South Bow Corporation Price & Performance (SOBO)

We also have additional members of our leadership team in the room to help with the question and answer session as required. 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 SunSco's SEDAR plus profile and SEDAR financial measures and ratios, which may not be comparable to measures presented by other entities. Finally, I'll ask our analyst callers to hold themselves to two questions each to keep the discussion moving along. 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 Bo. 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 And we delivered record operational results with strong system availability and throughput across our systems. That's in addition to a successful Fed raise, IPOs on both Toronto and New York stock exchanges and attracting a top tier Board of Directors and team. 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 Coast 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. The best way for us to do that is to leverage our existing infrastructure to deliver the highest returns possible for our shareholders.

Our Blackrod Connection Project In Our Graton 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, against return of capital measures, Our capital allocation decisions are and will be measured against our risk [indiscernible] 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 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. We look forward to be able to talk about this potential solution in the future. With that, I'll briefly highlight our strong financial performance in 2020 South Bow generated $1,090,000,000 of normalized EBITDA and distributable cash flow of $6.00 $8,000,000 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 The U. S. Gulf Coast segment of our Now looking to 2025, our financial expectations are underpinned by 90% of our normalized EBIT secured through committed arrangements.

These carry minimal commodity or volumetric risk resulting in stable and predictable bulk cash flows. We expect to generate normalized EBITDA of $1,010,000,000 this year within a range of 3%. While a very small component of our business the ongoing uncertainty around tariffs may create headwinds for our uncommitted [indiscernible] 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 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 as we advance the Blackrod Connection Project and incur one time cost to continue establishing our organizational capabilities. 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 Blackrod Connection project starts generating cash flow. Lastly, we will continue to return shareholder value through our quarterly dividend of $0.5 per share.

Which our Board of Directors approved yesterday. 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, South Bo South strongly positioned to continue safely and efficiently delivering value to our customers and our shareholders. I'll now turn it back to the operator for questions.

Thank you. And it's from the line of Mauriz 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 with regards to your current open season. I assume that's regards to possibly Big Sky. But maybe just speaking more broadly, can you just discuss what have you been seeing and what kind of imbalance you've been getting in terms of sizes, in terms of interest, in terms of timing? In terms of getting more WCSB egress whether that be this solution or other solutions?

Great question, Morris. This is Devin. It's been long noted that Western Canadian sedimentary basin has been egress constrained for years. And with the uptake on TMX last year, we saw the first really increase to that egress in decades out of out of the province. 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 basin 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're 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 supply and demand fundamentals will persist here over the next few decades.

Thanks. And I believe, there's a quick follow-up to that. You mentioned 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 were all trajecting towards somewhere closer to the end of the decade, but not not maybe just before that?

Yes. 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 sack mature our business to maintain a strong balance sheet and we see that as also accretive to the equity investor.

Thanks. And just finishing off on the guidance piece. Obviously, a lot of discussion here about tariffs South on the Keystone spot side as well as the marketing. Sounds like you've derisked the guidance a little bit, but wonder whether you could paint us a little bit of a picture as to how what other things should we be watching out for from a downside perspective from the guidance that you've seen today?

So we fortunately for us, we have such a strong contracted base I mentioned 90% of our EBITDA is fully contracted. And in our guidance, we put that 3% range There has been quite a bit of uncertainty in the marketplace as you point out. Even with 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 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 so perhaps I'll turn it over to Van maybe to just walk through how how we got from last year to this year's guidance because I think that will provide some clarity for Thanks, Bevan. Yes, so in 2024, our EBITDA of $1,910,000,000 and walking that down to 1,100,000,000.0 That uncommitted capacity that Bevan talked about, that's approximately $40,000,000 and then reducing our outlook for our marketing segment is another $30,000,000 Also, if you remember, what we what we said is our Q3 twenty twenty four financials be a good indication of what 2025 would look like.

And so a reminder that EBITDA in Q3 twenty twenty four was CAD360 million.

So if you annualize that and take the current exchange rate, you get to that $1,000,000,000 $10,000,000,000 range.

Understood. Thank you very much.

