South Bow Lifts 2026 Cash Flow Outlook to $690 Million

South Bow (NYSE:SOBO) raised its full-year 2026 distributable cash flow guidance by 4% to approximately $690 million, after reporting third-quarter normalized EBITDA of $248 million and distributable cash flow of $187 million, results management described as in line with expectations. The Calgary-based pipeline operator also held its 2026 normalized EBITDA outlook steady at roughly $1.04 billion and reaffirmed a mid-2027 target for the final investment decision on the Prairie Connector project.

Distributable cash flow rose 7% from the second quarter, helped by a one-time favorable tax adjustment, Chief Financial Officer Van Dafoe said.

What changed in the guidance?

For 2027, South Bow 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%. The projected decline in distributable cash flow primarily reflects higher current income taxes after significant tax savings in 2026, Dafoe said.

The balance sheet tells its own story. The company 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, and it held just over $500 million in cash. Dafoe said South Bow likely will not make further debt repurchases and will instead consider refinancing or paying down a $600 million note due in August 2027, depending partly on developments at Prairie Connector. The board approved a quarterly dividend of $0.50 per share.

In plain terms: leverage should drift modestly lower through 2027, with no further buybacks planned.

Where does Prairie Connector stand?

Chief Executive Officer Bevin Wirzba said South Bow and its partner are advancing permitting, land acquisition, execution planning, cost refinement and financing arrangements for the project. But capital commitments hinge on regulatory clarity.

"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 ahead of that decision, he added.

Discussions with governments and other stakeholders in Canada and the United States are complex and sensitive, Wirzba said. He declined to provide specifics but noted that 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. That spending goes primarily toward permitting and land acquisition. The company has not purchased steel for Prairie Connector.

On the commercial front, Wirzba said South Bow has commercialized 465,000 barrels per day for the project and sees room 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, since customers would need time to develop longer-term growth plans. The routing strategy is unchanged.

How do Blackrod and Keystone figure in?

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; the remaining 30% will come from the natural gas lateral and be recorded as interest income. Maintenance capital spending for 2027 should run at approximately $40 million, plus or minus $10 million.

Chief Commercial Officer Richard Prior said the Pipeline and Hazardous Materials Safety Administration approved South Bow's remedial work plan associated with Milepost 171. After 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.

The in-line inspection program uses phased array ultrasonic technology, with results validated through field integrity digs. Inspection work reduced available capacity during the third quarter but advanced the work needed to remove restrictions, Prior said.

Demand for capacity on the Marketlink segment moderated in the quarter as tighter pricing differentials and low Cushing inventories weighed on activity. Differentials have since widened, supporting stronger demand into year-end. Looking ahead, Prior said growing Western Canadian production could begin outpacing incremental pipeline egress additions later in 2027, supporting demand for uncommitted Keystone capacity. More than 90% of South Bow's throughput is contracted, and the company's base case calls for high utilization of its assets next year.

South Bow was established as an independent company through the separation of TC Energy's liquids pipelines business in October 2024 and is headquartered in Calgary, Alberta. Its Keystone Pipeline System carries crude from Alberta to the U.S. Midwest and Gulf Coast.