The question is: How much has the loss of rail service to the Irving Oil refinery in Eastern Canada affected the marketing Bakken crude?
The three common answers are: Not sure, can’t say or won’t say.
For most of those in-the-know, the refusal or inability to offer numbers is understandable.
They were best summarized by a spokesman for Canadian National Railway.
“For competitive and confidentiality reasons, CN does not discuss publicly its commercial relationships with specific customers or shipments by specific lane or geographic region,” he said in an email.
In filing for bankruptcy protection, Montreal, Maine & Atlantic Railway disclosed it had increased volumes it was delivering from the Bakken to the Irving refinery at Saint John, New Brunswick, to 500,000 barrels a month.
The ill-fated train that derailed, triggering deadly explosions in the Quebec town of Lac-Megantic and costing an estimated 47 lives, was carrying 50,000 barrels.
Bogged down in mounting legal actions that could last for years and having lost its main line from Montreal to Saint John, MM&A has declined to say what crude volumes are affected.
Privately owned Irving seldom answers queries from the news media; CN and Canadian Pacific Railway will not say whether they are providing alternative rail service to Bakken producers; the North Dakota Petroleum Council said it has no knowledge of any changes to private business contracts; and the North Dakota Pipeline Authority said it had no firm information on whether alternative means were being used to get Bakken crude to refineries.
Ed Burkhardt, chairman of both the United States and Canadian units of MM&A, raised the issue early in August when he told the Montreal Gazette that moving crude was “more trouble than it’s worth” and that “we don’t plan to continue with oil transportation.”
The larger question is whether MM&A will ever be able to resume service, but the company is not ready to go public on that issue.
However, in its bankruptcy court filings, the company said that until the Lac-Megantic disaster it had been hauling 500,000 barrels per month through Quebec and Maine to Irving’s 300,000 bpd refinery.
“This business played an important part in MM&A System’s aggregate monthly gross revenues of approximately $3 million.”
One crude trader suggested the only alternative means of using rail from North Dakota to New Brunswick would be CN’s network, although changing tracks would add $2 to $3 per barrel to shipping costs.
He said that would make Canadian sweet crudes more economic for Irving than Bakken crude.
Legal quagmire
For now MM&A is getting drawn ever deeper into a legal quagmire that will be closely followed by every party to crude-by-rail operations, with civil and criminal investigations gathering pace.
Quebec Superior Court Justice Martin Castonguay granted creditor protection Aug. 8 to MM&A, saying the events that have claimed an estimated 47 lives were” extraordinary and required an extraordinary remedy.”
He said MM&A’s “conduct has been totally lamentable from the beginning” and he was not impressed with the railroad’s presentation for bankruptcy protection.
But, given the circumstances, he said there was little choice other than granting the application.
Castonguay initially excluded directors of MM&A Canada from the court’s protection, saying they must have acted in “good faith” to earn that privilege.
He later changed his mind after an attorney for MM&A said allowing lawsuits to proceed against the directors might drain the company’s C$25 million insurance policy.
Chapter 11 proceedings
MM&A has also started proceedings for Chapter 11 bankruptcy protection in the United States.
“No way the U.S. courts are going to buy that (application),” said Edward Jazlowiecki, a Connecticut-based lawyer for several Lac-Megantic victims.
The victims’ lawsuit alleges negligence by MM&A, parent company Rail World and nine other defendants including Burkhardt, Miami-based fuel distributor World Fuel Services and marketer Western Petroleum Co.
The filing in Canada seeks relief from creditors under the Companies Creditors Arrangement Act, which protects a company from claims by creditors while it seeks ways to avoid bankruptcy.
MM&A estimates the cleanup costs at Lac-Megantic will exceed C$200 million (US$194 million).
The Canadian subsidiary of MM&A said in its court documents filed in Canada that it has less than C$18 million in assets.
In the U.S. court documents MM&A said it has between US$50 million and US$100 million in assets and between US$1 million and US$10 million in estimated liabilities.
Burkhardt said in a statement Aug. 7 “it has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as direct result of the tragic derailment at Lac-Megantic.”
He said creditor protections in both countries are the “best way to ensure fairness of treatment to all in these tragic circumstances.”
The town of Lac-Megantic and the Quebec government have sent two legal notices to MM&A asking it to pay C$8 million towards cleanup costs, but both indicate little hope that they will ever collect on their claim.
Despite all of the daunting odds, officials say that MM&A could resume service through Lac-Megantic when the track reopens, although town residents and leaders are determined to ensure that never happens.
M. Donald Gardner Jr., vice president of finance and administration for MM&A, said railroad debts were about US$3.5 million before the accident, a figure that excludes a multi-million dollar loan from a U.S. federal agency that oversees railroads and a line of credit.
It owes US$27.5 million of a US$35 million loan it received from the U.S. Federal Rail Administration in 2005, according to Gardiner’s affidavit, plus a US$6 million line of credit issued in mid-2006.
He said MM&A is seeking to “operate in Chapter 11 until a sale of the system can be consummated.”
