(Bloomberg News circulated the following story by Hugo Miller on May 2.)
CALGARY — Canadian Pacific Railway Ltd. is counting on a new line that will link refineries near Alberta’s oil-rich tar sands to its main southbound routes to boost annual shipments by as many as 200,000 carloads.
The 16-mile track will carry oil byproducts such as sulfur and petroleum coke, Chief Executive Officer Fred Green said in an April 30 interview. The added carloads would mean as much as a 7.4 percent increase from the Calgary-based company’s 2.7 million shipments last year.
The area south of the tar sands “is emerging as the next large industrial complex in North America” for petrochemicals, Green said. Canadian Pacific is seeking government approval and plans to start construction next year and operations in 2011. The line may cost C$100 million ($98 million), Green has said.
Canadian Pacific, the country’s second-biggest railroad, wants to benefit from crude-oil prices that climbed to a record $119.93 a barrel on April 28. The rising prices spurred refining companies such as BP Plc and Total SA to expand in the region along the road to the tar sands, which hold the world’s second- largest proven oil reserves.
“They’re very well-positioned to take advantage of the oil sands, not only taking the natural resources out but bringing in the infrastructure needed,” said Lee Klaskow, an analyst at Longbow Research in New York.
Generating 100,000 to 200,000 carloads a year on the new line is “very doable,” said Klaskow, who rates Canadian Pacific shares “neutral.”
Boosting Revenue
Canadian Pacific is relying on cargo such as sulfur, coal, grain and fertilizers to increase revenue as a slowing U.S. economy damps demand for shipments of autos, lumber and construction materials.
Green, 52, has led the company since May 2006. Canadian Pacific’s profit last year climbed 19 percent to C$946.2 million, as sales increased 2.7 percent to C$4.71 billion.
The company’s first-quarter sales rose 2.7 percent to C$1.15 billion as revenue from grain, coal, sulfur and fertilizers each increased as much as 7 percent. Profit fell 29 percent to C$91 million because of rising fuel prices and winter storms.
Canadian Pacific gained C$2.99 to C$74.18 at 4:10 p.m. in Toronto Stock Exchange trading. The shares are up 16 percent this year, compared with a 19 percent increase for Canadian National Railway Co., the nation’s biggest railroad.
U.S. Acquisition
Canadian Pacific may also expand its coal shipments through the pending $1.48 billion acquisition of Dakota, Minnesota & Eastern Railroad Corp. Canadian Pacific expects final approval of the purchase, announced in September 2007, from the U.S. Surface Transportation Board this September, Green said.
The U.S. railroad, based in Sioux Falls, South Dakota, had planned to spend $6 billion for as much as 262 miles of new track to haul coal from the Powder River Basin in Wyoming, which produces as much as 400 million tons of the fuel annually.
That plan will depend on customer demand, Green said.
Coal will remain a sought-after energy source for decades even as electric utilities seek cleaner alternatives, he said.
“It’s a business that’s big and is only going to get bigger for the foreseeable future,” Green said.