Q1 2025 South Bow Corp Earnings Call
Good day, and thank you for standing by and welcome to the South Bell first quarter 2025 results conference call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session will need to press star one on your telephone you will then hear an automated message of washing your hands raised.
To withdraw your question. Please press star one again, please be advised today's conference is being recorded I would now.
Speaker Change: The conference over to your Speaker today, Martha will ma'am. Please go ahead.
Martha: Thank you, Kevin and welcome everyone to set those first quarter 2025 earnings call with me today are better and worse by President and Chief Executive Officer, Dan <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.
Speaker Change: In the room to help with the question and answer session.
Speaker Change: Before I hand, it over to batten 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 yourself, both SEDAR plus profile and then south those filings with the SEC.
Speaker Change: Dave's discussion will also include non-GAAP financial measures and ratios, which may not be comparable to measures presented by other entities. Finally, Oscar analysts callers to hold themselves to two questions each to keep the discussion living along with that I'll turn the call over to Bobby.
Speaker Change: Okay.
Bobby: Thanks, Marissa and good morning, everyone. We appreciate you joining us today as we have many items to update you on since our last call first I would like to touch on our first quarter results as we had a solid financial start to 2025 and accomplished important milestones on our road to independence.
Bobby: We now have two quarters under our belts and the financial resilience of our business is becoming increasingly evident thanks to our highly contracted assets and the fundamental need for our services in the first quarter normalized EBITDA was $266 million and we successfully maintained our debt metrics despite a volatile market.
Bobby: Back drop we demonstrated strong project execution and completing the pipeline scope of our black Rod connection project and implementing our new enterprise resource planning system. We also demonstrated our commitment to returning value to shareholders through our latest quarterly dividend declaration of <unk> 50 per share which will be paid.
Bobby: On July 15th to shareholders of record on June 30.
Bobby: So that was suppose journey began in July 2023, and we have consistently achieved every target set as we transitioned into an independent company. The team has done an outstanding job demonstrating our ability to operate independently and we will continue doing so in the future.
Bobby: Moving onto milepost 171, I've spoken with several of our shareholders since the unfortunate incident in North Dakota, and I shared with them that maintaining safe and reliable operations. What's the most important goal we had to meet in becoming an independent company I can't underscore the significance of our system safety and <unk>.
Bobby: Reliability enough, which is why we have shown it in our actions through significant investments in our integrity programs over the last several years, we will continue investing in these programs as we work through our remedial action plans.
Bobby: As I have said many times no incident is ever acceptable at South pole, but I am proud of the way our team came together and demonstrated <unk> ability to execute and get our system back up quickly and effectively while meeting the expectations of our regulators the surrounding community and local leaders.
Bobby: The collaboration I witnessed throughout our organization showed our strength to be agile and perform as a standalone entity, while coming together to find answers.
Bobby: This unified partnership will continue as we complete our investigations and more importantly find solutions to prevent future incidents.
Bobby: And so it's both we have significant financial protections to safeguard our cash flows during incidents now.
Bobby: 90% of our EBITDA has contracted over the next seven years, meaning there is no commodity price or volumetric risk in our base business. Our transportation service agreements contain provisions, which enabled continued collection of fixed holes during outages and we have insurance that will cover most of the cost associated with such incidents.
Speaker Change: Taking that into consideration we are reaffirming our normalized EBITDA guidance of $1.01 billion for this year, you'll hear more on that in later remarks with that I'll now ask Richard and band to walk through the more critical aspects of the incident and how we are managing the business operationally.
Speaker Change: And financially Richard.
Richard: Thanks, Devin and good morning.
Richard: So today I'll share the progress we've made in our response to the milepost 171 incident as well as next steps as the root cause failure assessment is completed and we address fences corrective action order.
Richard: I'll start with a few details about the incident itself.
Richard: On the morning of April the <unk>, our operational control center detected a pressure drop on a Keystone segment in North Dakota, and immediately began implementing a system wide shutdown.
Richard: Almost simultaneously we had field technicians on site in North Dakota that initiated an emergency shutdown at the upstream pump station.
Richard: The speed at which our teams responded allowed south border protect the surrounding community and contain the environmental impacts.
