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N.D. oil spurs $4.1-B outlay for railroad

BNSF hauling tonnes of crude

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Excess gas is burned off at well sites east of Williston, N.D. BNSF is crucial in the Bakken oil boom.

JIM GEHRZ / MCT ARCHIVES Enlarge Image

Excess gas is burned off at well sites east of Williston, N.D. BNSF is crucial in the Bakken oil boom.

MINOT, N.D. -- To bolster its ability to haul freight, including crude oil, Fort Worth, Texas-based BNSF Railway Co. plans to spend $4.1 billion on capital improvements in 2013, a single-year record for an American railroad, the company says.

Such grand business plans, though, didn't mean anything to a young moose wandering through the huge Gavin Yard here recently. Train activity halted for a time. Moose sightings are not unusual in this town about 80 kilometres from Canada. The animals follow the river bottoms looking for food.

"We were worried about where its mother might be," said train-master Chad Tobey, recalling the incident. Fully grown moose, especially mothers protecting their young, demand respect from people and machines.

Mom never made an appearance. The calf eventually returned to the wild. And the railroad resumed its role as a prime enabler of the North Dakota oil boom.

Minot is a major staging area for BNSF traffic, especially oil-related. Equipment and materials, such as sand used in hydraulic fracturing, pass through going to the Bakken Shale region west of here. Crude oil passes through heading for markets to the east.

The boom would not be as big, nor would it have happened as fast, without BNSF, owned by Warren Buffett's Berkshire Hathaway Inc. Because of limited pipeline capacity in the region, there would be no place for much of the oil to go.

BNSF says it is transporting more than half of the oil produced in the North Dakota and Montana regions of the Bakken. Pipelines and a rail competitor, Canadian Pacific, get much of the rest. Most of the oil comes from North Dakota, which is producing about 800,000 barrels a day.

'A couple of years ago, nobody thought the Bakken would be this big'

In 2008, when the Bakken boom was just beginning, BNSF transported just a few thousand barrels a day. A barrel contains 159 litres. Oil is the railroad's fastest-growing freight segment, making up for much of the decline in coal traffic.

"A couple of years ago, nobody thought the Bakken would be this big," said John Miller, a BNSF vice-president who oversees the company's shale oil-related business.

About $200 million of the railroad's capital budget this year will be spent on projects in North Dakota, a spokesman said, including two new 2,400-metre inspection tracks not far from Gavin Yard. The company spent $86 million in the state last year.

Gavin was the last major yard built by BNSF predecessor Great Northern Railway. It's a switching yard, where cars are routed to their end locations. It's also an inspection station.

Crude-oil cars are inspected every 1,600 to 2,400 kilometres. Repairs can be made in the shop on site.

"This train is 14,000 tons, 6,000 feet (1,800 metres) long," Tobey said, as we stood by a loaded oil unit train ready to leave the yard. It had two locomotives in front and one in back. Unit trains move a single commodity, such as oil, coal, grain and sand. This 106-car train contained roughly 70,000 barrels of crude.

BNSF delivers oil to about 30 markets and plans to increase that to 50 within a year or so.

"One of the advantages of rail is the flexibility it offers in getting to markets," Miller said. The railroad can take the oil to where producers can get the best price.

Because of that, Miller predicts BNSF can also earn business in the Permian Basin and Eagle Ford Shale plays of Texas, even though both regions generally have better access to pipelines and refineries than North Dakota does.

Systemwide, BNSF said, it hauls about 650,000 barrels a day.

To fill these rolling pipelines on rails, producers and other companies have built huge loading stations.

Houston-based EOG Resources -- the former Enron Oil and Gas -- built the first unit train facility in Stanley, N.D., and BNSF hauled its first unit trainload from there on New Year's Eve 2009.

Currently, there are 10 unit train transfer terminals in North Dakota served by BNSF. There are also terminals that load smaller groups of crude oil cars.

The locations of the unit train terminals are a lesson in history for railroad fans. Almost all of them are adjacent to the original transcontinental lines of the Great Northern and Northern Pacific railroads, which merged with two others to become Burlington Northern and, eventually, BNSF.

Kansas City-based Inergy Crude Logistics LLC owns the transfer station in Epping, about 32 kilometres from Williston, the epicentre of oilpatch activity.

Epping is a village that has never had more than 200 residents since it was founded a century ago. About 65 people now work at the transfer station, which loads about 90,000 barrels a day and is in the midst of an expansion that will increase that to 160,000 barrels a day by next year.

"They want to make this the largest terminal facility in North Dakota," terminal superintendent Bob Sinclair said of Inergy, which also has natural gas handling facilities in Upstate New York.

The terminal has two big loops of track that can hold long trains. The expansion will add three rail spurs, each about 21/2 kilometres long.

Initially built by Rangeland Energy LLC of Sugar Land, Texas, the Epping terminal opened a year ago. In December, Rangeland sold it and a 33-kilometre pipeline to Inergy for $425 million.

The pipeline to a gathering station can run in either direction. Most of the oil comes to Epping by truck.

"I've seen them lined up eight across and 10-deep," Inergy office manager Shelly Alexander said of the trucks.

 

-- The Dallas Morning News

Republished from the Winnipeg Free Press print edition June 17, 2013 D11

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