South Bow (NYSE:SOBO) executives used the company’s fourth-quarter and year-end 2025 earnings call to highlight slightly better-than-expected annual results, progress on the Keystone Pipeline’s Milepost 171 response, and the completion of its first growth project, while reiterating a focus on safety, financial discipline, and balance sheet improvement.
2025 results came in slightly ahead of expectations
Chief Financial Officer Van Dafoe said South Bow delivered “solid results despite a challenging backdrop,” citing geopolitical and market uncertainty, tight pricing differentials, and pressure restrictions following Milepost 171. The company reported normalized EBITDA of $1.02 billion for 2025, slightly above its expectation of $1.01 billion, with a “modest outperformance” driven by its marketing segment.
South Bow reported Distributable Cash Flow of $709 million, which Dafoe said was in line with revised guidance and “more than 30% above” the company’s original guidance. The stronger free cash flow allowed the company to accelerate deleveraging, ending 2025 with a net debt-to-normalized EBITDA ratio of 4.7x, slightly better than the 4.8x it expected.
On capital returns, Dafoe said South Bow returned $416 million, or $2 per share, through its dividend in 2025.
Safety and Blackrod project execution were key themes
President and CEO Bevin Wirzba described 2025 as “an important year” that tested the organization but demonstrated resilience and decision-making discipline. Both Wirzba and Chief Operating Officer Richard Prior emphasized safety as foundational, with Prior reporting more than 2.5 million work hours across construction, restoration, and maintenance programs with 0 recordable safety incidents.
Prior said the Blackrod Connection Project entered commercial service earlier in the week, coming online “less than 24 months from the time of sanctioning.” He said it was delivered on time, on budget, and with “exceptional safety performance,” calling it a significant accomplishment and evidence South Bow can execute organic growth projects.
During Q&A, management provided additional context on the expected ramp. Wirzba said the final tie-in weld was completed earlier in 2026 and that the system is ready for the customer to begin ramping as its production comes online. He described a commissioning and “fill” period that takes place through the second half of 2026, with a full-year EBITDA contribution expected in 2027 based on the commercial agreements.
Milepost 171 update: phased lifting of restrictions targeted
Prior provided an operational update on the Keystone Pipeline following Milepost 171. He said PHMSA posted the results of an independent third-party root cause analysis, which confirmed the incident’s characteristics were unique and that the pipe and welds met industry standards for design, materials, and mechanical properties.
Prior said South Bow has completed substantial remedial and integrity work, including 11 in-line inspection runs and 51 integrity digs to investigate 68 pipe joints across the system. He added that the company continues working with in-line inspection technology providers to enhance tool performance and detection capabilities.
Despite operating under pressure restrictions, Prior said the Keystone system is running at a “high system operating factor” and has continued meeting contracted commitments. He said the company expects restrictions to be lifted in a phased manner as it progresses its work and shares findings with regulators. Prior noted that lifting restrictions could create an opportunity for a “modest increase” in spot movements later in 2026.
In response to analyst questions, management said it intends to continue remedial efforts “at pace” in 2026 and that it could see the Corrective Action Order lifted by the end of 2026. Wirzba said returning to prior operating capacity would mean “just north of 600,000 barrels a day” of delivered capacity, referencing performance in 2024 and early 2025.
Management also discussed the spot market impact. Wirzba said the incident occurred during a period of tight arbitrage conditions and described the market as “long pipe” after TMX started service, with the basin long by approximately 250,000 barrels a day in early 2024. He said the basin grew by “north of 100,000 barrels a day” in 2025 and is expected to continue growing in 2026, but that the “market really doesn’t open” for South Bow until early 2027. He said the company is targeting having derates lifted in time to take advantage of improving conditions as basin growth overtakes egress capacity. In a later response, he added that the base system is 94% take-or-pay, with 6% reserved for spot volumes—capacity the company is targeting to leverage in 2027.
Prairie Connector open season underway; company stresses discipline and risk allocation
South Bow also addressed early-stage work on a potential new organic growth initiative, the Prairie Connector Project. Wirzba said the project would provide firm transportation from Hardisty, Alberta, leveraging and optimizing pre-invested infrastructure and connecting to downstream systems to deliver Canadian crude to U.S. markets, including Cushing and destinations on the Gulf Coast. He said an open season is underway to determine commercial interest.
When asked about early indications of shipper interest, Wirzba said the company had “good alignment” with customers heading into the open season but did not provide specific details. He emphasized South Bow’s “customer-led strategy” and said the company believes it is offering a competitive solution.
On timing and execution, management said a key advantage is that the Prairie Connector would utilize pre-invested corridors, and Wirzba noted permits are in place in Canada, with engagement underway with the Canada Energy Regulator. He did not provide a development timeline, but suggested the ability to build within an existing corridor could support faster execution, similar to Blackrod.
Analysts also asked about partnering and downstream connectivity. Wirzba said South Bow would not speak for other developers, but stressed that appropriate risk allocation among customers, developers, and partners is “really critical,” and reiterated the company would not sacrifice capital allocation discipline to advance any project. He declined to provide capital cost estimates, saying it is too early.
On infrastructure needs, Wirzba said the Gulf Coast portion of the Keystone system was sized and built for the type of sequenced expansion contemplated, though some facility modifications would be required as part of continuing that expansion path.
Capital allocation: deleveraging and dividend policy guardrails
Executives repeatedly returned to financial discipline as “non-negotiable,” with Dafoe reaffirming the 2026 outlook and stating that as Blackrod cash flows ramp in the second half of 2026, the company expects to continue directing free cash flow to strengthening the balance sheet. He reiterated the goal of reaching 4.0x leverage “in the medium term.”
In Q&A, management was explicit about dividend constraints. Dafoe said payout ratios were higher than desired and that the company would not contemplate a dividend increase until:
- Distributable cash flow payout is consistently in the low 60% range, and
- Leverage reaches the company’s 4.0x target.
Dafoe added that the company would not forecast future dividend growth; any increase would be communicated as a new set dividend level.
On growth funding, management referenced multiple potential financing strategies discussed at its investor day, including asset-level financing and partnerships, but said project structures would need to align with South Bow’s risk preferences and be capable of attracting debt financing under appropriate contract and counterparty conditions. Dafoe also said the company remains committed to its deleveraging path and is not deviating from the 4.0x target.
In closing remarks, Wirzba said South Bow operates “critical and enduring” energy infrastructure connecting Canadian supply to attractive demand markets, and he reiterated that growth will be paired with safety, integrity, balance sheet strength, and sustainable shareholder returns.
About South Bow (NYSE:SOBO)
South Bow Corp is a strategic liquids pipeline company. It is a new liquids-focused midstream infrastructure company. South Bow Corp is based in Canada.