Thank you. Our next question is from Ara MacNeil with TD Cowen.

Please proceed.

Hey, good morning all. Thanks for taking my questions.

As we think about potential future growth opportunities for South Bo, I was wondering if you could give us a bit of a rundown on [indiscernible] pre capitalized optionality, if you want to call it that or subcapital maybe that was spent as part of Keystone XLR associated with that. I'm thinking of like the 150 kilometers of installed pipe made think there were a few pump stations maybe additional potential capacity on the Inter Alberta pipelines or the Gulf Coast segment. So sort of what's sort of in the portfolio today [indiscernible] And any details on what the capital or replacement value of those assets 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 a prebuild. That capital is in the ground, and that's a 36 inches pipe line 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 Neches Link in the Gulf Coast, we're looking to 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. And So By Adding Additional Delivery Points Where 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 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 XL was our Grand Rapids corridor. And that that corridor, our first example of how we've been able to leverage that is the Blackrod Connection project, which allowed us to provide a very competitive toll to our customer and bring on 40,000 barrels a day of 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 of Keystone XL and that capital is in the ground. But we don't comment in terms of [indiscernible] That capital was previously impaired. And we're looking to see how we can optimize those corridors in the future. Okay, fair enough. And then just switching gears understand the guidance in terms of the 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 of the year to date actuals.

Yes. So So this goes back to what 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 the TMX pipeline successfully got into service in May. That was five months later than what we had anticipated for 2024. So our 2024 results 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 uncontracted barrel and that we saw that that outlook would remain through 2025. And so we are seeing quite a 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 in to place until earlier this week, it did affect the R 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 behaviors 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 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 south.

Great, great.

Thanks. I'll turn it back.

Thank you.

Our next question is from Robert Hope with Scotiabank. Please go ahead.

Good morning, everyone. Two relatively high level questions.

The first is regarding you don't need to specifically talk about the open season, but how do you think about projects increasing egress South of Western Canada in the context of 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 of your re contracting efforts?

Yes, 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 And when I say modest, when you think about 4,000,000 to 5,000,000 barrels leaving Canada, South, we're talking a few percentage points at best. In terms of optimization and growth. On that base. And so 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 a Jeff recontracting of Keystone. Also remind folks that we do provide the most direct route on our base system with a fast transit times with the only batch system which is which have very compelling attributes to serve our customers, which straddle both the supply and the demand side of our system. So we do have a very unique corridor that we believe has has attributes that will still be very compelling when we go to the recontracting of the R base [indiscernible] All right. That's helpful. And then in your prepared remarks, you've mentioned mentioned growth capital would be seen through the lens of your risk preferences as well as leverage When you think about your delevering past as well as some opportunities on the growth side, How much capital or how large of a project would be too large just given your intentions to delever.

Just trying to get a sense of maybe some goalposts of what is the upper end of projects you'd look at So Robert, our job is to create value for not only our customers, but for our shareholders. So our our base guidance of 2% to 3% EBITDA growth really is underpinned by around 400 to $500,000,000 of U. S. Dollars being spent over a four to five year period. So around 100 hundred 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 that might have increased capital requirements. We'll look at those in a 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 to develop those projects in the future.

All right. Appreciate that. Thank you.

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

Thank you. Good morning. Just 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 Hardisty down towards Montana or is the thinking going further east across Saskatchewan and then entering The U. S. Through North Dakota just in order to to mitigate some of the risk around legal challenges at the state level?

Yes. So Patrick, we're as I mentioned, we don't we don't talk about this very early feasibility stage of an open season and what we're contemplating. I think our comments regarding leveraging our existing corridors You can take that as guidance as to what we're focused on and contributing to a potential egress option. Leveraging what has been capitalized historically is what we can bring to the table. And obviously, as we move forward, Today's environment is It's not an easy environment 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 open season. And when we have something meaningful that we can talk to, in terms of routes and what type of capital exposure there may or may not be. We'll bring that forward at the right time when it's actually meaningful and we can we can be clear with with our investors.

