Berkshire Hathaway's (BRK.A) BNSF Railway Co. intends to invest $4.1B on capex this year in...

Berkshire Hathaway's (BRK.A) BNSF Railway Co. intends to invest $4.1B on capex this year in order to handle increasing oil shipments from the Bakken shale formation, which is concentrated in North Dakota. BNSF's spending will include $2.3B on its core rail network and $1B on locomotive, freight car and equipment.
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  • movies555
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    "As a result, companies have made massive investments in oil-related rail infrastructure in the past three years, including a dozen oil-loading terminals that serve the Bakken alone. They include the Bakken Oil Express, a complex of four long loops of rail. This allows 100-car trains, more than a mile in length and usually entirely dedicated to oil, to coil around compactly as they pass a loading station.


    "These are very substantial investments. We expect rail to be a player for a long time," said Steve Magness, the terminal's general manager.


    BNSF Railway ships the bulk of oil out of the Williston Basin, which holds the Bakken formation. Over five years, the railroad saw oil shipments soar 7,000 percent, to 88.9 million barrels, the company reported in September. Union Pacific (UP) and Canadian National Railway are other major beneficiaries.


    "The hot sexy thing right now is the energy business in North America," Bob Noorigian, a vice president at Canadian National Railway, recently told analysts.


    Nobody seems more surprised at the fast growth than the railroads themselves. "We went from people thinking, 'That can't be,' to 'Let's give it a try,' to 'This is real. Let's really focus,' " Canadian National CEO Claude Mongeau told analysts."


    I think rails are going to continue to be an interesting play, but the average investor really has to take a look at who benefits and who doesn't. I think with Canada working to try to pull together a large free trade agreement with the EU, I think Canadian National and Canadian Pacific stand to benefit on that, and Canadian National also stands to benefit from what's going on with energy.


    Norfolk Southern and CSX are undervalued, but the story right now remains the ones focused on energy.


    Any which way, in terms of inflation, the rails own a ton of hard assets.
    20 Jan 2013, 07:57 AM Reply Like
  • BlueOkie
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    Oil is replacing coal in the rails. If coal again gets traction and the pipeline doesn't get built, watch out. I hear the train acoming!
    20 Jan 2013, 09:53 AM Reply Like
  • PalmDesertRat
    , contributor
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    From what I've read, shipping oil by rail is much more expensive than shipping it by pipeline.


    So is there not a risk for the railroads that someone will improve the pipelines?
    20 Jan 2013, 11:48 AM Reply Like
  • movies555
    , contributor
    Comments (1439) | Send Message
    Shipping by pipeline is less expensive. However, the rails are in *some* ways preferable and are - at least for the near future - winning business. I think one can own both.


    article: (Enbridge Losing Bakken Oil Business to Railroads, Refiner Says)
    20 Jan 2013, 12:34 PM Reply Like
  • rjj1960
    , contributor
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    I guess that is why Buffett told the President not to approve the XL pipeline.
    20 Jan 2013, 12:21 PM Reply Like
  • ralph bowlin
    , contributor
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    Buffet supports Obama and Obama drags his feet on pipelines. Railroads produce more polution than pipelines on a day to day basis. So the environmentalist vote goes to Obama, who delays the pipeline for his buddy Buffet and CNBC swoons over Buffets every word. Talk about conflicts of interest and purchasing of political power. HHHMMMM
    20 Jan 2013, 08:24 PM Reply Like
  • BlueOkie
    , contributor
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    Too bad Buffet doesn't practice what he preaches He wants the rich to pay more, then he should did into his own pockets and keep his hands out of others.
    22 Jan 2013, 09:12 AM Reply Like
  • Ry The Kid
    , contributor
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    How many years of energy production is left in the Bakken? Production is roughly two hundred million barrels a year and they estimate there are about twenty billion barrels left. Unless my math is wrong that is about 100 years. Having a strong foundation for shipping something that is going to be used for a century is good business. Railroads and pipelines involved in Bakken now are going to make a fortune.
    20 Jan 2013, 12:56 PM Reply Like
  • RS055
    , contributor
    Comments (5369) | Send Message
    I believe decline rates of shale oil are around 50% . So , a well that produces 100 bbls/day this year will produce only 50 bls/day next year and 25 bbls/day the folowing year. To maintain aggregate production levels, a lot of new wells have to be continuously drilled. The one thing I am sure about is that capital costs and labor costs will grow over time, making the drilling of new wells more and more expensive.
    The issue after all is not how much oil is potentially available, rather it is how much oil can be profitably extracted. On this basis , it is quite likely that today's euphoric estimates of future Bakken production are way off mark.
    20 Jan 2013, 01:19 PM Reply Like
  • davidbdc
    , contributor
    Comments (3194) | Send Message


    Its a fast decline in the first year, but then a more steady return slightly declining each year. Obviously it depends on the location, type of well etc.


    Actually, drilling costs are coming down (at least for the companies I follow). Technology continues to improve, as does well design. And keep in mind that as the technology is improving they are able to extract more of the oil and gas thats in the formations.


    Some of these plays will be producing long after I'm gone IMO.
    20 Jan 2013, 01:38 PM Reply Like
  • Uncle Pie
    , contributor
    Comments (4322) | Send Message
    statistically, pipelines are safer than trains. First time there's a train wreck, and crude oil spills all over the place, this issue will come to the fore. There's a reason why "train wreck" is a part of our language, but "broken pipeline" is not.
    20 Jan 2013, 01:47 PM Reply Like
  • westerner
    , contributor
    Comments (226) | Send Message
    Pipeline breaks spill more oil than train derailments by a huge factor. Train derailments are not rare and the amount spilled varies from none to not much in any particular derailment.
    20 Jan 2013, 02:00 PM Reply Like
  • BlueOkie
    , contributor
    Comments (10228) | Send Message
    The big problem with pipelines is the EPA! The southern route from Oklahoma to the coast has been stopped over a couple of bugs in the ground. Seems we don't wish to displace them and so ... well you understand the treehuggers mentality.
    22 Jan 2013, 09:14 AM Reply Like
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