Richard: During the incident, we worked closely with our regulators local leaders landowners customers and the community.
Richard: We mobilized over 300 resources during our around the clock response, and our field crew successfully contained the release to a single agricultural property without impacting sensitive habitats or any waterways.
Richard: And over the following six days, our engineering and construction crews replace the damaged section of pipe.
The team did an outstanding job returning the line into service late on April 15th.
Richard: We've now substantially recovered to 3500 barrels of released volume re injecting more than 85% back into the pipeline with the remainder being disposed at an approved treatment facility.
Richard: As of last night, we have completed removal of all contaminated soil from the site and we forecast to reclaim the site with clean soil in the coming weeks.
Richard: Our insurance policies are expected to largely cover the cost of the incident.
Richard: Today, we're operating the pipeline under pressure restrictions in accordance with the FEMSA corrective action order.
Richard: With these limitations, we still expect to meet our Keystone contractual commitments of 585000 barrels per day.
Richard: Our effective operations and strong system availability evidenced by our system operating factor of 98% in the first quarter provides us confidence that we'll be able to continue delivering our contracted volumes.
Richard: While still early in the root cause failure analysis I can confirm the pipeline was operating within its permitted and design pressures at the time of the incident and was not subject to unusual operating conditions.
Richard: As for next steps, we are coordinating closely with FEMSA to progress. The incident investigation developed remedial work plans and implement enhanced integrity programs going forward.
Richard: This includes a metallurgical analysis of the pipe feature that we expect to be completed by June and the root cause failure analysis conducted by an independent third party that is expected to be completed by late summer.
Richard: We are also working with our suppliers service providers engineers and other third party experts to determine the causes of failure.
Richard: As we are able to provide more information about the root cause we will share our findings with our regulators as well as our industry peers. So they can also learn from the incident.
Richard: While we have a lot of work ahead of US we'll continue prioritizing the integrity of our pipeline system to ensure the safety and reliability as we always have.
Richard: With that operational update I'll, let van talked itself, both financial outlook for 2000 22025.
Van: Thanks, Richard Southwest business is underpinned by highly contracted cash flows that are stable and predictable approximately 90% of our normalized EBITDA is contracted for over seven years, which means the variability in our business is limited to our uncommitted volumes and our marketing business.
Van: South pole is reaffirming our 2025 outlook for normalized EBITDA at one point here of $1 billion we.
Van: We modeled several scenarios related to milepost 171 incident and are adjusting our range to account for those effects.
Van: As Richard mentioned, we expect to deliver on our committed contracts for the remainder of the year, though we expect to have limited capacity to transport any uncommitted or spot volumes on our Keystone system with the pressure restrictions in place.
Van: With that we are adjusting our upside case to 1% from 3% of our base case.
Van: Our downside case has improved slightly after delivering a strong financial start to the year and generating $266 million in normalized EBITDA during the first quarter.
Van: We've also gained better clarity into tariff impacts on our business and our ability to mitigate that exposure.
Van: As a result, we are adjusting our downside case from a decrease of 3% to a decrease of 2% of our 1.01 billion base case.
Van: With a relatively unchanged outlook on normalized EBITDA, we expect to exit 2025, with a net debt to normalized EBITDA ratio of approximately four eight times, increasing modestly through the year as we advance our Blackrock connection project and complete the spinoff activities.
Speaker Change: Our deleveraging journey will begin as the cash flows associated with Blackrock start in 2026 and increase through 2027, I'll now hand, it back to <unk> for closing remarks.
Van: Okay.
Speaker Change: Thanks, Dan.
Speaker Change: As Richard indicated our system safety and reliability remains our first priority and as van pointed out the resiliency of our base business provides stability in our cash flows as we continue to learn about the milepost 171 incident, we are committed to providing transparent updates to all our stakeholders. This is.
Speaker Change: As we advance our industry practices going forward finally, south flow remains firm in our capital allocation priorities and we'll maintain our risk managed approach to delivering shareholder value. Our continued focus on strengthening our investment grade financial position is paired with pursuing growth that leverages our existing infrastructure.
Speaker Change: And the most strategic corridor in North America, while connecting the strongest crude oil supply to the strongest demand markets.
