Canadian National Railway Company largely attributes higher frac-sand volumes for higher Q1 2018 revenue for freighting products in the metals and minerals segment.

“Frac-sand revenue remained solid,” Jean-Jacques Ruest, interim president and chief executive officer, told this week’s CN Q1 conference call. For the three months ended March 31, 2018, the company moved 242,000 carloads in the segment that includes frac sand. This is up four per cent from the same period last year.

Revenue in the metals and minerals segment totalled $388 million in Q1 2018, which is seven per cent more than in Q1 2017. Other factors contributing to increases from this segment include higher freight rates and higher applicable fuel surcharge rates, partially offset by the impacts of a stronger Canadian dollar.

According to Ghislain Houle, executive vice-president and chief financial officer, unexpected frac-sand growth starting last year is a good example as to why CN must stay “ahead of the game” in terms of its infrastructure, as the cost of slightly over-investing in key corridors is lower than the impacts of under-investing. The “good news,” Houle said, is that CN can grow organically as long as it invests properly into the future.

He added: “In December [2016], who would have thought the frac sand at the year-to-date at the end of the third quarter in 2017 would be up 135 per cent? We were caught a little bit by surprise, related to frac sand, which is a highly-volatile commodity.”

Meanwhile, Canadian Pacific Railway Limited’s frac sand volumes continued to run at a rate of about 20,000 carloads per quarter during the first three months of 2018, John Brooks, chief marketing officer, told last week’s CP first quarter conference call (DOB, April 20, 2018).

In March, he noted, the company and Smart Sand Inc. signed a long-term agreement to service Van Hook directly along with the other key North American oil and gas basins. Smart Sand anticipates that the Van Hook facility should be operational sometime this month.

“In addition to $20 million in incremental revenue, this provides us with single-line haul service from Wisconsin to the Bakken, at longer train lengths providing better margins,” Brooks said, adding Smart Sand will enable the terminal to unload frac sand unit trains. “Additionally, the team sees further upside with our frac sand franchise by expanding CP’s destination reach, not only into the Bakken, but also into the Marcellus and Alberta drilling regions.”

With Smart Sand’s previously-announced annual processing capacity expansion to about five million tonnes at Oakdale, the company’s mining operation continues to deliver frac sand in quantities and with the efficient logistics needed to support contemporary higher-intensity finer-mesh frac designs, Smart Sand CEO Charles Young stated last month when announcing the new Bakken frac sand transloading terminal.

He said: “This agreement with CP is another step forward toward Smart Sand’s goal of being an integrated mine to wellhead supplier of frac sand.”

In terms of a U.S. railroader, Kansas City Southern Railway Company anticipates uncertainty in 2018 regarding its frac-sand business, due primarily to North American rail network uncertainty, congestion and potential losses to West Texas sand mines.

According to the company’s first-quarter financial and operational results, in Q1 of this year KCS moved 7,100 frac-sand carloads, compared to 7,200 carloads in Q1 2017. However, KCS frac-sand revenue increased four per cent, year-over-year, to US$11.1 million for the three months ended March 31, 2018.