Led by surging Bakken activity on either side of the North Dakota-Saskatchewan border, railroads are starting to post solid gains as they service oil exploration and production.
A new report by RBC Dominion Securities estimates there has been a 36 percent rise in carloads carrying crude so far this year, compared with a year earlier, while six of the seven major North American carriers have posted double-digit growth.
Analyst Walter Spracklin said Canadian Pacific Railway has recorded the largest growth, with carload volumes up 90 percent over the same period of 2011, although the company started from a smaller base than most of its competitors.
CSX Corp. was rated as the most sluggish performer, growing by only 2 percent.
In addition to crude volumes, the railroads have also seen an overall rise of 12 percent in shipments of crushed stone, sand and gravel, all important commodities for oil and gas drilling.
Whether the increases will continue at this rate is an open question.
Morgan Stanley analysts recently projected that shipment of petroleum products from the Edmonton area of Alberta to a refinery in New Jersey adds C$20 per barrel to transportation costs, while shipping from Edmonton to Vancouver adds C$10 per barrel.
Canadian Pacific has estimated that its crude volumes could expand from 13,000 carloads, or 23,000 barrels per day, last year to 70,000 carloads or 125,000 bpd in the near term, Spracklin said.
Drilling sand deal signed
In a separate announcement June 22, Canadian Pacific said it has negotiated a multiyear deal with U.S. Silica Holdings for exclusive rights to move drilling sand from a mine in Sparta, Wis.
The sand is used for hydraulic fracturing in North Dakota shale formation and for extracting crude from the Bakken.
U.S. Silica, a publicly traded company since April, is the second largest silica maker in the U.S.
It is building a new frac sand facility on Canadian Pacific’s line in Wisconsin that will produce Northern White sand for use in shale basins in the U.S. and Canada.
The Sparta mine is expected to be fully operational in the first quarter of 2013.
U.S. Silica had previously announced it would partner with the Berkshire Hathaway-owned BNSF Railway Co. to build a silica sand storage facility in Texas to serve oil and gas exploration and development in the Eagle Ford play.
The company has an estimated 315 million tons of sand reserves at 13 sites.
—Gary Park
