Copyright of the Daily Oil Bulletin 2018
CP Stays Balanced On Crude-By-Rail As Demand Grows In Q4 2017
Cautious optimism remains the Canadian Pacific Railway Limited approach on crude-by-rail, even as demand for this service accelerates.
“We are doing what we said we were going to do from day one — we are going to be very prudent, we are going to be cautious because we have been burned before in this market,” John Brooks, chief marketing officer, told the fourth quarter conference call on Thursday. “If the mobile resources are available, the opportunities make sense with the right partners, we will move on it. We’ll move swiftly and we will capture those opportunities.”
However, he told investors, CP is currently grappling with volatile winter weather and other challenges associated with railroading in North America, and the company still has lots of grain to move. Therefore, a balancing approach is the shrewd choice in light of increasing crude-by-rail demand. He is nonetheless optimistic on the crude front.
“As we get into the spring, and we sort of see what is going on with grain and other areas, and if we can pick those right partners, then I would say there is some upside.”
Regarding crude-by-rail commitments, CP aims to strategically align with customers who do things other than ship crude, suggested Keith Creel, president and chief executive officer.
“We understand crude is only going to be here for a certain period of time. We are looking for strategic partners with long-term objectives that align with ours and allow us to have a more stable-looking business. That sort of falls in line with rebalancing business with what serves our franchise well, how we can bring value to the bottom line to help them move their assets — to lower their transportation costs while we bring value to our shareholders.”
He added: “Those are the types of customers we are talking about — customers who do business not only in crude, but also in other lines.”
Still, rail will fill the gap between rising Canadian crude output and inadequate pipeline capacity as new pipelines are finally built, GMP FirstEnergy analyst Martin King told a recent market outlook event (DOB, Jan. 17, 2018). King is optimistic about market access for Canadian crude in the short and long term, with rail getting more supplies to market over the next couple of years and pipelines getting more bbls to market further into the future.
At CP, noted Brooks, crude demand accelerated to approximately 18,000 carloads in the fourth quarter, and he expects that Q4 2017 run rate to continue this year.
“Certainly, the demand has come on strong in that area, but we are being really strategic in how we are bringing it on. I think there will be opportunities as the year progresses, but we are going to pick our partners wisely and we will see how that crude materializes.”
For the energy, chemicals and plastics category, which includes crude, CP shipped 75,500 and 269,500 carloads during the three and 12 months ending last year, respectively, which is 16 and eight per cent more than in the comparative 2016 timeframe.
“We continue to see strong growth against many areas in the portfolio,” Brooks said, noting that for frac sand the demand continues at a similar run rate as last quarter, and CP delivered approximately 21,000 carloads in the quarter.
For the three and 12 months ended Dec. 31, 2017, CP moved 679,000 and 2.63 million carloads across all commodities, respectively, which is five and four per cent more than during the same periods in 2016.
In total, the company’s freight revenue totalled $1.67 billion and $6.38 billion in Q4 and full-year 2017, respectively, which is four and five per cent more than during the same 2016 periods. For energy, chemicals and plastics, the freight revenue was $247 million and $898 million, respectively, which is 15 and five per cent more than during the comparative timeframes one year prior.
The company’s net income for the three and 12 months ended Dec. 31, 2017 was $984 million and $2.41 billion, respectively, compared to $384 million and $1.6 billion for the comparative 2016 timeframes. In 2018, CP plans to spend between $1.35 billion and $1.5 billion on its capital programs.
“Over the course of 2017 we built momentum thanks to our strategic approach to growth combined with our continued focus on operational excellence,” saidCreel. “That momentum has us well positioned to start 2018 and we look forward to delivering another year of record results in a safe and disciplined manner.”