Speaker Change: I'll now ask the operator to open the line for questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered or you wish to leave yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Speaker Change: Our first question comes from Jeremy Tonet with J P. Morgan Securities. Your line is open.
Jeremy Tonet: Hi, good morning.
Jeremy Tonet: Earning Jeremy.
Jeremy Tonet: Thanks for the details today.
Speaker Change: Just hoping maybe to dial in a little bit more I guess on the range of outcomes here I think there was a line in the press release talking about <unk>.
Jeremy Tonet: Next steps forward here post the incident.
Jeremy Tonet: Good.
Jeremy Tonet: Other impacts the company's financial and operational outlook for 2025, I'm. Just wondering if you could walk us through maybe a little bit more of the open items that could have more of a meaningful impact at this point.
Jeremy Tonet: Given everything that you've got you know so far.
Speaker Change: Yes, Jeremy I think it's really important for us to.
Jeremy Tonet: Focus on the fact that.
Jeremy Tonet: Our outlook is.
Jeremy Tonet: Our base businesses fully underpinned at 90% of our EBITDA is contracted and so we have no further risk on the base business.
Jeremy Tonet: As per steps going forward Rick.
Speaker Change: <unk> highlighted the great progress of having no further contaminated soil on the site and also working really closely with our regulators. So we're working through the root cause failure assessment.
Jeremy Tonet: That will give us.
Van: Good insight into how we may adjust maintenance activities through the year, but as van pointed out we've modeled those scenarios.
Van: <unk>, what our range could be so the few steps are simply to work closely with our regulator.
Van: Look at what our changes to our pipeline integrity maintenance program will be through the year.
Van: And continue to operate at the levels that we have been so that we can move our contracted barrels.
Van: Okay.
Van: Okay got it thanks.
Van: Maybe just taking a step back here as far as I guess whats known with root cause so far and I guess other historical incidents in the past if theres any kind of.
Van: Bigger thoughts with regards to preventing incidents in the future across the system any other learnings here I guess that could de risk I guess the future.
Speaker Change: Yes, Jeremy.
Speaker Change: Pipeline integrity and the safety of our systems is our number one priority.
Speaker Change: And we've <unk>.
Speaker Change: <unk> a tremendous amount over the last five and a half years, we've done a significant number of in line inspections and we've been working very closely with our inline service providers.
Van: And we anticipate doing more inline tests very quickly on the system and the combination of evaluating all of that new data with the historical data.
Van: He will be key in moving moving our business forward and ensuring that we can remain safe.
Van: Safe and reliable going forward.
Van: Got it I'll leave it there thank you.
Speaker Change: One moment for our next thanks Jeremy.
Robert Hope: Our next question comes from Robert Hope with Scotiabank. Your line is open.
Robert Hope: Good morning, everyone.
Robert Hope: Maybe just turning to the corrective action and.
Robert Hope: Just maybe on the pressure restrictions and the duration there.
Robert Hope: Fair to use the prior pressure restriction as a proxy for what you think the duration will be for this one.
Robert Hope: I guess really it seems though and we do appreciate the 2025 guidance, but im just wondering as we will take care to take a look to 2026, whether or not you think you'll be able to do any spot volumes there.
Robert Hope: Okay.
Robert Hope: It's Richard probably around jumping I'd, just say at this stage. It it really is too early to speculate around the timeframe on how.
Robert Hope: The investigation will unfold and exactly what it will determined and then and then how long it will take to work through the remedial work programs.
Robert Hope: Okay.
Robert Hope: I would say.
Robert Hope: You look at the multiples 14 incident.
Robert Hope: The the locational factor and in some of the things that we had to go out and investigate in the field. It was that was it a fairly protracted timeframe because because some of the investigative work was quite complicated.
Robert Hope: If you look at this specific circumstance it doesn't share some of those same complications. So I don't know that I would necessarily take that proxy and just apply it to this but.
Robert Hope: But I don't want to prejudice. The investigation, we do need to work through the metallurgical studies.
Robert Hope: And the our CFA, we expect we'll have VFR CFA completed by the third party and in the in the summer time frame.
Robert Hope: I do want to mention though that these are these investigations are typically quite dynamic and that we will learn more as the investigation is unfolding versus waiting to hear everything mid summer and in parallel with the investigation of our own internal engineers and integrity providers are also starting our.
