South Bow (NYSE:SOBO) raised its 2026 distributable cash flow forecast after reporting third-quarter results in line with expectations, while management said it continues to target a mid-2027 investment decision on the Prairie Connector project.
The pipeline operator reported normalized EBITDA of $248 million and distributable cash flow of $187 million for the quarter. Distributable cash flow rose 7% from the second quarter, supported by a one-time favorable tax adjustment, Chief Financial Officer Van Dafoe said.
South Bow increased its full-year 2026 distributable cash flow guidance by 4% to approximately $690 million. Its normalized EBITDA outlook remained unchanged at approximately $1.04 billion.
For 2027, the company expects normalized EBITDA of approximately $1.07 billion, within a range of 2%, and distributable cash flow of approximately $630 million, within a range of 4%. Dafoe said the expected decline in distributable cash flow primarily reflects higher current income taxes after significant tax savings in 2026.
Prairie Connector remains targeted for mid-2027 decision
Chief Executive Officer Bevin Wirzba said South Bow and its partner are advancing permitting, land acquisition, execution planning, cost refinement and financing arrangements for Prairie Connector. He said the company also needs regulatory certainty and confidence in permit durability before committing significant additional capital.
“Clearly, to take FID, we need the certainty around permit durability. We need permits in place and the like,” Wirzba said, referring to a final investment decision. Earlier clarity could allow the company to commit more capital before that decision, he said.
Wirzba said discussions with governments and other stakeholders in Canada and the United States are complex and sensitive. He declined to provide specifics but said governments understand what the company is seeking to support an investment.
South Bow expects approximately $65 million of growth capital spending in 2027 for pre-investment decision work on Prairie Connector and Liberty Bridge. Wirzba said the spending is primarily directed toward activities such as permitting and land acquisition. The company has not purchased steel for Prairie Connector, he added.
Wirzba said South Bow has commercialized 465,000 barrels per day for the project and sees an opportunity to expand capacity to 1 million barrels per day through future pump station additions. He does not expect another open season before the investment decision, saying customers would need time to develop longer-term growth plans. The company is not changing its routing strategy, he said.
Blackrod to support earnings growth as debt falls
Dafoe said ramping cash flows from Blackrod are a key driver of the expected increase in 2027 normalized EBITDA. Approximately 70% of Blackrod’s contribution will come from the oil lateral and be recorded as normalized EBITDA, while the remaining 30% will come from the natural gas lateral and be recorded as interest income.
The company expects maintenance capital spending of approximately $40 million in 2027, plus or minus $10 million. Dafoe said South Bow also expects its net debt-to-normalized EBITDA ratio to decline modestly during the year.
South Bow ended the third quarter with approximately $4.4 billion in net debt and leverage of 4.3 times normalized EBITDA. During the quarter, it used cash on hand to repurchase and extinguish $320 million of senior unsecured notes.
Dafoe said the company likely will not make further debt repurchases and instead will consider refinancing or paying down a $600 million note due in August 2027, depending partly on developments at Prairie Connector. South Bow had just over $500 million in cash on hand, he said. The board also approved a quarterly dividend of $0.50 per share.
Keystone pressure restrictions being lifted in phases
Chief Commercial Officer Richard Prior said the Pipeline and Hazardous Materials Safety Administration approved South Bow’s remedial work plan associated with Milepost 171. Following internal engineering reviews, the company has begun lifting pressure restrictions on certain Keystone Pipeline segments and expects further phased removals through the end of 2026 and into 2027.
Prior said the company’s in-line inspection program uses phased array ultrasonic technology, with results being validated through field integrity digs. Inspection work reduced available capacity during the third quarter but advanced the work needed to remove restrictions, he said.
Demand for capacity on the Marketlink segment moderated in the third quarter as tighter pricing differentials and low Cushing inventories weighed on activity. Differentials have since widened, supporting stronger demand into year-end, Prior said.
Looking ahead, Prior said growing Western Canadian production could begin outpacing incremental pipeline egress additions later in 2027, supporting demand for uncommitted Keystone capacity. He said more than 90% of South Bow’s throughput is contracted and that the company’s base case calls for high utilization of its assets next year.
About South Bow (NYSE:SOBO)
South Bow is a North American energy infrastructure company focused on transporting and storing crude oil. Its pipeline network connects production areas in Western Canada with refineries and other markets in Canada and the United States.
The company’s assets include the Keystone Pipeline System, which carries crude from Alberta to destinations in the U.S. Midwest and Gulf Coast, along with other liquids pipeline infrastructure in Canada. South Bow was established as an independent company through the separation of TC Energy’s liquids pipelines business in October 2024.
South Bow is headquartered in Calgary, Alberta.
