Helped by oil trains, Canadian Pacific reports record profits

Canadian Pacific Railway, a hauler of crude oil and other commodities through Minnesota, said Thursday that oil shipments from North Dakota and Canada rose 22 percent in 2014, and are expected to increase again this year despite low oil prices.

The crude-by-rail traffic, along with increased grain, consumer and other business, drove record revenue and earnings per share for the railroad, which is based in Calgary and has its U.S. headquarters in Minneapolis.

The railroad said it hauled 110,000 tank cars of crude oil in 2014, up from 90,000 in 2013, and expects to haul 140,000 oil tankers this year.

About 55 percent of the oil came from North Dakota, the rest from Canada, where shippers now can load heavy crude from Alberta's oil sands on 100-car-long unit oil trains at terminals in Bruderheim and Hardisty.

"This growth is mainly driven by new movements in Canada from Bruderheim and the Hardisty facilities, which will drive as we go into 2015," Canadian Pacific President and Chief Operating Officer Keith Creel said on a conference call with analysts.

Much of Canada's oil is exported to U.S. refineries, including along the Gulf Coast, the site of two new oil train unloading facilities. A future destination mentioned by rail executives is the ExxonMobil refinery in Joliet, Ill., which is adding the capacity to unload oil trains.

The crude-by-rail business, which emerged early in North Dakota's oil boom, is gaining favor in Canada even though it costs more than shipping by pipeline. Rail exports of Canadian crude hit 182,059 barrels per day in the third quarter of 2014, an elevenfold increase over three years, according to Canada's National Energy Board.

"If you are a refiner and you need crude and you can't get enough capacity on the pipeline, and there is no other way to get it to market … you pay whatever it takes," said RBN Energy analyst Sandy Fielden, who tracks the crude-by-oil sector.

Fielden said Enbridge Energy's pipeline that carries Canadian oil through Minnesota to U.S. refiners is facing such high demand that shippers can transport only a portion of oil they'd like to ship — a condition known in the industry as apportionment.

In a sign of the shift to oil trains, Canexus Corp., operator of a new oil train loading terminal in Bruderheim, near Edmonton, Alberta, recently said that it signed another deal with an unidentified customer to load crude oil unit trains. Canexus said the terminal now has 5.5 unit oil trains per week under loading contracts. Unit oil trains are only tankers.

The drop in world oil prices to half what they were a year ago is having some effect on the crude-by-rail business. Canadian Pacific executives cut their 2015 oil train forecast to 140,000 oil tank car shipments, down from an earlier projection of up to 200,000 oil tank cars.

"The question obviously is whether the oil sands producers, if the prices continue as they are, will continue to expand their production," Fielden added.

Fielden said much of the Canadian crude-by-rail is headed to the Gulf Coast, where refiners have installed equipment to process similarly heavy oil from Mexico and Venezuela. Oil train unloading terminals are now operating in Port Arthur and Beaumont, Texas, he said.

Minnesota's two refineries in Rosemount and St. Paul Park also process Canadian oil, but are served by pipelines.

Canadian Pacific said its fourth-quarter earnings were a record $2.68 per share (Canadian), up 38 percent over the period a year ago. Annual earnings per share rose 71 percent to set another record, and annual revenue of $6.6 billion (Canadian) also was an all-time high, the company said.

Shares in the railroad closed at $182.49 Thursday, down $1.47.