Q4 2024 South Bow Corp Earnings Call

Operator: Hello everyone and welcome to the fourth quarter and year ending 2024 results conference call and webcast. At this time, all participants are in a listen-only mode.

Hello, everyone and welcome to the fourth quarter and year, ending 2024 results conference call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to participate you wouldn't need to press star.

Operator: After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again.

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Operator: Please be advised that today's conference is being recorded.

Be advised that today's conference is being recorded.

Operator: Now it's my pleasure to turn the call over to the Director of Investor Relations, Martha Wilmot. Please proceed.

Speaker Change: Pleasure to turn the call over to the director of Investor Relations, Martha where Mark. Please proceed.

Martha Wilmot: Thank you, Carmen, and welcome everyone to South Bow's fourth quarter and year-end 2024 earnings call. With me today are Bevan Wurzba, President and Chief Executive Officer, Dan Dafoe, Senior Vice President and Chief Financial Officer, and Richard Pryor, Senior Vice President and Chief Operating Officer. We also have additional members of our leadership team in the room to help with the question and answer session as required.

Speaker Change: Thank you Carmen and welcome everyone to yourself, both fourth quarter and year end 2024 earnings call with me today are <unk>.

Sandy: President and Chief Executive Officer, Sandy <unk>, Senior Vice President and Chief Financial Officer, and Richard Pryor, Senior Vice President and Chief Operating Officer. We also have additional members of our leadership team in the room to help with the question and answer session as required.

Martha Wilmot: Before handing it to Bevan, I'd like to remind listeners that today's remarks will include forward-looking information and statements, which are subject to the risks and uncertainties addressed in our public disclosure documents, available under SouthBow's CDER Plus profile and SouthBow's filings with the SEC.

Speaker Change: And he asks about then I'd like to remind listeners that today's remarks will include forward looking information and statements, which are subject to the risks and uncertainties addressed in our public disclosure documents available understand some both SEDAR plus profile and sell those filings with the SEC. Today's discussion will also include non-GAAP financial measure.

Martha Wilmot: Today's discussion will also include non-GAAP financial measures and ratios, which may not be comparable to measures presented by other entities.

Speaker Change: Some ratios, which may not be comparable to measures presented by other entities.

Martha Wilmot: Finally, I'll ask our analyst callers to hold themselves to two questions each to keep the discussion moving along.

Speaker Change: Finally, I'll ask our analysts callers to hold themselves to two questions each to keep the discussion, but along with that I'd like to turn the call over to about it.

Bevan Wurzba: With that, I'd like to turn the call over to Bevan. Thanks Martha and thank you everyone for joining us today and for your interest in South Bow. The last year has been filled with many firsts. I promise not to mention them all but I'd like to call out a few accomplishments of our team that make me very proud. First and foremost is our outstanding safety performance. 2024 was a record year for both occupational and process safety performance and we delivered record operational results with strong system availability and throughput across our systems. That's in addition to a successful vet race, IPOs on both Toronto and New York stock exchanges and attracting a top tier board of directors and team.

Speaker Change: Thanks, Martha and thank you everyone for joining us today and for your interest in the South pole.

Speaker Change: The last year has been filled with many firsts I promise not to mention the mall, but I'd like to call out a few accomplishments of our teams that make me very proud first thing for US. Most is our outstanding safety performance 2024 was a record year for both occupational and process safety performance and we delivered record.

Speaker Change: Operational results with strong system availability and throughput across our systems. That's in addition to our successful fat Grace Ipos on both Toronto, and New York stock exchanges, and attracting a top tier board of directors and team.

Bevan Wurzba: While we have already accomplished so much I remind the team that we've only just climbed the first mountain and we still have a couple more to go. To extract as much value from our strategic corridor as possible we continue to fully establish our organizational capabilities and optimize the way we run our business to ensure long-term success and competitiveness. That brings me to South Bow's capital allocation priorities and our risk managed approach to delivering shareholder value. In addition to paying a sustainable dividend with an attractive yield we are keenly focused on strengthening our investment grade financial position.

Speaker Change: While we have already accomplished so much I remind the team that we've only just climbed the first mountain and we still have a couple more to go to extract as much value from our strategic corridor as possible. We continue to fully establish our organizational capabilities and optimize the way we run our business to ensure long term success and competitiveness.

Speaker Change: That brings me to start with those capital allocation priorities and our risk managed approach to delivering shareholder value.

Speaker Change: In addition to paying a sustainable dividend with an attractive yield we are keenly focused on strengthening our investment grade financial position the best way for us to do that is to leverage our existing infrastructure to deliver the highest returns possible for our shareholders. Our black Rod connection project in our Grand Rapids corridor is a.

Bevan Wurzba: The best way for us to do that is to leverage our existing infrastructure to deliver the highest returns possible for our shareholders. Our black rod connection project in our Grand Rapids corridor is a great example of that ability to leverage existing infrastructure. We also want to preserve flexibility so that we can weigh deleveraging and growth opportunities which both accrete value to our equity holders. Against return of capital measures our capital allocation decisions are and will be measured against our risk appetite. We are encouraged by the enthusiasm expressed in the United States and Canada regarding advancing energy solutions and we are 100% behind those efforts.

Speaker Change: Great example of that ability to leverage existing infrastructure. We also want to preserve flexibility. So that we can weigh deleveraging and growth opportunities, which both create value to our equity holders against return of capital measures against or return of capital measures our capital allocation.

Speaker Change: Patients are and will be measured against our risk appetite. We are and we are encouraged by our by the enthusiasm expressed in the United States and Canada regarding advancing energy solutions and we are 100% behind those efforts I do want to emphasize that our approach to growth and project development well.

Bevan Wurzba: I do want to emphasize that our approach to growth and project development will be within our risk preferences and adhere to the capital allocation priorities I just outlined. We've received a lot of inbounds regarding our current open season. We are looking at ways to leverage our existing infrastructure to provide a new solution for customers.

Speaker Change: Within our risk preferences and adhere to the capital allocation priorities I just outlined we've received a lot of inbounds regarding our current open season, we are looking at ways to leverage our existing infrastructure to provide a new solution for our customers. We look forward to be able to talk about this.

Bevan Wurzba: We look forward to being able to talk about this potential solution in the future.

Speaker Change: Potential solution in the future with that I'll briefly highlight our strong financial performance in 2024.

Bevan Wurzba: With that I'll briefly highlight our strong financial performance in 2024. South Bow generated 1.09 billion dollars of normalized EBITDA and distributable cash flow of 608 million dollars. These results were underscored by our highly contracted assets, significant demand for uncommitted capacity on Keystone early in the year and continued strength and demand for capacity on the U.S. Gulf Coast segment of our system. Now looking to 2025, our financial expectations are underpinned by 90% of our normalized EBITDA secured through committed arrangements. These carry minimal commodity price or volumetric risk, resulting in stable and predictable cash flows. We expect to generate normalized EBITDA of $1.01 billion this year within a range of three percent.

Speaker Change: South pole generated $1.09 billion of normalized EBITDA and.

Speaker Change: Distributable cash flow of $608 million. These results were underscored by our highly contracted assets significant demand for uncommitted capacity on Keystone early in the year and continued strength in demand for capacity on them in the U S. Gulf Coast segment of our system.

Speaker Change: Now looking to 2025, our financial expectations are underpinned by 90% of our normalized EBITDA secured through committed arrangements. These carry minimal commodity price or volumetric risk, resulting in stable and predictable cash flows we expect to generate normalized EBIT.

Speaker Change: Oh.

$1.01 billion this year with a range of 3%.

Bevan Wurzba: While a very small component of our business, the ongoing uncertainty around tariffs may create headwinds for our uncommitted capacity. We have taken steps to reduce our risk exposure within our marketing segment in the face of such market volatility as we shift more of our market-linked business to our contracted regulated portfolio. We are entering 2025 in a strong financial position and remain on track to meet our near-term deleveraging targets. Consistent with our outlook at SPIN, we expect our leverage to increase modestly through 2025 as we advance the Black Rod Connection project and incur one-time costs to continue establishing our organizational capabilities.

Speaker Change: A very small component of our business.

Speaker Change: Ongoing uncertainty around tariffs may create headwinds for our uncommitted capacity, we have taken steps to reduce our risk exposure within our marketing segment in the face of such market volatility as we shift more of our marketplace business to our contracted regulated portfolio.

Speaker Change: We are entering 2025, and a strong financial position and remain on track to meet our near term deleveraging targets consistent with our outlook at spin we expect our leverage to increase modestly through 2025, as we advance the Blackrock connection project and incur one time costs to continue.

Speaker Change: Establishing our organizational capabilities.

