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Icahn enters railcar sector with American Railcar Leasing
Billionaire hedge-fund activist Carl Icahn has lent his financial acumen to the crude-by-rail movement by entering a joint venture to establish a new U.S. railcar leasing company.
He said American Railcar Leasing LLC has be brought to life by “secular changes in the transportation industry driven significantly by increasing crude oil and natural gas production in North America” which relies on the use of rail to move products.
ARL is a combination of Icahn’s personal investments and Icahn Enterprises, a company he chairs and which will kick in cash and railcars worth $737 million for a 75 percent stake.
ARL has been described as one of the leading North American manufacturers of tank and hopper railcars, along with repair and fleet management and a combined lease fleet of 32,500 railcars.
Icahn said the railcar business is in a strong growth phase and “we have high expectations for the entire segment.”
Carl Larry, president of Houston-based Oil Outlooks, said the prospect of continued expansion of multi-stage fracturing and Brent crude becoming “more sensitive to geopolitical events” make it possible that “we will never see a premium that will favor West Texas Intermediate for an extended period,” thus ensuring that the rail business and U.S. oil economics will remain in play.
No Keystone equals more rail Larry said that if Keystone XL gets turned down by the White House, an even larger volume of U.S. crude will move by rail.
Crude oil and petroleum products carried by rail rose 46 percent in 2012 over 2011, representing about 172,000 carloads, the Association of American Railroads has estimated, with crude oil accounting for 32 percent of the combined deliveries of oil and petroleum products.
To date this year, almost 500,000 railcars have moved crude and products, close to 40 percent ahead of 2012, with crude traders predicting that the result will see a further decline in rail short-term rates, which have dropped to $1,500 per car from $4,000.
But Icahn’s ARL faces stiff competition from Warren Buffett’s UTLX and Trinity Industries, although the field is opening up as refiners such as Tesoro and PBF Energy are adding to their rail infrastructure.
A crude-by-rail forum sponsored by Canadian Business Conferences in late September said the North American West Coast, notably California and the Pacific Northwest, is offering promising new opportunities for Canadian producers of both heavy and light crude to use rail to fill a gap where pipeline capacity of tight or non-existent.
Ed Koshka, vice president of crude marketing operations for E-T Energy, said crude producers should look at all costs, not just transportation, when comparing rail and pipeline services, suggesting that shows rail does not necessarily offer better pricing for light crude than pipe.
Additional costs such as terminal/tankage fees, feeder pipeline charges and higher diluent costs for bitumen create higher costs for delivering heavy crude from the Alberta oil sands to Prince Rupert on the northern British Columbia coast, he said.
—Gary Park
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