North Dakota oil producers are riding their own rollercoaster as they look for ways to re-establish shipments from the Bakken to Canada’s largest refinery.
But for every glimmer of hope there is an accompanying setback.
The best bet comes from the immense Irving business empire, which seems to have a hand in everything that makes Atlantic Canada function and never acts on a whim.
Which is why there is intense interest in hints that the J.D. Irving branch of the privately held conglomerate might be a contender to buy what is left of Montreal, Maine & Atlantic Railway, the company at the center of the Quebec rail disaster.
Not that J.D. Irving is a novice in the rail field. It owns NB&M Railways, which has two rail operations in Maine and one in New Brunswick covering a combined 450 miles of track, including about 270 miles acquired from MM&A since 2011.
NB&M is the final link from MM&A to Irving Oil’s 300,000 barrels per day refinery in Saint John, New Brunswick — a facility that relies heavily on crude from the North Dakota Bakken as feedstock and offers a crucial outlet for the crude.
Discussions acknowledged
J.D. Irving has confirmed it is in discussions with government authorities about the possible acquisition of MM&A
Company Vice President Mary Keith told Petroleum News Bakken that NB&M is exploring its options because connections to MM&A are “vital to our operations,” although J.D. Irving has not made a formal offer.
But she said that only Irving Oil, which did not answer requests for comment, was able to outline efforts to re-establish shipments of crude from the North Dakota to the Saint John refinery.
Before the derailment and explosions that claimed 47 lives at Lac-Megantic, Quebec, on July 6, MM&A was delivering up to 500,000 barrels a month to the Irving refinery.
No process in place for sale
Meantime, MM&A Chairman Ed Burkhardt told Petroleum News Bakken there is no current process in place to sell the MM&A assets.
He said that will have wait for the appointment of a bankruptcy trustee in the United States and “for the situation to stabilize.
“We welcome any interest from the Irvings, but anticipate there will be a number of other interested parties as well,” he said.
Burkhardt said a “major factor” will be whether MM&A’s severed rail link in Lac-Megantic can be re-established.
The prospect of building a new section of track to bypass Lac-Megantic is “a good idea, but will take considerable planning and commitment of funds, presumably from (the Quebec government), and then take quite a while to get built,” Burkhardt said, conceding emotions in the town are still “running high” against MM&A.
Partly for that reason, he doubted crude shipments on the line would resume “at any time in the future.”
“There are a number of alternatives for shipping crude to Saint John and, with the virtual elimination of the Brent premium to WTI, the economic rationale has gone away,” while the progress on Energy East could further reduce the importance of rail, Burkhardt suggested.
“As to MM&A, handling crude has indeed proven to be more trouble than it is worth,” he said.
Worth more as going concern
“Ultimately (MM&A) will be sold for the benefit of the creditors and it is worth considerably more as a ‘going concern’ than if it were to be shut down,” Burkhardt said.
He said that although MM&A in its current form is unlikely to emerge from restructuring, the railroad could sell its assets to a “new interest, free from huge (legal) obligations to Quebec.”
In its bankruptcy filings, MM&A’s Canadian subsidiary said it had C$25 million in insurance coverage, while estimating the cleanup costs in Lac-Megantic will exceed C$200 million.
Both the U.S. and Canadian units of the railway also said they had debts to more than 200 creditors following the disaster.
Tanker delivery to resume
In a surprise move to some, the Canadian Transportation Agency ordered Canadian Pacific Railway to resume delivery of crude oil tankers and other rail cars to MM&A, overriding CP’s concerns about the “serious and alarming risks” of doing business with the embattled railway.
Hunter Harrison, chief executive officer of CP, said in a statement his company would take “immediate steps” to comply with the regulator’s order.
But it was not clear what services would be restored given that MM&A’s line from Montreal to Maine and New Brunswick is severed in Lac-Megantic.
CP said it is concerned about the fitness of MM&A to “safely handle hazardous substances, including the crude oil currently under investigation in the Lac-Megantic derailment.”
“The CTA dismissed CP’s arguments and ordered CP to lift the embargo” that was imposed Aug. 13 and stopped the interchange of all traffic to and from MM&A.
CP was the original carrier from North Dakota, handing over the train in Montreal to MM&A which was scheduled to do a further interchange with NB&M Railway for final delivery to the Irving Oil refinery in Saint John, New Brunswick.
Sufficient insurance
Having satisfied itself that MM&A had sufficient third-party insurance coverage, the CTA reversed its Aug. 13 embargo, allowing MM&A to continue operations until Oct. 1.
In a letter to CP, the CTA said it found that “on balance MM&A will suffer irreparable harm as a result of CP’s embargo.”
CP said in a letter to CTA there were “serious and alarming risks associated with MM&A’s ongoing operations” because of its aging rail infrastructure.
“The issue before the agency is not one that is rooted in contractual or commercial law, but is instead one that is hearted in the protection of the safety and well-being of all Canadians,” CP said.
The letter said CP was “overwhelmingly concerned” about the dangers of transporting crude while Canadian government investigators were still trying to determine why the crude “created such a fierce fire” after the Lac-Megantic derailment.
Despite the CTA order, MM&A said it has no plans to move crude from the North Dakota when it resumes service.
Burkhardt said he has “no idea why CP acted as it did” in refusing to connect with MM&A trains and “shut off access to (Canadian National Railway) as well as to themselves. There was never any conversation or notice from CP and they never returned our calls.”