Bevan Wurzba: We forecast that we will exit the year with a net debt to normalized EBITDA ratio of approximately 4.8 times. Our deleveraging journey will begin in 2026 when the Black Rod Connection project starts generating cash flow.

Speaker Change: We forecast that we will exit the year with a net debt to normalized EBITDA ratio of approximately four eight times, our deleveraging journey will begin in 2026, when the Blackboard collection project starts generating cash flow loss.

Bevan Wurzba: Lastly, we will continue to return shareholder value through our quarterly dividend of $0.50 per share, which our Board of Directors approved yesterday.

Speaker Change: Lee we will continue to return shareholder value through our quarterly dividend of <unk> 50 per share, which our board of directors approved yesterday, the dividend will be payable on April 15th to shareholders of record on March 31.

Bevan Wurzba: The dividend will be payable on April 15 to shareholders of record on March 31. With that brief look back at 2024 and an outline of our expectations of 2025, Southbow is strongly positioned to continue safely and efficiently delivering value to our customers and our shareholders.

Speaker Change: With that brief brief look back at 2024, and an outline of our expectations of 2025, South pole is strongly positioned to continue to safely and efficiently delivering value to our customers and our shareholders I'll now turn it back to the operator for questions.

Operator: I'll now turn it back to the operator for questions. Thank you. And as a reminder, that is star 11. If you do have a question and want to get in the queue and wait for your name to be announced to remove yourself, press star 11 again. One moment for our first question.

Speaker Change: Thank you and as a reminder, that is star one one if you do have a question and want to get in the queue and wait for your name to be announced to remove yourself press star One again, one moment for our first question.

Maurice Choi: And it's from the line of Maurice Choi with RBC Capital Markets. Please proceed. Thanks, and good morning, everyone. Maybe it's coming back to one of your prepared remarks about receiving a lot of inbounds in regards to your current open season.

Speaker Change: And he is from the line of MAU restraint with RBC capital markets. Please proceed.

Speaker Change: Thanks, Sarah and good morning, everyone.

Speaker Change: Maybe it's coming back to one of your prepared remarks about receiving a lot of inbounds here regards to your current open season, I assume that sort of cuts to possibly.

Bevan Wurzba: I assume that's regards to possibly Big Sky, but maybe just speaking more broadly, can you just discuss you know, what have you been seeing and what kind of inbounds you've been getting in terms of sizes, in terms of interest, in terms of timing, in terms of getting more WCSB in. Great question, Morris. This is Bevan. You know, it's been long noted that the Western Canadian sedimentary basin has been egress constrained for years and, you know, with the uptake on TMX last year, we saw the first really increase to that egress in decades out of out of out of the province.

Speaker Change: Possibly big Sky, but maybe just speaking more broadly can you just discuss.

Speaker Change: You know what have you been seeing and what kind of inbounds, you've been getting in terms of.

Speaker Change: Sizes in terms of interest in terms of timing.

Speaker Change: Getting more WCS P grafts.

Speaker Change: Whether that be the solution the solution.

Speaker Change: Okay.

Speaker Change: Great question Morris.

Speaker Change: It's been long noted that the western Canadian sedimentary basin, it's been derisked constrained for years.

Speaker Change: With the Oh.

Speaker Change: Uptake on <unk> last year, we saw the first really.

Speaker Change: Increase to that egress.

Speaker Change: It's out of out of the out of the province.

Bevan Wurzba: With respect to future demand, we've seen supply growth also exceed expectations, and we're seeing customers continue to consider increases to development within their base and given the competitiveness of of their assets. And so we don't talk about the commercial interest on any open seasons. It's a confidential process, but we were very encouraged by the base fundamentals within the basin, not only from the supply side, but also the demand side. We're seeing extreme. demand in the Gulf Coast in particular for heavy barrels out of Canada and we believe that both the supply and demand fundamentals will persist here over the next few decades.

Speaker Change: With respect to future demand, we've seen supply growth also exceeded expectations and we're seeing customers continue to consider it.

Speaker Change: Increases to development within their base and given the competitiveness of their assets.

Speaker Change: And so we don't talk about the commercial interest on any open seasons, that's a confidential process, but we're very encouraged by the base fundamentals within the basin not only from the supply side, but also the demand side.

Speaker Change: We're seeing extreme.

Speaker Change: Demand.

In the Gulf Coast in particular for heavy barrels out of Canada, and we believe that both the supply and demand fundamentals will persist here over the next few decades.

Bevan Wurzba: Thanks. And I believe, as a quick follow-up to that, you mentioned as well that your growth approach is going to be within the risk preferences that you've outlined today and as well as in the past. Has there been any change in terms of how fast you may get to your long-term debt-to-EBITDA target, which I think in the past we were all trajecting towards somewhere closer to the end of the decade, but not before. Yeah, we're, we're laser focused as our first capital allocation priority on the deleveraging of getting down to that four times. And we see that in that 2028 timeframe, Morris, and we would never sacrifice that.

Speaker Change: Thanks.

Speaker Change: And I believe it's a quick follow up to that you mentioned as well that the growth approach is going to be within the risks.

Speaker Change: Preferences that you've outlined today and as well as in the past.

Speaker Change: Has there been any change in terms of how fast.

Speaker Change: You may get to your long term debt to EBITDA target, which I think in the past we will all trajectory towards some are closer to the end of decade, but not not not.

Speaker Change: No.

Speaker Change: Maybe just before that.

Speaker Change: Yeah.

Speaker Change: We're laser focused as our first capital allocation priority on deleveraging of getting down to that four times and we see that.

Speaker Change: In that 2028 timeframe Morris and we would never sacrifice that.

Bevan Wurzba: You know, it's very important for us as we mature our business to, to maintain a, you know, a strong balance sheet.

Speaker Change: It's very important for us as we mature our business to maintain.

Bevan Wurzba: And we see that as also a creative to the equity investor. Thanks and just finishing off on the guidance piece, obviously a lot of discussion here about tariffs both on the keystone spot side as well as marketing. It sounds like you've de-risked the guidance a little bit, but I wonder whether you could paint this a little bit of a picture as to how, what are the things we should be watching out for from a downside perspective from the guidance that you've seen today? So we, you know, fortunately for us, we have such a strong contracted base.

Speaker Change: Our strong balance sheet and we see that is also accretive to the equity investor.

Speaker Change: Thanks, and just finishing off on the guidance piece, obviously, a lot of discussion here about tariffs both on the Keystone spot side as well as the marketing it sounds like you've derisked.

Speaker Change: The guidance, a little bit, but I wonder if you could paint us a little bit of a picture as to how how what other things should we be watching out for from a downside perspective from the guidance that you're seeing today.

Speaker Change: Okay.

Speaker Change: So we fortunately for us we have such a strong contracted base.

Dan Dafoe: You know, I mentioned 90% of our EBITDA is fully contracted. And in our guidance, you know, we put that 3% range. You know, there has been quite a bit of uncertainty in the marketplace, as you point out. You know, even with the tariffs not in place earlier in the year, we saw volatility in terms of the ARBs that drive the uncommitted barrel, not only on our Keystone system, but our MarketLink system. So, but with what we see today, we believe we can manage the balance of the uncertainty on tariffs within that 3% range on our guidance.

Speaker Change: I mentioned, 90% of our Ebitdas is fully contracted.

Speaker Change: And in our guidance.

Speaker Change: Put that 3% range there has been quite a bit of uncertainty in the marketplace as you point out.

Speaker Change: Even with the.

Speaker Change: Tariffs not in place earlier in the year, we saw volatility in terms of the arbs that drive the uncommitted.

Speaker Change: Beryl not only on our Keystone system, but our marketing system. So.

But with what we see today, we believe we can manage.

The balance of the uncertainty on tariffs within that 3% range on our guidance and and.

Dan Dafoe: And so perhaps I'll turn it over to Van, maybe to just walk through, you know, how we got from last year to this year's guidance, because I think that will provide some clarity for all. Thanks, Bevan. Yeah, so in 2024, our EBITDA of $1,091,000,000 and walking that down to $1,010,000,000, that uncommitted capacity that Bevan talked about, that's approximately $40 million. And then reducing our outlook for our marketing segment is another $30 million. Also, if you remember, what we said is our Q3-24 financials would be a good indication of what 2025 would look like. And so, a reminder that EBITDA in Q3-24 was $360 million Canadian.

Van: And so perhaps I'll turn it over to van maybe to just walk through them.

Van: How how we got from last year to this year's guidance, because I think that will provide some clarity from them.

Van: Thanks, Kevin Yeah, So in 2024, our EBITDA.

Van: 1 billion 91, and walking that down to $1 billion 10.

