South Bow Corp. (SOBO)

Equity Research 14 August 2026 | 12:23AM EDT

South Bow Corp. (SOBO.TO): 2Q26 Recap: Gulf Coast Strength Drives Beat; Prairie Connector Execution Remains Focus

Following 2Q26 results, we refresh our estimates for South Bow John Mackay | (SOBO/SOBO.TO) and remain Sell rated. Results in the quarter were above Goldman Sachs & Co. LLC expectations, largely on stronger than expected Keystone Pipeline results (margins Olivia Foster and US Gulf Coast segment volumes) - primarily due to the strong (albeit short-lived) | Goldman Sachs & Co. LLC incremental export pull on the USGC. Looking forward, SOBO raised its 2026 EBITDA guidance to $1,030m-$1,060m (from $1,010m-$1,050m prior), which now Jackie Koletas | compares to GSe of $1,055m and consensus of $1,049m - though management Goldman Sachs & Co. LLC guided 3Q26 EBITDA to ~10% below 2Q26 as Gulf Coast flows moderate. Most in Ben Lund focus was the advancing development of the proposed Prairie Connector project | Goldman Sachs & Co. LLC (and the jointly proposed Liberty Bridge Pipeline project with Bridger) following the acquisition of the Liberty right-of-way from Tallgrass in June, formal receipt of 465 kb/d of 20-year binding commitments, and an increasingly supportive WCSB egress backdrop. While incrementally constructive on the commercial and corridor progress, we continue to see permit durability across two jurisdictions, an unresolved JV/cost-sharing structure, and SOBO’s ~$3.1b net funding requirement as the more challenging gating items to a mid-2027 FID - with the regulatory/permitting support needed to mitigate downside risks during construction still the key item. Altogether, our estimates remain largely unchanged on average 2026-2031, we extend our estimates through 2032, and we continue to see valuation as a constraint to becoming more constructive on the stock. Our PTs are unchanged at $32/C$45, and we remain Sell rated.

2Q26 Results Strong performance in 2Q26. SOBO reported 2Q26 adj. EBITDA of $280m, above GSe of $263m and FactSet consensus of $261m (+6%/+7%). Stronger-than-expected Keystone Pipeline System results drove the beat vs. our estimate, as disruptions to global crude markets supported demand on the Gulf Coast segment, and was partially offset by softer Marketing results ($2m vs. GSe of $9m). On volumes, Keystone Pipeline volumes of ~596 kb/d came in ~2% below our estimate, while US Gulf Coast segment volumes of ~800 kb/d was ~13% above GSe; margins were also stronger across the segment. On cash generation, DCF in the quarter of $175m was stronger vs. GSe of $163m on both higher EBITDA and lower capex, while leverage improved to 4.4x net debt-to-normalized EBITDA (down from

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Goldman Sachs South Bow Corp. (SOBO.TO)

Raised FY26 guidance. SOBO raised its 2026 EBITDA guidance to $1,030m-$1,060m (from $1,010m-$1,050m prior), with the midpoint now below GSe of $1,055m and consensus of $1,049m. Management also guided 3Q26 EBITDA to ~10% below 2Q26 (implying ~$252m vs now GSe of $254m), as Gulf Coast segment demand moderates on low remaining inventories in Cushing and Hardisty along with tighter Cushing differentials. Growth capex guidance for the year was increased to $70m-$90m (from $25m-$45m prior) and compares to now GSe of $78m and consensus of $75m, primarily reflecting ~$65m of anticipated pre-FID development costs for Prairie Connector and ~$10m from Blackrod Connector. On DCF, SOBO raised guidance to ~$650m-$680m (from $640m-$670m), now in line with GSe of $664m.

Key Takeaways On Prairie Connector:

n Liberty Bridge acquisition clarifies corridor scope. The most notable development in the quarter was the refined scope for the Prairie…