Robert Hope: Our own remedial work program as Devin mentioned, we're going to be running in line inspection tools and completing investigated <unk> here starting within the month of May.
Robert Hope: And as we learn more about all of this will.
Robert Hope: We'll certainly share more information and maybe the last thing I would leave you with is that I wouldn't necessarily expect that the pressure restrictions and the corrective action order like all comes off all at once like these are often again, a dynamic process and as we learn more and resolve certain issues. These these things tend to happen in phases. So so with that.
Robert Hope: Just highlight obviously.
Robert Hope: We're going to attack this with the resources and the urgency that it needs. So because keeping our line safe is the most important thing to sell bulk.
Robert Hope: Alright, I appreciate that.
Robert Hope: And then maybe going over to some commentary on enhanced maintenance just taking a look at guidance maintenance capital Hasnt changed so just want to get a sense of is this kind of the baseline and that could move up depending on.
Robert Hope: On what happens with the investigation or while SBA multi year endeavor.
Robert Hope: Yes, I think just on on maintenance.
Robert Hope: Mentioned on previous calls that we had planned.
Robert Hope: And to do some to bring some routine maintenance into 2025 that we're going to take advantage of.
Robert Hope: Some of what we thought was going to be some available system capacity.
Robert Hope: And so what we're what we're looking at doing there is revising more of the the longer term plan. So we'll bring in some integrity work and remedial work specific to milepost $1 71, and then we'll shift out some of the some of the other non urgent Morgan into subsequent years.
Robert Hope: And then just lastly, I would remind you that we do expect that.
Robert Hope: All of that work is operational in nature net debt operational costs are permitted within the variable toll on God how Keystone. This.
Robert Hope: Commercial deals are structured.
Robert Hope: Okay. Thank you.
Robert Hope: One moment for our next question.
Speaker Change: Our next question comes from Maurice Choy with RBC capital markets. Your line is open.
Speaker Change: Thank you and good morning, maybe I'll just finish up.
Speaker Change: Question about the incident, but more on the leverage side.
Speaker Change: Given that you have not been that.
Speaker Change: Our trajectory to exit 2025 at four eight times debt to EBITDA.
Speaker Change: That's a reflection of.
Speaker Change: How little costs.
Speaker Change: But you think.
Speaker Change: We recover from this or is this that you.
Speaker Change: Do you expect to recover most of everything by year end.
Speaker Change: Even if the amount is large.
Speaker Change: Good morning.
Speaker Change: It's bad here. So we expect all costs related to <unk> 71 to be covered by insurance or through our variable toll so within the year. So that's why our debt.
Speaker Change: Debt to EBITDA for year end is has not changed.
Speaker Change: Alright.
Speaker Change: Mitch did miss it but have you disclosed what the total cost it's been so far.
Speaker Change: Or is this one where.
Speaker Change: Even if it costs being incurred at what is the total cost that you expect from this incident.
Mario It's Kevin Thats, a great question, it's really early days, but the response went extremely well.
Speaker Change: We're in a location that is also very different than historical.
Speaker Change: And so at the time, when we're ready to disclose those costs, we will but.
Speaker Change: We have been so we haven't disclosed it so you haven't missed anything.
Speaker Change: We're working on.
Speaker Change: Their remediation as Richard has highlighted in so we're progressing really well and once we have the total estimate we'll share that with our shareholders.
Speaker Change: Sir.
Speaker Change: And just to finish up.
About just volumes in general.
Speaker Change: And your outlook for spot volumes on Keystone.
Speaker Change: The pressure restrictions from milepost 171 was there something during Q1 or maybe just more broadly about the market that motivated the more moderated outlook for spot volumes that you can kind of discuss here.
Speaker Change: Yes, we've been very consistent with our outlook on the year or even starting last year, where we saw some headwinds against start on contracted barrels and just to remind everyone that.
Speaker Change: We only have we reserved 6% for.
Speaker Change: Im contracted volumes out of Canada, So 94% of our volumes are fully fully committed.
Speaker Change: So with the with the tremendous uncertainty in the first quarter, particularly in January at the start of what we are seeing with potential tariffs.
