South Bow Executives See Major Growth Tailwind in Carney’s ‘Mega Deduction’ Tax Policy
South Bow Corp. SOBO-T is all but committed to building the US$2.1-billion Prairie Connector pipeline, and boosting Alberta oil exports to the United States, after the federal government introduced tax breaks and showcased the project at last week’s investment summit.
On an investor call late last week, Calgary-based South Bow executives said Ottawa’s planned “mega deduction” on investments in assets strengthened the case for a proposed 380-kilometre pipeline, which partly revives the Keystone XL expansion project, cancelled after then-president Joe Biden revoked a key permit.
South Bow chief executive officer Bevin Wirzba and his team told investors they are working on several ways to pay for the pipeline, such as selling a stake to private equity fund managers, including those who attended the Canada Investment Summit last Monday and Tuesday.
South Bow’s CEO struck the upbeat tone on the Prairie Connector days after the federal government featured the pipeline in a summit pitchbook sent to the world’s largest institutional investors.
At the summit, Prime Minister Mark Carney announced a corporate tax break that would allow companies to immediately write off the full cost of acquiring or building assets, a move meant to give Canada one of the world’s lowest corporate tax rates. The government specifically mentioned investment in pipelines.
The proposed deduction is meant to boost productivity and spur business investment. The government predicted the change would mean $36-billion in foregone tax revenue over the next five years.
At the summit, Ottawa also showcased three projects that would send Canadian oil and gas to Asian and European customers. The pitchbook included the $35-billion West Coast Oil Pipeline that would move one million barrels of oil a day to the Robert Banks Terminal on the outskirts of Vancouver.
Two fund managers at the event, New York-based KKR & Co. Inc. KKR-N and Apollo Global Management Inc. APO-A-N, invested a total of $2.7-billion last month in a British Columbia natural gas pipeline owned by Enbridge Inc. ENB-T unchanged.
To lower the cost of debt needed to build the Prairie Connector, South Bow executives said they are negotiating loan guarantees with the U.S. Department of Energy as well as the federal and Alberta governments.
The executives also said they are considering a stock sale to fund the Prairie Connector. Last week, South Bow peer Enbridge Inc. sold $3-billion of shares to pay for recent acquisitions and new projects.
South Bow executives told investors they will make a final decision on the Prairie Connector by the middle of next year. The pipeline would run from Hardisty, Alta., to the Canada-U.S. border, where it would link up with the proposed 1,050-kilometre-long Bridger Expansion project, which is backed by Bridger Pipeline LLC.
“The Canadian government’s Productivity Mega Deduction should be meaningful,” for South Bow’s returns on the Prairie Connector, analyst Maurice Choy at RBC Capital Markets said in a report published on Monday, after hosting the investor briefing.
KKR, Apollo and domestic peers such as Brookfield Corp. BN-T invest on behalf of insurance subsidiaries, which have lower target returns than traditional private equity funds and can provide lower cost capital to infrastructure such as pipelines. South Bow said insurers are a “viable option” as investors in the Prairie Connector, said Mr. Choy.
South Bow “management is cautiously optimistic of the project moving forward toward a mid-2027 final investment decision, recognizing as well that the ongoing trade relationship between the U.S. and Canada can have an impact on the pace of its negotiations,” said Mr. Choy.
A spokesperson for South Bow declined further comment on the Prairie Connector on Wednesday.
South Bow, spun out of TC Energy Corp. TRP-T in 2024, owns the Keystone pipeline, part of a 4,900-kilometre-long network that carries 1.25 million barrels of oil each day from Alberta producers to refineries and export terminals on the U.S. Gulf Coast. The company’s clients include major domestic producers such as Suncor Energy Inc. SU-T +and Canadian Natural Resources Ltd. CNQ-T.
The Prairie Connector would initially boost South Bow’s capacity by 600,000 barrels a day and capacity is expected to eventually reach one million barrels a day. In May, South Bow announced it had binding 20-year customer commitments for 465,000 barrels of oil a day on the planned pipeline.
If the project goes forward, the Prairie Connector would make use of approximately 150 kilometres of previously installed Keystone XL pipeline and two pump stations.
The U.S. is Canada’s largest energy export market and buys roughly four million barrels of oil each day. Building the Prairie Connector would increase that total by 25 per cent.
While U.S. President Donald Trump has threatened to displace Canadian imports with crude from Venezuela, industry analysts forecast continued growth in U.S. and overseas demand for Canadian heavy oil.
Venezuela exports roughly one million barrels of oil a day, and its energy infrastructure has been crippled by years of underinvestment and poor maintenance.
This article was first reported by The Globe and Mail