Van: That uncommitted capacity that Ben talked about that's approximately $40 million and then reducing our outlook for our marketing segment is another $30 million.

Van: Also if you remember what we.

Van: What we said is our Q3 'twenty four.

Van: <unk> financials would be a good indication of what 2025, we'd look like and so a reminder, that EBITDA in Q3 24 was $360 million.

Dan Dafoe: So, if you annualize that and take the current exchange rate, you get to that $1,000,000,000, $1,010,000,000 range.

Van: So if you annualize that and take the current exchange rate you get to that.

$1 billion billion 10 range.

Dan Dafoe: Thank you very much. Thank you.

Van: Okay.

Van: Understood. Thank you very much.

Aaron McNeil: Our next question is from Aaron McNeil with TV Cowan. Please proceed. Hey, morning, all thanks for taking my question.

Van: Thank you.

Speaker Change: Our next question is from Aaron Macneil with TD Cowen. Please proceed.

Aaron MacNeil: Hey, good morning, all thanks for taking my questions.

Bevan Wurzba: As we think about potential future growth opportunities for I was wondering if you could give us a bit of a rundown. your recapitalized optionality, if you want to call it that, or some capital, maybe that was sent as part of KeystoneXL or associated with that. I'm thinking of like, you know, the 150,000 or 150 kilometers of installed pipe. I think there were a few pump stations. you know, maybe additional potential capacity on the inter-Alberta pipelines or the Gulf Coast segment. So again, just sort of what's sort of in the portfolio today? any and any details on you know what the sunk capital or replacement value of that.

Aaron MacNeil: As we think about potential future growth opportunities for <unk>. So I was wondering if you could give us a bit of a run down on you.

Aaron MacNeil: Your free.

Aaron MacNeil: Recapitalized Optionality, if you want to call it that or some capital maybe that was just part of Keystone XL are associated with that I'm thinking of like the 150.

Aaron MacNeil: 50 kilometers of installed pie.

Aaron MacNeil: There are a few pump stations.

Aaron MacNeil: Maybe additional potential capacity on the intra Alberta pipelines to the Gulf Coast segment. So again, just sort of what sort of in the portfolio today.

Aaron MacNeil: Any and any details on what the capital or replacement value of those assets.

Bevan Wurzba: Yeah, thanks, Aaron. I'll remind The audience here that when we think about our pre capitalized corridor, there's two main corridors that have seen the most pre investment and I'll start first on the south end of our system that being our Gulf Coast pipe segment that originates from Steel City going to Cushing and then Cushing to the Gulf Coast that was that was a pre build that capital is in the ground and that's a 36 inch pipeline that originates at Steel City and so we've been optimizing the utilization of that through our market link commercial asset and as we add additional delivery points, like the Port Nentius link in the Gulf Coast, we're looking to move move away from a strategy that had a lot of volumes been moved by our marketing affiliate to more a contracted strategy on that asset.

Speaker Change: Yes, Thanks Erin.

Aaron MacNeil: Our mind.

Speaker Change: The audience here that.

Speaker Change: When we think about our pre capitalized corridor. There is two main corridors that have seen the most pre investment and I'll start first on the south end of our system that being our golf coast pipe segment that originates from steel city going to Cushing <unk> Cushing to the Gulf Coast that was that was.

Speaker Change: Prebuilt that capital is in the ground.

Speaker Change: And that's a 36 inch pipeline that originates at steel city and so we've been optimizing the utilization of that through our market link commercial asset.

Speaker Change: And as we add additional delivery points like important interest link in the Gulf Coast.

Speaker Change: We're looking to move move away from our strategy that had a lot of bonds been moved by our marketing affiliate tomorrow contracted strategy on that asset and so by adding additional delivery points for b.

Bevan Wurzba: And so, by adding additional delivery points, we're able to strengthen that contracted position on that Gulf Coast segment. So, the capital there is in the ground and as you mentioned pump stations through the development of Keystone Excel, some of that capital did go into that Gulf Coast section as well. So, that capital is in the ground and we are currently and have been optimizing it. The other main corridor that was a pre investment for Keystone Excel was our Grand Rapids corridor and that corridor, our first example of how we've been able to leverage that is the Black Rod Connection project, which allowed us to provide a very competitive toll to our customer and bring on 40,000 barrels a day.

Speaker Change: Able to strengthen that contracted position on that Gulf Coast segment. So the capital there is in the ground and as you mentioned come stations.

Speaker Change: Through the development of Keystone XL.

Speaker Change: Some of that capital did go into that Gulf Coast section as well so that capital is in the ground and we are currently and have been optimizing at the other main corridor that was a pre investment for Keystone.

Speaker Change: Keystone XL with our Grand Rapids corridor.

Speaker Change: And that that corridor. Our first example of how we've been able to leverage that as the Blackrock connection project, which allowed us to provide a very competitive toll to our customer.

And bring on 40000 barrels a day of.

Bevan Wurzba: of long-term contracted production into our system. So, that corridor in Alberta includes originating barrels all the way up into the oil sands and north of Fort McMurray, all the way into our Heartland and Edmonton terminals. In addition to that, as you mentioned, we did progress some capital opportunities in Alberta as a pre-investment and part of the investment of Keystone Excel and that capital is in the ground, but we don't comment in terms of that capital was previously impaired and we're looking to see how we can optimize those corridors in the future. Okay, fair enough.

Speaker Change: Long term contracted.

Speaker Change: Production into our system.

Speaker Change: So that corridor in Alberta.

Speaker Change: Originating barrels all the way up into the oil sands that are north of Fort Mcmurray all.

Speaker Change: All the way into our Heartland and <unk> terminals.

Speaker Change: In addition to that as you mentioned, we did progress some capital opportunities in Alberta.

Speaker Change: As a pre investment.

Speaker Change: And part of the investment of of Keystone, XL and that that capital is in the ground, but we don't comment in terms of that that that capital was previously impaired.

Speaker Change: We're looking to see how we can optimize those corridors.

Speaker Change: In the future.

Speaker Change: Okay Fair enough and then just switching gears.

Bevan Wurzba: And then just switching gears, understand the guidance in terms of uncommitted volumes, but as it relates to Q1 specifically, Did volumes remain uncommitted volumes that is on Keystone remain elevated prior to tariffs being implemented? Or can you give us a sense? Yeah, so, you know, this goes back to what we've we've been pretty consistent on what our outlook has been for 2025. So you'll recall back to even mid last year when on a second quarter conference call, I highlighted that, you know, the TMX pipeline successfully got into service in May. That was five months later than what we had anticipated for 2024.

Speaker Change: I understand the guidance in terms of the.

Speaker Change: Uncommitted volumes, but as it relates to Q1 specifically.

Speaker Change: Good volumes remain.

Speaker Change: Committed volumes that is on Keystone remain elevated priority tariffs being implemented or can you give us a sense of.

Speaker Change: Year to date actuals.

Speaker Change: Yes. So this.

Speaker Change: This goes back to what we've been pretty consistent on what our outlook has been for.

Speaker Change: For 2025, so youll recall back to even mid last year when on our second quarter Conference call.

Speaker Change: Highlighted that.

Speaker Change: The <unk> pipeline.

Speaker Change: Successful he got into service in May that was five months later than what we had anticipated for 2024. So our 2024 results were were higher due to a much wider arb being able to drive a higher value for on contracted.

Bevan Wurzba: So our 2024 results were were higher due to a much wider ARB being able to drive a higher value for our uncontracted barrels on the system. Once that service got into once that capacity got into service, we indicated to shareholders that we anticipated that the ARBs would be much tighter for our And so we are seeing quite a, you know, a tight ARB. in for our uncontracted Keystone barrels and we saw that in Q1. What tariffs did do and even with them not being put into place until earlier this week, it did affect the ARBs and so when you think about a liquid system, a customer has to make a determination of their nominations a month ahead of those barrels being moved onto the system and given that uncertainty, we did see some changes in behaviours of our customers with the potential of tariffs coming on and the other options for our customers are to leave those barrels in storage or move them east or west and so we anticipate that that will continue to be a headwind as long as as tariffs are in place as it provides another incentive for customers to consider other options than moving their barrels.

Barrels on the system once that service got into.

Speaker Change: Once that capacity got into service.

Speaker Change: We indicated to shareholders that we anticipated that the arps would be much tighter for contracted barrel that we saw that that outlook would remain through 2025, and so we are seeing.

Speaker Change: Right.

Speaker Change: A tight arb.

Speaker Change:

Speaker Change: In four on contracted Keystone barrels and we saw that in Q1.

Speaker Change: What tariffs did too and even with them not being put into place.

Speaker Change: Until earlier this week it did affect the arbs and so when you think about our liquid system.

