Canadian Pacific Railway is making a heavy investment in its infrastructure as it targets a doubling of profits by 2018 to C$10 billion, with crude oil figuring prominently in its plan and Bakken operations likely to benefit.
Chief Operator Officer Keith Creel told analysts and investors the company plans to boost train speed and improve service through an extensive program of upgrading tracks and terminals and selling off underused railroads.
“It’s a powerful, powerful model,” he said, including C$1.5 billion a year in capital spending to extend sidings and improve terminals.
Among its opportunities, CP said new facilities and customer expansion should see it deliver 200,000 carloads of crude in 2015, the rough equivalent of 130 million barrels or close to 360,000 barrels per day.
It said the diversity of its interchange points adds to the efficiency of traffic movements and, in passing, said growth in the movement of Bakken crude is far from over, although no further details were disclosed.
The railroad operates three crude-loading facilities in North Dakota at Stampede, Van Hook and New Town and plans to add a fourth between the latter two.
‘Velocity and revenue growth’
In a research note, Desjardins Securities analyst Benoit Poirier said that if CP hits its targets its stock price could reach C$300 in the next two years, up 30 percent from today’s levels.
He said the targets demonstrate confidence in CP’s focus on “velocity and revenue growth.”
The highlights of the company’s four-year plan include: Investing more than C$300 million in a rail traffic control system to allow trains to run faster, reduce delays and lift volumes; extending four rail sidings in British Columbia and Alberta, while removing 13 sidings in the same corridor; and boosting train weights to improve productivity.
Creel said total train speed should rise by 1 or 2 miles an hour from the current 19, while still lagging behind the North American average 23 mph.
Foreign market benefits
With progress on TransCanada’s Keystone XL still frozen, crude-by-rail operations gain in popularity, making a significant breakthrough in September when Suncor Energy shipped its first tanker of Western Canadian heavy crude from Canada’s East Coast to Europe.
Barclays’ analyst Michael Cohen said he did not know of any other instances of Western Canadian crude making its way to Europe via rail and tanker.
Despite the concerns among environmentalists who are trying to block any shipments of crude out of Western Canada, Suncor has demonstrated how growing volumes of oil sands or light crude can compete for customers in Europe with producers in Russia and Saudi Arabia.
A spokeswoman for Suncor, while declining to specify the grade of crude involved in the shipment, said it was not necessarily oil sands crude, adding that her company shipped both its own crude and crude bought from other producers.
She said that although Canada and the United States remain Suncor’s key markets, “it’s important that we establish customers outside North America.”
The shipment involved the use of the Kildair terminal at Sorel-Tracy on the St. Lawrence River in Quebec which has 3.2 million barrels of storage capacity for crude and petroleum products.
Kildair Chief Executive Officer Daniel Morin said that since mid-July Suncor has been sending 30 rail cars per day (or about 19,500 bpd of crude) to the terminal, but would not say how much storage capacity Suncor is leasing.
