South Bow Corp. (SOBO) began operating as an independent pipeline company on October 1 following its spinoff from TC Energy (TRP). Investors interested in leverage to crude oil or Canada may consider a closer look at the newest company in midstream.
In the separation from TC Energy, South Bow took the liquids assets while TRP retains its natural gas, power, and renewable energy operations. SOBO’s largest asset, the Keystone Pipeline System, transports crude oil from the Western Canada Sedimentary Basin (WCSB) to Midwest (PADD 2) and Gulf Coast markets. The company also owns several oil pipelines in Alberta, including Grand Rapids and White Spruce.
Investors interested in a new angle could take an interest in Calgary-based South Bow. SOBO is the only public pure-play for crude pipelines in East Daley’s coverage, available in Energy Data Studio. The largest crude pipe operators -- Enbridge (ENB), Energy Transfer (ET), MPLX and Enterprise (EPD) – are all integrated midstream players. Plains All American (PAA) is a close comp to SOBO, but PAA also runs a giant Permian gathering system and owns NGL assets in Canada.
SOBO is strategically positioned in the North American midstream thanks to the Keystone system. Keystone provides significant flexibility to deliver WCSB crude to PADD 2 refiners, the Cushing hub in Oklahoma, and to Gulf Coast markets in Houston, Port Arthur and Port Neches.
The Keystone Pipeline System includes Keystone Pipeline and a ‘virtual’ asset created by a capacity lease on Marketlink Pipeline. Keystone Pipeline (620 Mb/d capacity) moves Canadian oil to the Wood River and Patoka refining hubs in the Midwest and to Cushing. The Marketlink capacity lease extends connectivity from Cushing to the various delivery hubs along the Gulf Coast.
East Daley Analytics has built a Financial Blueprint projecting future performance for South Bow, available for clients this week. Keystone is the cornerstone of SOBO’s asset portfolio and generates stable earnings from high utilization, historically above 90%. Keystone is also backed by minimum volume commitments (MVCs) above 85% that protect from downside. In contrast, Marketlink performance has been more variable, with historical utilization averaging around 67%, but rising to ~90% in 2024.
Keystone Pipeline System generated comparable EBITDA of $1,025MM in 2023, while the intra-Alberta pipelines and other assets generated $53MM. East Daley’s new SOBO Financial Blueprint forecasts comparable EBITDA for Keystone Pipeline System to be $1,032MM in 2024, increasing to $1,039MM in ‘25. We forecast overall 2.3% CAGR from 2024-28, driven by 1.5% CAGR on the Keystone system and $31MM in annual EBITDA from the Blackrod project. – Gage Dwan Tickers: ENB, ET, MPLX, PAA, SOBO, TRP. Reach out for more information about the SOBO Blueprint.
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