Speaker Change: Customer has to make a determination of their nominations.

Speaker Change: A month ahead of those barrels being moved onto the system and given that uncertainty we did see some changes in behaviors of our customers.

Speaker Change: With the potential of tariffs coming coming on and the other options for our customers or to leave those barrels in storage or move them east or west.

Speaker Change: And so we anticipate that that will continue to be a headwind as long as tariffs are in place as it provides.

Speaker Change: Another incentive for customers to consider other options then moving their barrels so.

Bevan Wurzba: Great, thanks. I'll turn it back. Thank you.

Speaker Change: Okay, great. Thanks, I'll turn it back.

Robert Hope: Our next question is from Robert Hope with Scotiabank. Please go ahead. Good morning everyone.

Speaker Change: Thank you.

Speaker Change: Next question.

Speaker Change: Is from Robert Hope with Scotiabank. Please go ahead.

Bevan Wurzba: Two relatively high level questions. The first is regarding incremental egress out of the basin. You don't need to specifically talk about the open season, but how do you think about projects increasing egress out of Western Canada in the context of your Keystone contracts expiring in a couple years? Could that be competitive there, or are you seeing such growth out of Western Canada that you don't see any incremental egress cannibalizing the strength of your recontract? Yeah, Robert, that's a great question. I think what you're hearing from our competitors and what you could imply from our open season is that there are modest opportunities to expand egress.

Robert Hope: Hi, good morning, everyone.

Robert Hope: Two relatively high level questions. The first is regarding <unk>.

Robert Hope: Incremental egress out of the basin.

Robert Hope: Specifically talking about the open season, but how do we think about projects, increasing egress out of Western Canada in.

Robert Hope: In the context of.

Robert Hope: Your Keystone contracts expiring in a couple of years could that be competitive there or are you seeing such growth out of Western Canada that you don't see any incremental egress cannibalizing the strength that we are re contracting efforts.

Robert Hope: Yes, Robert that's a great question I think what Youre hearing from.

Speaker Change: Our competitors and what you could imply from our open season is that.

Speaker Change: There are modest opportunities to expand egress and when I say modest when you think about four to 5 million barrels, leaving Canada.

Bevan Wurzba: And when I say modest, when you think about four to five million barrels leaving Canada, South, you know, we're talking a few percentage points at best, in terms of optimization and growth on that. On that base, and so we we see supply and the strength of the base and and the demand for heavies in particular outstripping that. that optimization or that modest kind of egress capacity that could be developed so we don't see it jeopardizing our long-term recontracting of Keystone. I'll also remind folks that, you know, we do provide the most direct route on our base system with the fastest transit times with the only batch system, which have very compelling attributes to serve our customers, which straddle both the supply and the demand side of our system.

Speaker Change: So we're talking a few percentage points at best in terms of optimization and growth on that.

Speaker Change: That base.

Speaker Change: And so we see supply and the strength of the base.

Speaker Change: And the demand for heavy and particular outs.

Speaker Change: Outstripping that.

Speaker Change: Got optimization or that modest kind of egress capacity that could be developed so we don't see it jeopardizing our long term.

Speaker Change: Re contracting of Keystone also remind folks that.

Speaker Change: We do provide the most direct route on our base system with the fastest transit times with the only batch system.

Speaker Change: Which is which have very compelling attributes to serve our customers with straddle both the supply and the demand side of our system. So we do have a very unique corridor.

Bevan Wurzba: So we do have a very unique corridor that we believe has attributes that will still be very compelling when we go to the recontracting of our base assets.

Speaker Change: That we believe has has attributes that will we will still be very compelling when we go through the re contracting of our base asset.

Bevan Wurzba: All right, that's helpful.

Bevan Wurzba: And then in your prepared remarks, you mentioned, you know, growth capital would be, you know, seen through the lens of your risk preferences as well as leverage. When you think about, you know, your delivering past as well as some opportunities on the growth side, you know, how much capital or how large of a project would be too large? Just given your intentions to deliver, just trying to get a sense of, you know, maybe some goalposts of what is the upper end of projects you'd look at. Robert, our job is to create value for, you know, not only our customers, but for our shareholders.

Speaker Change: Alright, that's helpful.

Speaker Change: And then in your prepared remarks, you had mentioned.

Speaker Change: Growth capital would be sitting here at the lens of your risk preferences as well as leverage.

Speaker Change: When do you think about.

Speaker Change: Youre de levering past as well as some opportunities on the growth side.

Speaker Change: How much capital or how large of a project would be too large.

Speaker Change: Just given your intention to de lever I'm, just trying to get a sense of maybe some goalposts of what is the upper end of projects you'd look at.

Speaker Change: Okay.

Speaker Change: So.

Speaker Change: Robert our job is to create value for <unk>.

Speaker Change: Not only our customers, but for our shareholders. So our base guidance of 2% to 3% EBITDA growth.

Bevan Wurzba: So our base guidance of 2 to 3% EBITDA growth really is underpinned by around 400 to 500 million dollars of U.S. dollars being spent over a 4 to 5 year period. So around 100 million dollars a year at our build multiples that creates that base 2 to 3% growth. If there's opportunities that come forward in our corridors that might have increased capital requirements, we'll look at those in a bespoke way to see what is the right way to finance those going forward, but again, not to jeopardize our balance sheet strength going forward. And we believe that the types of contracts that we could achieve could support the financing solutions that we might put in place to develop those projects in the future.

Speaker Change: Really is underpinned by around $400 million to $500 million of.

Speaker Change: U S dollars being spent over a four to five year period, so around 100 $100 million a year.

Speaker Change: At our build multiples that that creates that base, 2% to 3% growth if there's opportunities that come forward in our corridor is that.

Speaker Change: That might have increased capital requirements.

Speaker Change: Well look we'll look at those.

Speaker Change: Bespoke way to see what is the right way to finance those going forward, but again not to jeopardize our balance sheet strength.

Speaker Change: Going forward and we believe that the types of.

Speaker Change: Contracts that we could achieve could support to financing solutions that we might put.

Speaker Change: Put in place to to to develop those projects in the future.

Robert Hope: I appreciate that. Thank you.

Speaker Change: Alright, I appreciate that thank you.

Patrick Kenny: Our next question is from Patrick Kenny with MBS. Please proceed. Thank you. Good morning.

Thank you.

Speaker Change: Our next question is from Patrick Kenny with M. B F. Please proceed.

Speaker Change: Thank you good morning.

Patrick Kenny: maybe on the open season here and outside of the commercial aspect. But more from a process timing perspective, when do you think you might have the route fully mapped out? And I guess from a cross-border standpoint, are you contemplating utilizing some of the infrastructure that was put in place from Hardesty down towards Montana? Or is the thinking, you know, going further east across Saskatchewan and then entering the U.S. through North Dakota just in order to, you know, mitigate some of the risk around legal challenges at the state level?

Speaker Change: Just maybe on the open season here and outside of the commercial aspect, but.

Speaker Change: More from a process timing perspective.

Speaker Change: When do you think you might have the route fully mapped out and I guess from a cross border standpoint are you contemplating utilizing some of the infrastructure that was put in place from Hardisty down.

Speaker Change: Down towards Montana hours thinking.

Speaker Change: Going further east.

Speaker Change: Across the Scotts run and then entering the U S through North Dakota, just in order to.

Speaker Change: Mitigate some of the the risk around legal challenges at the state level.

Bevan Wurzba: Yeah, so Patrick, we're, you know, as I mentioned, we don't we don't talk about You know, these very early feasibility stages of an open season and what we're contemplating. I think our comments regarding leveraging our, our existing corridors, you can take that as, as guidance as to what we're focused on and contributing to a potential egress option, leveraging what has been capitalized historically is, is what we can bring to the table. And obviously, as we move forward, today's environment is, is, is, is not an easy environment for our customers or for developers, given the level of uncertainty.

Patrick: Yes, so Patrick.

Patrick: As I mentioned, we don't we don't talk about.

Patrick: Sure.

Patrick: Very early feasibility stages of that open season, and what we're contemplating I think our comments regarding leveraging our our existing corridors you can take that as guidance as to what we're focused on and contributing to a potential egress option.

Patrick: Leveraging what is better capitalized historically is what we can bring to the table.

Patrick: And obviously.

Patrick: As we move forward.

Patrick: Today's environment is.

Patrick: This is not an easy environment.

Patrick: For our customers or for developers given the level of uncertainty so it's going to take us some time to determine the feasibility of this.

Bevan Wurzba: So, it's going to take us some time to determine the feasibility of this open season.