Speaker Change: And the necessity to make decisions around how you move your barrels is that as a producer.
Speaker Change: We saw some volatility and headwinds against our are on contracted capacity, but that was in line with what we expected given the basin has.
Speaker Change: Extra pipeline egress capacity.
Speaker Change: Alright.
Speaker Change: A follow up on that one so if the January events or as you had expected.
Speaker Change: As he just said earlier messaging on the outlook is consistent throughout so what has changed.
Speaker Change: Cause this moderate out.
Speaker Change: Yes, I think.
Speaker Change: Our first outlet we were the headwinds were primarily and solely the fact that there was additional egress and so we envision that there would be.
Speaker Change: Challenges on our own contracted barrels exiting the base.
Speaker Change: Now we've just added a couple of different layers of headwinds.
Speaker Change: So we have now we have that the tariff headwind that provided some uncertainty, but again because our base businesses contracted it's just that headwind was going against the same headwind of additional egress.
Speaker Change: Now with the operational.
Speaker Change: Kind of restrictions that we have with respect to milepost 171, those headwinds again R.
Speaker Change: Are going against that same on contracted space. So.
Speaker Change: While our outlook was originally based on egress.
Speaker Change: Just going to be consistent, it's just which which headwind is kind of blowing.
Speaker Change: The hardest it doesn't really change our outlook going forward and that's why we were able to tighten our tightened our outlook in terms of our guidance for the year.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Understood. Thank you.
One moment for our next question.
Speaker Change: Okay.
Robert Hope: Our next question comes from Robert <unk> with CIBC capital markets. Your line is open.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Wanted to.
Speaker Change: Address the longer term guidance you gave some pretty good.
Speaker Change: Detail on your 2025 guidance, but.
Speaker Change: Wonder.
Speaker Change: Given that you have a relatively.
Speaker Change: Modest view of uncommitted volumes in marketing in 2025.
Speaker Change: So I'm wondering how that plays into the long term, 2% to 3% EBITDA growth.
Speaker Change: It's still a right number or stated another way what has to happen.
Speaker Change: Cycle, if market conditions don't change.
Jeremy Tonet: So Robert a couple of things first of all we've made great progress on our Blackrock project, which was as we indicated in the circular.
Speaker Change: The first underwritten project.
Speaker Change: That will contribute EBITDA to that 2% to 3% growth guidance and we see that that project.
Speaker Change: Well, we'll be able to finish our component of the scope here by year end.
Speaker Change: And then our customer will ramp up through the year. So our outlook in terms of that contribution of a partial year half year of EBITDA growth in 2026.
Speaker Change: Remains.
Speaker Change: We had indicated.
Speaker Change: In our <unk> at year end disclosure and the discussion at the quarter call.
Speaker Change: That we still see strength in supply growth and so our outlook was that we may start to see some tightening of egress volumes in 2026.
Speaker Change: And that is.
Speaker Change: Well see the potential to have.
Speaker Change: Some growth back in our UN contracted volumes, but we anticipate that to be a little later in the year. We've we've now managed to come through two different administration changes in both the United States and Canada, and so we're getting.
Speaker Change: The market and our customers are getting some additional certainty around how how that macro environment will shape and thats what will affect the.
Speaker Change: The supply growth.
Speaker Change: And demand for four <unk> services.
Speaker Change: That's a good segue to the other question I wanted to ask given that we have seen changes in both administrations. So what are you seeing on the policy and permitting environment on both sides of the bar on the could you.
Speaker Change: Bill to your confidence about your outlook both for production, but also for.
Projects, specifically thinking about permitting.
Speaker Change: Yeah. So one of our one of our top jobs as a management team is capital allocation and for capital allocation, we look to certainty.
Speaker Change: Around outcomes and so what we've seen in both administrations made commitments to look at the regulatory process and provide some additional certainty around how how it.
Speaker Change: Capital Allocators like ourselves can can look to to make those investment decisions. So we think it's constructive on both sides.
Speaker Change: The border that we work in.
Speaker Change: But every project is different within our within our portfolio and so.
Speaker Change: We built our business to be agnostic administrations and look to make sure that we can allocate our capital and the risk.
Speaker Change: Preferences that we've demonstrated to date.
