown of product segments beyond general mentions of Gulf Coast and Grand Rapids corridors is provided.

• Expect normalized EBITDA of $1.01 billion in 2025 within a 3% range. • Leverage expected to increase modestly through 2025, with net debt to normalized EBITDA ratio expected to be approximately 4.8x at year end 2025, and deleveraging to begin in 2026 when Blackrod Connection project generates cash flow. • Board approved quarterly dividend of $0.5 per share, payable on April 15 to shareholders of record on March 31.

• Uncertainty around tariffs may create headwinds for uncommitted capacity. • Market volatility poses risks to the marketing segment. • Legal and regulatory risks associated with project development and cross-border infrastructure, including potential challenges at the state level. • Potential impacts of ongoing legal disputes related to variable tolls on the business.

Q: Can you discuss what's been seen in terms of interest, size, timing, and WCSB Egress regarding the current open season?

A: Bevin Wirzba mentioned it's a confidential process, but they're encouraged by basin fundamentals from supply and demand sides, with extreme demand in the Gulf Coast for heavy barrels from Canada.

Q: Has there been a change in how fast you may get to your long-term debt-to-EBITDA target?

A: Bevin Wirzba stated they're laser focused on deleveraging to get to a four times ratio by 2028 and would never sacrifice that for growth.

Q: How do you think about projects increasing Egress out of Western Canada in the context of Keystone contracts expiring?

A: Bevin Wirzba said there are modest Egress expansion opportunities, but supply and demand for heavies outstrip such capacity, not jeopardizing Keystone recontracting.

Q: When might the open season route be fully mapped out?

A: Bevin Wirzba said it will take time to determine feasibility, and they'll bring forward meaningful details when available.

Q: What's needed to return marketing exposure and activity levels to previous levels?

A: Bevin Wirzba said they've shifted to a more contracted strategy for marketing, with tariffs reinforcing this, and will continue to optimize for customers while strengthening the contracted base.

Q: How much capacity will be added back with PHMSA lifting pressure restrictions?

A: Richard Prior said it's about operational efficiency and lower operating costs, but no specific additional throughput provided at this time.

Q: How impactful were hedge unwinds to manage tariff risks in 2025 outlook?

A: Van Dafoe said marketing segment is down $30 million due to reduced activity and hedge unwinds to reduce risk, combined with lower system operating factor affecting uncommitted volumes and revenue.

Q: What are key drivers for marketing segment performance improvement and normalized assumption?

A: Bevin Wirzba said it's heavily driven by ARB, with tariffs and supply growth impacting, and they're shifting to a more contracted strategy to reduce volatility.

Q: How to balance balance sheet reduction and growth projects for 2% to 3% EBITDA growth?

A: Bevin Wirzba said capital allocation priorities of deleveraging and leveraging existing infrastructure (e.g., Blackrod project) go hand in hand, with growth projects contributing to deleveraging when they start generating cash flow.

Q: How to think about reducing DRA usage and capacity creation with PHMSA approval?

A: Richard Prior said it's about near-term DRA reduction and operating efficiencies, with long-term decisions on aggregate capacity based on system operation; Bevin added they'll use market softness to do maintenance activities for future ARB improvements.

Q: Will Big Sky project fit within CapEx and not affect leverage?

A: Bevin Wirzba said they're focused on interest level and have alternative financing ways, but leverage will stay on track towards deleveraging targets as per capital allocation priorities.