Bevan Wurzba: And, you know, when we have something meaningful that we can talk to in terms of routes and, and what type of capital exposure there may or may not be, we'll bring that forward at the right time when, when it's actually meaningful and we can, we can be clear with, with our investors. understood.

Patrick: Open season, and when we have something meaningful that we can talk to.

Patrick: In terms of.

Patrick: Routes saddened and what type of capital exposure, there may or may not be.

Patrick: Bring that forward at the right time when it when it is actually meaningful and we can we can be clear with.

Patrick: With our investors.

Bevan Wurzba: And maybe just from an ownership perspective, I mean, she would be thinking of plastic 5050 JB with your partner on all the new infrastructure that might be required to make this happen or You know, I think it may be or you're open to maybe a smaller minority ownership stake. just to keep the time frame in line with previous guidance to get down to the four and a half times leverage ratio within the next two to three years and reach that four times marker longer term. Yeah, Patrick, I mean, you just highlighted even in your question, there's, there's a ton of different alternative ways of advancing a project in terms of ownership levels and our participation.

Patrick: Understood.

Patrick: And maybe just from an ownership perspective, I mean should we be thinking of.

Patrick: Classic 50, 50, JV with your partner on all the new infrastructure that might be required to make this happen or.

Patrick: Are you thinking maybe or Youre open to maybe a smaller minority ownership stake.

Patrick: Just to keep the timeframe.

Patrick: In line with previous guidance to get down to the.

Four five times leverage ratio within the next two to three years and reached.

Patrick: <unk> reached about four times marker longer term.

Patrick: Yeah, Patrick I mean, you just highlighted even in your question. There is there is a ton of different alternative ways of advancing a project in terms of ownership levels and our participation.

Bevan Wurzba: And we're looking at all those alternatives right now. Our main focus right now is, is just listening to our customers and understanding what they may or may not need. That will be the foundation of what we will inform us of what alternatives and that we need to consider whether we can participate going forward. But the first step in it is just to determine if there's commercial interest in something being developed. And that's not a guarantee. And so until we know what that looks like, we can't advance on our alternative analysis around what is the best way of our participation going forward.

Patrick: And we're looking at all those alternatives right now.

Patrick: Our main focus right now is is just listening to our customers and understanding what they may or may not need.

Patrick: That will be the foundation of what we.

Patrick: We will inform us of what alternatives that we need to consider whether we can participate going forward.

Patrick: But the first step in that is just to determine if there is commercial interest.

Patrick: In something being developed and that's that's not a guarantee and so until we know what that looks like we can to advance on our alternative analysis around what is the best way of our participation going forward.

Bevan Wurzba: Okay, got it. That's great. Thanks, Bev.

Speaker Change: Okay got it that's great. Thanks, Bob.

Robert Cattelier: Thank you. Our next question is from Robert Cattelier with CIBC Capital Markets. Please proceed. Okay, I just wanted to address the marketing situation for a minute. Applaud your discipline and risk management in light of a volatile market, but I'm curious what you need to see in the market to be comfortable returning. exposure and activity levels to where they were previously. Is it simply a question? as something more holistic involved in the whole equation.

Bob: Thank you.

Speaker Change: Our next question is from Robert <unk> with CIBC capital markets. Please proceed.

Speaker Change: Okay, just wanted to address the marketing situation for a minute.

Speaker Change: I.

Speaker Change: Applaud your discipline and risk management.

Speaker Change: A volatile market, but I'm curious what you need to see in the market to be comfortable returning.

Speaker Change: Your exposure and activity levels too.

Speaker Change: They were previously so it's simply a question.

Speaker Change: Of tariffs or a question of arbs or is there.

Speaker Change: Something more holistic involved in all of the equation.

Bevan Wurzba: That's a that's a great question, Robert. You know, when when this asset was within TC Energy, our marketing strategy had perhaps a little bit more latitude in terms of its risk preferences and was able to be perhaps a little bit more of a price taker, given the size of our entity and our approach to contracting and the risk preferences that we have and to service to ensure that we can. really focus on our capital allocation priorities of deleveraging and the like. We shifted even ahead of learning about the potential even of tariffs, we had begun the shift to move our marketing affiliate strategy more to a contracted basis.

Speaker Change: That's it.

Robert Hope: Great question Robert.

Robert Hope: When when this asset was within TC energy, our marketing strategy had.

Robert Hope: Perhaps a little bit more latitude in terms of its risk preferences.

Robert Hope: And was able to be perhaps a little bit more of a price taker given the size of our entity in our approach to <unk>.

Robert Hope: Contracting and the risk preferences that we have and to service to ensure that we can.

Robert Hope: Really focus on our capital allocation priorities of deleveraging and the like we shifted even ahead of us.

Robert Hope: <unk>.

Robert Hope: Learning about the potential even if tariffs we have begun the shift to move our marketing affiliate strategy more to a contracted basis.

Bevan Wurzba: As you recall, like our MarketLink asset was was effectively a pre-commercial strategy to KeystoneXL coming on and all of those contracts fell off at the time of effectively the termination of the KeystoneXL project and so we've been building up the quality and tenor of those contracts on that system and so that shift to our marketing strategy to convert those uncertain, more merchant-type barrels into a contracted barrel was consistent without even seeing the tariffs and I think the tariffs have just reinforced our decision to pursue a more contracted strategy for those barrels. Now we'll always use our marketing affiliate to optimize and really the optimization is in support of our customers.

Robert Hope: As you recall like our market link asset.

Robert Hope: Was.

Robert Hope: What is effectively a pre pre commercial strategy to Keystone XL coming on and all of those contracts fell off at the time of <unk>.

Robert Hope: Effectively though.

Robert Hope: Termination of the Keystone XL project and so we've been building up the quality and tenure of those contracts on that system and so that shift to our marketing strategy to convert those uncertain more merchant type barrels into our contracted barrel was consistent with our <unk> been seeing that.

Robert Hope: So I think the tariffs just.

Robert Hope: Made a reinforced our decision to pursue a more contracted strategy for those barrels now will always use our marketing affiliate to optimize.

Robert Hope: And really the optimization is in support of our customers.

Bevan Wurzba: The more barrels that we can put through our system allows us to reduce the variable cost for all our customers. So we'll always maintain a marketing strategy to optimize to improve the variable toll for our customers but we're very focused on making our contracted base even stronger, which I think our shareholders covet based on kind of the risk profile of our business.

Robert Hope: The more barrels that we can put through our system allows us to reduce the variable cost for all our customers. So we will always maintain our marketing strategy to optimize to improve the variable pool for our for our customers, but we're very focused on.

Robert Hope: Making our contracted base, even stronger which I think.

Robert Hope: Our shareholders covered based on kind of the risk profile of our business.

Bevan Wurzba: Okay, and then maybe just on the variable toll issue, there's been a lot of process so far, where do you think you are in terms of reaching conclusion on this issue and what sort of risks do you see going forward on that issue? Yeah, I'll start with that, Robert, and then I'll pass it over to Richard, you know, number one for us is we're a customer centric entity. And, you know, being in a dispute with our customers is not where we want to be. So we've made it a very high priority for us to try to find a solution with our customers.

Robert Hope: Okay, and then maybe just on the variable toll issue. There has been a lot of process. So far where do you think you are in terms of.

Robert Hope: Reaching conclusion on this issue and what sort of risk.

Robert Hope: Sure.

Robert Hope: Going forward on that.

Robert Hope: Sure.

Robert Hope: Yeah, I'll start with that Robert and then pass it over to Richard.

Speaker Change: Number one.

Robert Hope: For us as well.

Speaker Change: We're a customer centric entity.

Speaker Change: Being in a dispute with our customers is not where we want to be so we've made.

Speaker Change: Yeah.

Speaker Change: Very high priority for us to try to find a solution with our customers.

Richard Pryor: That's the way we can find a path forward to develop new opportunities when we're aligned with all our customer base.

Speaker Change: That's the way we can find a path forward to develop new opportunities when we're aligned with all of our customer base, but to give you an update of where we're at in that process I'll turn it over to Richard Yes sure. Thanks.

Richard Pryor: But to give you an update of where we're at in that process, I'll turn it over to Richard. Yeah, sure. Thanks. And as you pointed out, there's been a few years of process and I can, I guess, elaborate on where we are a little bit. I can't get into much details as it's an ongoing commercial and legal issue, but, you know, regarding the process, you know, the variable toll complaint was filed in Canada and the United States and so on the Canadian side. The CER hearing process has been completed, and we're awaiting a decision that would come from the CER in the very near term.

Richard: Pointed out there's been a few.

Richard: A few years of process.

Richard: Thank you.

Speaker Change: I can I guess elaborate on where we are a little bit I can't get into too much details as it's an ongoing commercial and legal issue but.