Speaker Change: Okay. That's great. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from mentioned MS Pham with BMO. Your line is open.
MS Pham: Alright, thanks, good morning.
Speaker Change: Just wanted to ask a question on.
Speaker Change: Potential asset sales can you remind us.
Speaker Change: <unk>.
Speaker Change: On that in your overall thoughts around.
Speaker Change: And useful on first nations.
Speaker Change: Our ships and potential ability for you to look at that.
Ben: Yes, Ben Great question so.
Ben: All our assets are core assets.
Ben: When we when we spun out we're fortunate that we our business didn't have any noncore.
Ben: Assets within our portfolio, but directly to your questions around first nations.
Ben: And potential equity investments we will.
Ben: We have demonstrated as a management team in the past the ability to.
Ben: Prosecute those types of investment opportunities as parts of development of new projects.
Ben: It will always be something we will consider we don't have any plans at present.
Ben: On any of our specific projects to date, but.
Ben: It's certainly something that we have the capability to consider.
Ben: As part of our capital structure going forward on new investments.
Ben: Okay got it.
Ben: And then my next question.
Ben: Maybe your initial thoughts and stuff going on there.
Ben: On the base and the outlook and initial thoughts vague, but California Ken.
Ben: Well, a little bit out of our scope to talk about.
Ben: A third party transaction I think in general capital markets have shown shown that scale in and.
Ben: And consistency of delivering on our objectives is important.
I don't know exactly whats driving the interests in that situation for us we're focused on our base business. We've got a strategic corridor and we'll stick to our capital allocation priorities of of of allocating capital to strengthen our corridor.
Yes.
Yes.
Ben: I mean, the production outlook for oil heavy in.
Ben: Just in terms of direct indirect implications just how.
Ben: How much really to what I say that on a preliminary basis at this point.
Ben: Well I think both of those two operators have demonstrated tremendous success both in the oil sands.
Ben: The emerging plays in the clear water, which is why we are bullish around the supply fundamentals out of Western Canada.
Ben: And why we believe that that supply.
Ben: It's natural homes is the strongest demand market in the Gulf Coast. So I think if the industry as it as it potentially consolidates or it looks to grow is just really strong support for our business.
Ben: Okay got it okay. Thank you.
Ben: One moment for our next question.
Patrick Kenny: Our next question comes from Patrick Kenny with MBS.
Patrick Kenny: Thank you good morning.
Patrick Kenny: Just on the business development front and with line of sight to Blackrock being completed early next year. Just wondering if you can comment on how the inbound interest has evolved over the past couple of months from customers.
Patrick Kenny: Both upstream post election, as well as downstream now that we're seeing.
Patrick Kenny: Our record exports out of the Gulf Coast.
Patrick Kenny: Just curious where you might be seeing the most interest in terms of.
Patrick Kenny: Extending the system on either end.
Patrick Kenny: Yes, Patrick I'm very encouraged by.
Speaker Change: What we've seen as we've stood up our business and being focused on trying to find customer solutions are.
Speaker Change: Our team's talked on both ends of the system the downstream.
Speaker Change: Delivery points and also the aggregation and gathering of new volumes in the north of our system in Alberta, So I would say.
Speaker Change: Pretty consistent interest in and acknowledgment that we're now an independent.
Speaker Change: A company that has its own capital structure.
Speaker Change: Kevin work to find really good customer solutions. So.
Speaker Change: <unk> that we're building a good hopper and those opportunities are going to take some time to make sure.
Speaker Change: We're just over six months old, but even even with that I feel feel good about what the team has been developing on both sides as you say Patrick out under delivery points and also.
Speaker Change: In Alberta, with our existing assets to the north.
Speaker Change: Okay, and I guess on a larger scale if that if the pressure restrictions lift.
Speaker Change: Limit your ability to offer the uncommitted digress for a longer stay more sustained period.
Mike: Mike This spring.
Mike: Sky open season back on the table or.
Mike: I guess, what stars need to align macro or otherwise to.
Mike: To bring this opportunity back to the front burner.
Mike: Yes.
Mike: Yes, so we.
Mike: We did close with our partner on that opportunity.