Understood. And maybe just from an ownership perspective, I mean, should we be thinking of classic fifty-fifty JV with your partner on all the new infrastructure that might be required to make this happen? Or are you thinking maybe or you're open to maybe a smaller minority ownership stake just to keep the timeframe in line with previous guidance to get down to the 4.5x leverage ratio within the next two to three years and that 4x marker [indiscernible] Yes, Patrick. I mean, you just highlighted even in your question, there's a ton of different alternative ways of of advancing a project in terms of ownership levels and our participation. And we're looking at all those alternatives right now. Our main focus right now 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 then 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 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.

Okay, got it. That's great. Thanks, Bev.

Thank you. Our next question is from Robert Catellier with CIBC Capital Markets. Please proceed.

Okay. Just wanted to address the marketing situation for a minute, applaud your discipline and risk management in light of volatile market.

But I'm curious what you need to see in the market to be comfortable returning your exposure and activity levels where they were previously? Is it simply a question of tariffs or a question of ARBs or is there something more holistic involved in the whole equation? That's a great question, Robert. 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 [indiscernible] learning about the potential even of tariffs we had begun the shift to move our marketing affiliate strategy more to a contracted basis As you recall, like our Market Link asset was was effectively a pre commercial strategy to Keystone XL coming on and all of those contracts fell off at the time of effectively determination of the Keystone XL 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 made reinforced our decision to 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. 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 for our customers, but we're very focused on making our contracted base even stronger, which I think our shareholders covered based on kind of the risk profile of our business.

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 a rest do you see going forward on that issue?

Yes.

I'll start with that Robert and then I'll pass it over to Richard. Number one, for us is we're a customer centric entity and being in a dispute with our customers is not where we want to be. So we've made a very high priority for us to try to find a solution with our customers That's the way we can find a path forward to develop new opportunities when we're aligned with all 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. And as you pointed out, there's been a big few years of process and that 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 regarding the process, 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. We think that could come potentially even later 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. And and 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 But one thing I'd just remind you of is that this is all subject to the liability indemnification provisions that we have with GC Energy part of our separation agreement. And what that entails is that South Pole would accrue up to 14 CAD30 million. So that is our our aggregate exposure that we could we could reach from this issue and incident. But as Evan started his comments, we are absolutely still continuing to have commercial discussions with our customers. Ideally, we can we can reach a commercial resolution that is acceptable to all parties.

Okay. Thank you for the update.

Thank you. Our next question is from A. J. O'Donnell with TPH.

Please proceed.

Good morning, everyone. Thanks for taking my 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 of years to hit that target Is this just strictly reversing some of the headwinds that seen to the 2025 budget? Or just what other additional details can you provide on that longer term outlook?

Yes. So, H. A, we We actually just became open for business a few months ago, to be honest. 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 this spin commit to the Blackrod project, But the team has been extremely active in the last even five 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%. We'll provide more transparency as those evolve and move from feasibility stages to to more firm ground. But the nature of our corridors in both The United States and in Canada is such that 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 we literally just became open for business on October 1. And so 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.

Understood, Bevan. Maybe just one more on the marketing business. And given what we've seen so far this year between 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?

Yes. So per my previous remarks, our primary driver is to to move our marketing strategy to a much more contract contracted approach to limit that volatility for shareholders. But as you say, there our team is in place We will look to see windows 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 our release, and we wouldn't try to make any expectations of what we may or may not be able to achieve there. We've seen in the past couple of months ARBs move upwards of up 50%, down 50%. So there have been quite significant movements within the ARBs that drive our business in both our mark link and then our Keystone uncontracted barrels. So we'll look to continue to optimize and try to claw back some additional dollars. But I wouldn't see it material to our guidance going forward. Appreciate the detail. Thank you very much. Thank you.

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

Hi, good morning.

On the recent approval from FIMSA to lift the pressure restriction, Can you give us sense of how much capacity this will add back? And if you'll now be pretty much back to where you were prior to Milepost 14?