Richard: Regarding the process.

Richard: The variable toll complaint was filed in Canada, and the United States.

Richard: And so on the Canadian side.

Richard: CER hearing process has been completed.

Richard: And we are awaiting a decision that would come from the CR in the very near term, we think that could potentially.

Richard Pryor: We think that could come potentially even late in this quarter, but likely if not early in the next quarter. On the U.S. side with the FERC, decisions have been made by the ALJ and the FERC Commission, but that is being appealed. And so with the decisions that have been made, we have provisions that are in our financials, and we have incorporated those decisions into our future guidance. But one thing I'd just remind you of is that this is all subject to the liability indemnification provisions that we have with TC Energy as part of our separation agreement.

Richard: Potentially even later this quarter, but likely if not early in the next quarter.

Richard: On the U S side with the FERC decisions have been made by the ALJ and the FERC Commission and but that is being appealed and so with the decisions that have been made we have provisions that are out that are in our financials and we have incorporated those decisions it into.

Richard: Future guidance, but one thing I'd just remind you of is that this is all subject to the liability indemnification provisions that we have with TC energy as part of our separation agreement and.

Richard Pryor: And what that entails is that South Bowl would accrue up to 14% with a cap at $30 million Canadian. So that is our aggregate exposure that we could reach from this issue and incident. But as Bevan started his comments, we are absolutely still continuing to have commercial discussions with our customers. Ideally, we can reach a commercial resolution that is acceptable to all parties.

Richard: Yes.

Richard: But what that entails is that's helpful would accrue up to 14% with a cap it at $30 million Canadian So that is our kind of our aggregate exposure that we could we could.

Richard: Retreat from this issue an incident, but.

Richard: As Kevin started his comments, we are absolutely still continuing to have commercial discussions.

Richard: With our customers.

Speaker Change: We can we can reach a commercial resolution that.

Richard: That is acceptable to all parties.

Richard Pryor: Okay, thank you for the update. Thank you.

Richard: Okay. Thank you for the update.

Richard: Thank you.

A.J. O'Donnell: Our next question is from A.J. O'Donnell with TPH, please. Morning, everyone. Thanks for taking the questions. Maybe just kind of starting on the longer term outlook of 2% to 3% growth rate in EBITDA. I'm just curious, what needs to happen over the next couple years to hit that target? Is this just, you know, strictly reversing some of the headwinds that we've seen to the 2025 budget? Or just what other additional details can you provide on that longer term outlook?

Speaker Change: Our next question is from a J O'donnell with Tpa, which please proceed.

J O'donnell: Good morning, everyone. Thanks for taking my questions.

Speaker Change: Maybe just kind of starting on the longer term outlook of 2%, 2% to 3% growth rate in EBITDA.

J O'donnell: I'm just curious.

J O'donnell: What needs to happen over the next couple of years to hit that target is this just strictly reversing some of the headwinds that we've seen for the 2025 budget or just what other additional details can be provided on the longer term outlook.

Bevan Wurzba: Yeah, so AJ, we. We actually just became open for business a few months ago, to be honest, you know, we didn't have a capital budget over the last number of years, we were fortunate to be able to develop the port and interest link as an example. And then, as part of the spin commit to the black rod project, but the team has been extremely active in the last, even 5 months of existence here in listening to customers, understanding what potential opportunities that they are looking to see us capitalize. And so we don't see any necessarily any headwinds or barriers for us to develop and deliver on the 2 to 3% will provide more transparency as those evolve and move from feasibility stages to to more firm ground.

J O'donnell: Yes, so a J REIT.

J O'donnell: We actually just became open for business a few months ago to be honest, we didn't have.

J O'donnell: Our capital budget over the last number of years, we are fortunate to be able to develop the <unk>.

J O'donnell: And then just linked as an example, and then as part of the spin commit.

J O'donnell: Commit to the Blackrock project.

J O'donnell: But the team has been extremely active in the last five months of existence here.

J O'donnell: In listening to customers understanding what potential opportunities that they are.

J O'donnell: Are looking to see is capitalized and so we don't see any necessarily any headwinds or barriers for us to develop and deliver on the 2% to 3%.

J O'donnell: We will provide more transparency as those evolve and move from feasibility stages to two more.

Bevan Wurzba: But, you know, the nature of our corridors in both the United States and in Canada is such that, you know, we're right in the heart of where movements are very compelling delivery points, increased delivery points to export options on the South end of our system and capturing additional volumes in Alberta are exactly what we're we're built to do. And so we don't see any barriers to those and we'll provide more transparency as we mature those along the curve. But, you know, we, we literally just became open for business on October 1st. And so, you know, it takes takes a bit of time to to mature opportunities and then prioritize them so that we can maximize the value to shareholders going forward.

J O'donnell: Firm ground, but.

J O'donnell: The nature of our core doors in both the United States and Canada is such that you.

We're right in the heart of where movements.

J O'donnell: Our very compelling delivery.

J O'donnell: Delivery points increased delivery points to export options on the south end of our system and capturing additional volumes.

J O'donnell: Alberto.

Speaker Change: Exactly what where we're built to do and so we don't see any barriers to those and we will provide more transparency as we mature those along the curve, but we literally just.

Speaker Change: Became open for business on October 1st and so it takes it takes a bit of time.

Two mature opportunities and then prioritize them so that we can.

Speaker Change: Maximize the value to shareholders going forward.

Bevan Wurzba: understood that and maybe just One more on the marketing business. I mean, given what we've seen so far this year between, you know, underlying volatility, the impacts on tariffs. Just trying to think about your strategy to navigate the volatility in crude markets in 2025, and to what extent, if we saw much higher volatility, would you be able to kind of capture or recoup some of the expected? marketing headwinds that you're guiding to in 2025. Yeah, so. For my previous remarks, you know, our primary driver is to to move our marketing strategy to a much more contracted approach to limit that volatility for shareholders.

Speaker Change: Understood maybe.

Speaker Change: Maybe just.

Speaker Change: One more on the marketing business.

And given what we've seen so far this year between underlying volatility the impact from tariffs.

Speaker Change: Just trying to think about your strategy to navigate the volatility.

And crude markets in 2025 and to what extent, if we saw much higher volatility.

Speaker Change: Would you be able to kind of capture of recoup.

Speaker Change: Some of you expected.

Speaker Change: Marketing headwinds that you are.

Speaker Change: Guiding to in 2025.

Speaker Change: Yes so.

Speaker Change: My previous remarks.

Speaker Change: Our primary driver is to to move our marketing strategy to a much more contracted approach to limit that volatility for shareholders, but as you say there. Our team is in place we will look to.

Bevan Wurzba: But as you say, there, our team is in place. We, we will look to see windows when, when there are abilities to move more barrels and capture, capture some of that upside that could exist in that volatility. But we haven't guided to any of that in in our release, and we wouldn't try to make any expectations of what we may or may not be able to achieve there. You know, we've seen in the past couple of months, ARBs move upwards of, you know, up 50% down 50%, you know, so there, there have been quite significant movements within the ARBs that drive our business in both our MarketLink and in our Keystone on contracted barrels.

Speaker Change: See windows when when there are abilities to move more barrels and capture capture some of that upside that could exist.

Speaker Change: And that volatility, but we haven't guided to any of that in our release.

Speaker Change: And we wouldn't.

Speaker Change: Try to make any expectations of what we may or may not be able to achieve there.

Speaker Change: We've seen.

Speaker Change: In the past.

Speaker Change: Couple months arms move upwards of.

Speaker Change: Up 50% down 50%.

Speaker Change: There have been quite.

Speaker Change: Significant movements within the arms, so that drive our business in both our market link and in our Keystone on contracted barrels so.

Bevan Wurzba: So we'll look to continue to optimize and try to call back some additional dollars, but I wouldn't see it material to our guidance going forward. Appreciate the detail, thank you very much.

Speaker Change: We'll look to continue to optimize and try to claw back.

Speaker Change: Some additional dollars, but I wouldn't see it material to our guidance going forward.

Speaker Change: I appreciate the detail. Thank you very much.

Keith Stanley: Thank you. Our next question comes from Keith Stanley with Wolf Research. Please proceed. Hi, good morning. On the recent approval from PHMSA to lift the pressure. Can you give a sense of how much capacity...

Speaker Change: Thank you are.

Speaker Change: Our next question comes from Keith Stanley with Wolfe Research. Please proceed.

Speaker Change: Hi, good morning on the recent approval from FEMSA.

Speaker Change: With the pressure restriction could you give a sense of how much capacity. This will add back end. If you will now be pretty much back to where you were prior to milepost for 14.