Mike: Open season, there's a lot of commercial reasons, why that didnt advance, but that hasn't stopped us actually in terms of some of the things. We're maturing there other other other opportunities to leverage that corridor that the team has been working on so we haven't stopped we haven't.
Mike: Stop looking at ways to continue to grow our business and look for egress.
Mike: That isn't necessarily tied to our outlook with respect to our committed demand we feel that that volume.
Mike: As I said the supply fundamentals and the demand, we think that longer term outlook and even mid term outlook are very robust so.
Mike: We're working those in parallel.
Speaker Change: Got it thanks for the update I'll leave it there.
Patrick: Thanks, Patrick.
Speaker Change: One moment for our next question.
Keith Stanley: Our next question comes from Keith Stanley with Wolfe Research. Your line is open.
Keith Stanley: Hi, Good morning, first wanted to just start on the contractual commitments can you clarify that you can move 585000 barrels a day through the affected segment or are there other tools like market purchases or other things.
Keith Stanley: Need to use to meet commitments.
Keith Stanley: Yes.
Keith Stanley: Aurify that we expect to be able to physically move the.
Keith Stanley: 585000 barrels of.
Keith Stanley: Throughput.
Keith Stanley: Theres not any.
Keith Stanley: Synthetic conditions that are are being applied to achieve them.
Keith Stanley: Okay, great and I think that.
Keith Stanley: <unk>.
Keith Stanley: I think that comes Keith from.
Keith Stanley: We have been mentioning.
Speaker Change: We've had tremendous operational performance improvements over the last five years, so that as Richard said in the first quarter.
Speaker Change: We've demonstrated 98% system operating factors and Thats.
Speaker Change: Being able to deliver so effectively is giving us that opportunity to continue to serve our customers well.
Speaker Change: Okay.
Speaker Change: Great. Thanks.
Speaker Change: The second one.
Speaker Change: A bit theoretical but just thinking about future scenarios.
Speaker Change: You're very good sort of insurance coverage and contract structures that keep U haul in situations like this.
Speaker Change: If you did go down the road and eventually have to replace some of the pipe.
Speaker Change: That has had multiple issues like the burgh steel is there how can we think about insurance coverage for a scenario like that or how costs might be recovered under contracts and realize we're certainly not there at this point.
Speaker Change: Yes.
Speaker Change: Keith.
Speaker Change: The history has been in our outlook continues that.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: We do identify operational projects those operational projects or maintenance capital.
Speaker Change: Get flow through through the variable Paul with respect to.
Speaker Change: Biggs.
Speaker Change: Portions of pipe replacement, our wraps or or things and that's consistent across the industry. That's not something that's just.
Speaker Change: Something that we do but I think across the industry.
Speaker Change: Thats regular insurance I would say is not.
Speaker Change: Not something that we would lean into on an ongoing maintenance capital type projects.
Speaker Change: Okay.
Speaker Change: I wouldn't mind, just which is adding in there though.
Speaker Change: I think it's.
Speaker Change: Far too early to them to.
Speaker Change: To make assumptions around around the bird.
Speaker Change: This is a this is a world class American pipe mill.
Speaker Change: We're not.
Speaker Change: Aware of.
Speaker Change: <unk> systemic issues.
Speaker Change: With respect to their pipe there are.
Speaker Change: There are we've had two incidents that that Fei.
Speaker Change: <unk> failures on the long seem but at this stage we can.
Speaker Change: Say that they are related or that the issues are related yet, we really do need to work through that.
Speaker Change: The metallurgical analysis and the root cause failure analysis and from there we will develop immediate work plans like these these pipelines are designed for.
Speaker Change: For very long service lives and.
Speaker Change: I am confident that through.
Speaker Change: Our integrity programs, our in line inspection integrity verification digs and other various remedial work that we'll put in place that we will be able to.
Yes.
Speaker Change: Solve the issue that occurred here.
Speaker Change: And have a robust integrity program going forward then on build that'll keep our assets safe and then the oil in the pipe.
Speaker Change: I appreciate the helpful color there.
Speaker Change: And im not showing any further questions at this time I would like to turn the call back over to Ben <unk> for any further remarks.
Ben: Well. Thank you for your interest in South pole and for the thoughtful questions. Today, we look forward to connecting with you again in a few minutes.
Speaker Change: Thank you ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].