SOBO · South Bow Corporation

South Bow Corporation's first quarter 2026 results reflect a stable energy infrastructure business with resilient cash flows despite some segment headwinds. Revenue dipped 1% year-over-year to $491 million, primarily due to challenges in the Marketing segment, which saw a 40% revenue decline to $68 million from lower volumes, tighter margins, and a larger unrealized loss position on risk management contracts. This was partially offset by a 10% increase in Keystone Pipeline System revenues to $417 million, driven by higher variable rates, stronger demand for heavy crude oil transport to the U.S. Gulf Coast, and a favorable Canadian dollar impact. The company recognized $18 million in normalized historical variable toll adjustments in the Keystone segment. Operating costs rose 13% to $193 million, attributed to higher Keystone expenses from pressure restrictions and integrity activities related to the April 2025 Milepost 171 incident, plus initial costs for the proposed Prairie Connector project. Normalized EBITDA declined modestly to $257 million from $266 million, with Keystone remaining steady at $233 million. Net income of $77 million ($0.37 diluted EPS) compared to $88 million ($0.42 EPS) last year, with lower income taxes providing some offset. Distributable cash flow improved to $168 million from $157 million, bolstered by reduced current tax expense, supporting the unchanged $0.50 per share quarterly dividend totaling $104 million. Balance sheet remains strong with net debt at $4.7 billion (4.7x normalized EBITDA, unchanged), cash up to $599 million, and no debt maturities until September 2027. Operationally, Keystone throughput held steady at 616 Mbbl/d, though System Operating Factor slipped to 95% from 98% due to increased maintenance. Management emphasizes disciplined capital allocation, with Q1 capex down 16% to $27 million, prioritizing sustainable dividends and financial strength amid long-term committed contracts generating the majority of revenues.