Richard Pryor: We'll add back and if you'll now be pretty much back to where you were prior to my Yeah, sure. Thanks.

Richard Pryor: So this is Richard Pryor. So earlier this week, as you mentioned, we received Approved from PHMSA to lift the pressure restrictions on the affected segment of the Keystone system. So that affected segment is kind of the very specific section of the pipeline where we had our Milepost-14 incident a couple of years ago. The main benefit to the pipeline system of lifting that pressure restriction is going to be just the operations and the operational efficiency of the system. We've been using drag reducing agents and we've been able to work with a very high system operating factor over the last year and a bit to ensure that we've been able to move all of our contract volumes.

Richard Pryor: Yes sure. Thanks. So this is Richard Pryor.

Richard Pryor: Earlier this week as you mentioned we received.

Richard Pryor: From FEMSA to lift the precipice restrictions on the affected segment of the of the Keystone system and so that affected segment.

Richard Pryor: The very specific section of the pipeline, where we were we had a milepost force teen incident in a couple of years ago.

Richard Pryor: The main benefit to the pipeline system uplifting that pressure restriction is going to be.

Richard Pryor: The operations and the operational efficiency of the system.

Richard Pryor: We've been using.

Richard Pryor: Drag reducing agents and we.

Richard Pryor: <unk> been able to work with very very high system operating factor.

Richard Pryor: Over the last.

Richard Pryor: Year, and a bit to ensure that we have been able to move all of our contract volumes that we've also been able to make quite a bit of space available for uncompetitive committed capacity in and so I see in the future that this is going to help us with our operations reliability and it's going to help with our operational costs, which are.

Richard Pryor: And we've also been able to make quite a bit of space available for uncommitted capacity. And so I see in the future that this is going to help us with our operations reliability, and it's going to help with our operational costs, which are just a benefit to keeping the pipeline as competitive as we can and making sure our customers can move as many barrels as possible.

Richard Pryor: Okay.

As we can and making sure our customers can move as many barrels as possible.

Richard Pryor: But I'm not providing at this time any additional throughput that would come with the D-rate lift. Understood, thanks.

Richard Pryor: I am not providing at this time.

Richard Pryor: Any.

Richard Pryor: Additional throughput.

Richard Pryor: That will come with this with the day rate lift.

Richard Pryor: Understood. Thanks.

Dan Dafoe: Second question, I just wanted to go back to 2025 EBITDA Outlook and I appreciate the year-over-year walk. 2024, but the outlook's also lower. what you had laid out in September prior to the spin using FX rates at that time. Can you say how, I guess, impactful the hedge on wines were this year to manage some of the tariff risks? And then also just how much lower, I guess, uncommitted volumes you're assuming versus what you might have thought last fall.

Richard Pryor: Second question I, just wanted to go back to the 2025 EBITDA outlook and I appreciate the year over year walk versus 2024.

The outlook is also lower than what you had laid out in September prior to the spin using FX rates at that time.

Richard Pryor: Can you say, how I guess impactful the hedge on wines, where this year to manage some of the tariff risks and then also just how much lower I guess.

Richard Pryor: Uncommitted volumes Youre, assuming versus what you might have thought last fall.

Dan Dafoe: It's Van here. And so on the marketing segment, you know, we mentioned that that's down 30 million is what we're expecting year over year. And that's made up of some of the reduced activity in the marketing business. And secondly, the certain unwinds of positions that we did to to reduce risk. So combined there, it's 30 million. And then, again, on the on the spot price It's a, it's a combination, we have a lower system operating factor that we're, we're thinking about in 2025. And that's, and that, and so that will reduce the volumes on uncommitted capacity, and also the revenue because of the diffs will be will be less as well.

Matt: It's Matt here.

Matt: And so on the marketing segment, we mentioned that.

Matt: That's down $30 million is what we're expecting year over year and that's made up of some of the.

Matt: <unk>.

Matt: Reduced activity in the marketing business and secondly, the.

Matt: Certain unwind of positions that we did two to reduce risks so combined there it's $30 million.

Matt: And then again on the on the spot price.

Matt: It's a combination we have a lower system operating factor that we're thinking about in 2025.

Matt: And thats and so that will reduce the volumes on uncommitted capacity and also the revenue because of the depths will be will be less as well.

Operator: Got it. Thank you. One moment for our next question.

Matt: Okay.

Matt: Got it thank you.

Matt: Thank you.

Matt: And for our next question.

James Frakas: is from the line of James Frakas with BMO. Please proceed. Hi, good morning.

Speaker Change: Is from the line of James <unk> with BMO. Please proceed.

Bevan Wurzba: Maybe going back to marketing, as you think about the key drivers for this segment, what do you need to see for performance to potentially improve into 2026? And longer term, what would be a reasonable normalized assumption for this Yeah, so, James, you know, our marketing segment and our uncontracted barrels are heavily and primarily driven by the ARB. And so, as I commented earlier, you know, last year in 2024, the ARB was much wider in the first five months of the year because we didn't, TMX capacity wasn't on. Once that came on, ARB tightened and exactly as what we anticipated, making that tougher.

Speaker Change: Hi, good morning.

Speaker Change: Maybe going back to marketing as you think about the key drivers for the segment, what do you need to see.

Speaker Change: Performance to potentially improve into 2026 and longer term won't be.

Speaker Change: Reasonable normalized assumption for this segment.

Speaker Change: Yeah, So James our marketing segment and are on contracted barrels.

Speaker Change: Our heavily and primarily driven by the arb.

Speaker Change: So as I commented earlier last year in 2024, there are BOE is much wider in the first five months of the year, because we didn't <unk> capacity wasn't on once that came on.

Speaker Change: <unk> tightened in.

Speaker Change: Exactly as what we had anticipated.

Speaker Change: Making making that tougher and then so you have less margin out of the base.

Bevan Wurzba: And then so you have less margin out of the basin to capture with that uncontracted barrel. So, as we see, you know, so in addition to the headwind that we saw last year, in terms of that additional egress come on, we now have a tariff situation that has added a bit of a headwind to two additional movements. And that are going down to out of out of Alberta, down to the Gulf Coast. So, in terms of what we need to see, obviously, if there was a lifting of the tariff, that's the first headwind to go away.

Speaker Change: To capture with that.

Speaker Change: Contracted barrel.

Speaker Change: So as we see.

Speaker Change: So in addition to the headwind that we saw last year in terms of additional egress come on.

Speaker Change: Now of a tariff situation that has added a bit of a headwind to two additional movements that are going down too out of out of Alberta down to the Gulf coast. So in terms of what we need to see obviously, if there was a less stimulus the tariffs that's the first headwind to go away and then as.

Bevan Wurzba: And then as supply growth and supply growth that we do anticipate, given what we've seen coming out of the basin, that should improve the ARB going forward and return us back. In terms of an ongoing run rate for the marketing segment, I'd say to my earlier comments, we're actually trying to move it to a much smaller component of our EBITDA outlook going forward and shift those barrels on market link more to a contracted strategy. And with a contracted strategy, those dollars of EBITDA should be worth much more to our shareholders, given the consistency of them.

Speaker Change: Supply growth and supply growth that we do anticipate given what we've seen coming out of the basin.

Speaker Change: That should improve the arb going forward and return us back in terms of an ongoing.

Speaker Change: Run rate for the marketing segment I would say.

Speaker Change: To my earlier comments, we're actually trying to.

Speaker Change: Move it to a much smaller component of our EBITDA outlook going forward and shift those barrels on market linked more to contracted strategy.

Speaker Change: And.

Speaker Change: With our contracted strategy those those dollars of EBITDA should be worth much more to our shareholders given the consistency of them. So we haven't landed a run rate of what we're targeting for the marketing segment given all the uncertainty.

Bevan Wurzba: So, we haven't landed a run rate of what we're targeting for the marketing segment, given all the uncertainty that we're seeing today with respect to ARBs and tariffs. But our strategy has been pretty firm in that we've been focused on trying to move more of those barrels. And we have, if you look at even last year, we would have talked about our EBITDA contracting at 88%. Now, we're saying 90% and we're continuing to increase that by way of moving to a more contracted strategy.

Speaker Change: That we're seeing today with respect to arps and tariffs, but our strategy has been pretty firm in that we've been focused on trying to move more of those barrels and we have if you look at.

Speaker Change: Even with last year, we would have talked about our EBITDA contracting at 88% now are saying, 90% and we're continuing to increase that by way of moving to a more contracted strategy.

Bevan Wurzba: Great. Thanks.