Yes, sure. Thanks. So this is Rich Pryor. So, yes, earlier this week, as you mentioned, we received approval from FINSA to lift the depressors restrictions on the affected segment of the Keystone system. So that effective segment is kind of the very specific section of the pipeline where we we had our multiples for teen incident a couple of years ago.

The main benefit to the pipeline system of lifting that pressure restriction is going to be The operations and the operational efficiency of the system. We've been using drag reducing agents and we've and we've been able to work with a very very high system operating factor over the last year in a bit to ensure that we've been able to move all of our contract volumes and we've also been able to make quite a bit 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 to all the competitive as we can and making sure our customers can as many barrels as possible. But I'm not providing at this time any additional throughput that would come with this with the derate lift.

Understood. Thanks. Second question, I just wanted to go back to the 2025 EBITDA outlook. And I appreciate the year over year walk versus 2024. But the outlook is also lower than 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?

It's Van here. And so on the marketing segment, we mentioned that that's down $30,000,000 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, [indiscernible] certain unwinds of positions that we did to reduce risk. So combined there, it's $30,000,000 South then again on the spot price it's It's a combination. We have a lower system operating factor that 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 dips will be less as well.

Got it.

Thank you.

Thank you. One moment for our next question. It's from the line of Jaeme Frakos with BMO.

Hi, good morning. 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? [indiscernible] longer term, what would be a reasonable normalized assumption for the segment?

Yes. So James, our marketing segment and our on contract barrels are heavily and primarily driven by the ARB. And so as I commented earlier, last year in 2024, 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, our tightened and exactly as what we anticipated, making that tougher. And then so you have less margin South of the basin. To capture with that on contracted barrel. So as we see 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 to additional movements and that are going down to 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. And then as the 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 MarketLink 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. 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.

Okay, great. Thanks. 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 secured projects to to underpin the 2% to 3% growth?

Well, I think we when you look at our capital allocation priorities, the first two like the the deleveraging and investing in our pre capitalized corridor go very hand in hand. And so Black Rod is a great example that 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. And then we'll see the contribution [indiscernible] to help our delevering it. So as we grow, where that accelerates our delevered leveraging when we're able to pursue projects that are within our corridors really allow us to [indiscernible] get to our leverage targets. And so we see growth kind of paired with deleveraging because of of the corridor that we're developing.

Great. Thanks. I'll turn it back.

Thank you.

Our next question is from Fronid 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 cost or continuing to use DRA in 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 want to confirm that and how you think about those two scenarios?

Yes. And so when you think about the system, we have to manage the throughput on the volumes over the entirety of the 2,100 miles of the path, right? And this derate was only specific to a very small segment of the system. And so just having the de rate lifted this week, it'll take us several weeks to work through the some internal engineering and and that work we need to do with the control center to to remove the derate. And then and then we need to see the pipeline operate for for some time and see where we're at.

And so I would say, certainly in the near term, it would look like a reduction in DRA and more operating efficiencies lower operating costs. And that's a benefit to our overall total. And and to our customers. And then then in the long run, we'll have to look at our system, our operating factor and how the line is is operating and then we'll make decisions at some point in the future as to to what that means for aggregate capacity.

And I just want to Puneet, I'd it's not direct to your question, but it's maybe a remark that I overlooked in some of the previous questions was that with the with the potential the little bit of the headwinds that we see this year with respect to the ARBs. And 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 will help us be positioned for when we see ARBs come back. 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. [indiscernible] to be in a really good spot for when we do see the market tighten back up again. Got it. That's helpful. And not to belabor the point here, but just going back to Big Sky, I recognize you're 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 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 Pradeep, as I mentioned, we are 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, but we've been very consistent that we are not going our leverage will will be pointed down in the direction that we've been highlighting since inception and some spin. So our target of getting down to four point zero is not going to be jeopardized by us advancing on any of these other projects.

Got it. Very clear. Thank you.

Thank you. And this concludes our Q and A session for today. I will turn it back to Beden Wursbach for his final comments.

Well, thank you all.

Thanks to our analysts for all your thoughtful questions today. And we really appreciate your interest in SouthBow and for joining us 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 participating.

And thank you all for participating in today's conference. You may now disconnect.