Bevan Wurzba: And then. Shifting over to growth, when you look at the opportunity set there, how do you think about the balance sheet reduction versus a potentially growing list of secure projects to underpin the 2-3% growth? Well, I think we we You know, when you look at our capital allocation priorities, the first two, like the deleveraging and investing in our pre-capitalized corridor go very hand in hand. And so, you know, BlackRod is a great example that, you know, we're not we're not reducing leverage this year. It will tip up until we get to probably 4.8 by the end of the year as we finish off BlackRod.

Speaker Change: Okay, great. Thanks, and then.

Speaker Change: Shifting over to growth when you look at the opportunity set there.

Speaker Change: Do you think about the balance sheet reduction.

Speaker Change: This is a potentially growing list of secured projects.

Speaker Change: To underpin the 2% to 3% growth.

Speaker Change: Well I think.

Speaker Change: We.

Speaker Change: When you look at our capital allocation priorities. The first two like the deleveraging and investing in our capitalized corridor go very hand in hand and so.

Speaker Change: Blackrock is a great example, that we're not we're not reducing leverage this year it will tip up until we get to probably $4 eight by the end of the year as we finish off black Rod.

Bevan Wurzba: And then we'll see the contributions of EBITDA in 2026 and then full year in 2027 help our delevering. So as we grow, that accelerates our deleveraging when we're able to pursue projects that are within our corridors, really allow us to get to our leverage targets. And so we see, you know, growth kind of paired with deleveraging because of the corridor that we're developing.

Speaker Change: And then we will see the contributions of EBITDA in 2026, and then full year in 2020.

Speaker Change: Our delevering so as we grow.

Where that accelerates our de levered, leveraging when we're able to pursue.

Speaker Change: Projects that are within our corridors really allow us to get to our leverage targets and so we see growth kind of paired with deleveraging because of the corridor that we're developing.

Bevan Wurzba: Great. Thanks. I'll turn it.

Speaker Change: Great. Thanks, I'll turn it back.

Franeet Satish: Thank you. Our next question is from Franeet Satish with Wells Fargo. Please proceed. Thanks, good morning. Maybe going back to the FEMSA comments, how are you thinking about either reducing DRA usage and lowering the operating costs or continuing to use DRA and contracting the additional capacity that's created on the system? Sounds like from your comments, maybe you're thinking about just lowering the DRA usage, but I just wanted to confirm that and how you think about those two scenarios. Yeah, and so when you think about the system, you know, we have to manage. the throughput on the volumes over the entirety of the 2100 miles of the path, right?

Speaker Change: Thank you.

Speaker Change: Our next question is from <unk> Satish with Wells Fargo. Please proceed.

Speaker Change: Thanks, Good morning, maybe.

Speaker Change: Maybe going back to the FEMSA comments, how are you thinking about either reducing DRA usage and lowering the operating cost or continuing to use DRA and contracting the additional capacity that's created on the system. It sounds like from your comments, maybe youre thinking about just lowering the DRA usage, but I just wanted to confirm that and how you think.

Speaker Change: Those two scenarios.

Speaker Change: Yes.

Speaker Change: Do you think about that.

Speaker Change: The system.

Speaker Change: We have to manage.

Speaker Change: The throughput on the volumes over over the entirety of that.

Speaker Change: 2021, 100 miles of the pass rate and this fee rate was only specific to.

Richard Pryor: And this D-rate was only specific to a very small segment of the system. And so, you know, just having the D-rate lifted this week, it'll take us You know, several weeks to work through the, you know, some internal engineering analysis and that work we need to do with a control center to to remove the D rate and then and then we need to see the pipeline operate for for some time and and and see and see where we're at. And so I would say, you know, certainly in the near term, it would look like a reduction in and and more operating efficiencies, lower operating costs.

Speaker Change: A very small segment of the system and so just having the day rate lifted this week it will take us.

Speaker Change: Several weeks to work through some internal engineering analysis and work we need to do with the control center to to remove the day rate and then and then we need to see the pipeline operate for for some time in and see where we're at and so I would say certainly in the near term it would look like a reduction in DRA.

Speaker Change: And more operating efficiencies lower operating costs and that that's a benefit to our overall toll in.

Richard Pryor: And that, you know, that that's a benefit to our overall toll and and to our customers. And then, you know, in the long run, we'll, we'll have to look at our system operating factor and and and how how the line is is operating. And then we'll, we'll make decisions at some point in the future as to to what what that means for for aggregate capacity.

Speaker Change: And to our customers and then.

Speaker Change: In the long run we'll have to look at our system, our operating factor and how the line is operating at net won't will make decisions at some point in the future as to what that means for capacity.

Bevan Wurzba: And I just want to, Praneeth, it's not direct to your question, but it's maybe a remark that I overlooked in some of the previous questions was that, you know, with the with the potential, you know, the little bit of the headwinds that we see this year with respect to the ARBs And, you know, Richard's comments around bringing our system back with with lower DRA, we're going to take some of the opportunity in the market to do increased maintenance activities this year. And so that that will help us be positioned for when we see ARBs come back.

Speaker Change: And I just wanted to preneed.

Speaker Change: Not direct to your question, but it's maybe a remark that.

Speaker Change: Overlooked and some of the previous questions was that.

Speaker Change: With the with the potential.

Speaker Change: Little bit of the headwinds that we see this year with respect to the arbs.

Speaker Change: Richard's comments around bringing our system back with with lower DRA, we're going to take.

Speaker Change: Some of that opportunity in the market to do increased maintenance activities. This year and so that that will help us be positioned for when we see <unk> come back. So we're going to take advantage of maybe some of the softness in the market.

Bevan Wurzba: So we're going to take advantage of maybe some of the softness in the market to advance on some of the maintenance that we like to do and both on pipeline integrity, but just more broadly. to be in a really good spot for when we do see the market tighten back up again. Got it. That's helpful.

Speaker Change: To advance on some of the maintenance that we like to do in both on pipeline integrity, but just more broadly.

Speaker Change:

Speaker Change: Two to be in a really good spot for when we do see the market tightened back up again.

Bevan Wurzba: And not to belabor the point here, but just going back to Big Sky, I recognize you're in commercial discussions, but, you know, obviously, leverage is a key focus for investors, given that you've got a lot of levers here, including ownership interest. Can you can you comment at a minimum on whether this project would be small enough to kind of fit within your annual cadence of CapEx and not cause your leverage to go up? So, as I mentioned, you know, we're right now we're just focused to see what the level of interest is. We have a number of alternative ways of moving the project forward from a, from a financing perspective.

Speaker Change: Got it.

Speaker Change: Paul.

Speaker Change: And not to not to belabor the point here, but just going back to big Sky I recognize you are in commercial discussions, but obviously leverage is a key focus for investors given that you've got a lot of levers here, including ownership interest can you can you comment at a minimum on whether this project would be small enough to kind of fit.

Speaker Change: Within your annual cadence of Capex and not cause leverage to go up.

Speaker Change: So pretty as I mentioned, we are right now we're just focused to see what the level of interest is.

Speaker Change: We have a number of alternative ways of moving the project forward from <unk>.

Speaker Change: From a financing perspective.

Bevan Wurzba: But we've been very consistent that we are not going to change our risk preferences and our capital allocation priorities. So, our leverage will, will be pointed down in the direction that we've been highlighting since inception and since then. So, our target of getting down to 4.0 is not going to be jeopardized by us advancing on any of these other projects. Got it. Very clear. Thank you.

Speaker Change: But we've been very consistent that we are not going to change our risk preferences and our capital allocation priorities. So our leverage will will be pointed down in the direction.

Speaker Change: That we've been highlighting since inception since spend so our target of getting down to four.

Speaker Change: It's not going to be jeopardized by us advancing on any of these other projects.

Speaker Change: Got it very clear thank you.

Bevan Wurzba: Thank you, and this concludes our Q&A session for today.

Speaker Change: Thank you and this concludes our Q&A session for today I will turn it back to <unk> for his final comments.

Bevan Wurzba: I will turn it back to Bevin Wuerzbach for his final comment. Well, thank you all. Thanks to our analysts for all your thoughtful questions today.

Speaker Change: Well. Thank you all thanks to our analysts for all of your thoughtful questions today.

Operator: And we really appreciate your interest in South Po and for joining us for on another first our first earnings call as a public company. We have an exciting future ahead of us and look forward to updating you along the way and so wish you all a great day and thanks again for participating. And thank you all for participating in today's conference.

Speaker Change: And we really appreciate your interest in South Dakota and for joining us for another first our first earnings call as a public company.

Speaker Change: We have an exciting future ahead of us and look forward to updating you along the way and so wish you all a great day and thanks again for participating.

Speaker Change: And thank you all for participating in today's conference you may now disconnect.

Operator: You may now disconnect.

Operator: Thanks for watching!

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yeah.