Tag: BNSF

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BNSF Railway’s oil trains that service two refineries in the state of Washington could be in jeopardy now that a federal judge has upheld a Native American tribe’s right to sue the railroad for violating the terms of a Right-of-Way easement granted to allow the railroad to cross the reservation.

The Easement Agreement enables BNSF to bring Bakken crude oil to the Tesoro refinery in Anacortes, Washington by crossing a portion of the Swinomish Indian Reservation located on Fidalgo Island in Skagit County, Washington.

Under the terms of the 1991 Easement Agreement, BNSF is allowed to run one 25-car train per day in each direction. The tribe sued in April 2015 contending that BNSF was running as many as six 100-car “unit trains” per week.

U.S. District Judge Robert Lasnik on Friday, September 11, ruled that BNSF’s request to have the lawsuit dismissed or stayed was denied. The ruling opens the way for the tribe to press its lawsuit.

Contentious History of Rail

Train travel across the tribe’s land has a long contentious history, with the original track having been laid in the late 1800s without consent from the Swinomish or the U.S government. The tracks cross the northern edge of the reservation, and the Swinomish, as the present day political successor-in-interest to certain of the tribes and bands that signed the 1855 Treaty of Point Elliott, first sued the railroad in 1976, alleging a century of trespassing on tribal land. The resulting settlement led to the 1991 Easement Agreement that allowed only the 25-car train limit without the Tribe’s permission.

The Tribe contend in its lawsuit that “BNSF never notified the Tribe that it intended to exceed the limitation of one train of 25 cars or less, nor did it request permission from the Tribe before it began to do so.”

A Deal is a Deal

“A deal is a deal,” said Swinomish Chairman Brian Cladoosby. “Our signatures were on the agreement with BNSF, so were theirs, and so was the United States. But despite all that, BNSF began running its Bakken oil trains across the Reservation without asking, and without even telling us. This was exactly what they did for decades starting in the 1800s.”

“We told BNSF to stop, again and again,” said Cladoosby. “We also told BNSF: convince us why we should allow these oil trains to cross the Reservation. And we listened for two years, even while the trains kept rolling. But experiences across the country have now shown us all the dangers of Bakken Crude. It’s unacceptable for BNSF to put our people and our way of life at risk without regard to the agreement we established in good faith.”

Under the terms of the Easement Agreement, the Tribe agreed not to “arbitrarily withhold permission” for BNSF’s request to increase the number of trains or cars.

Arbitrary or Not?

The Tribe contends that its refusal to grant permission is not arbitrary and is “Based on the demonstrated hazards of shipping Bakken Crude by rail, paired with the proximity of the Right-of-Way to the Tribe’s critical economic and environmental resources and facilities — and the substantial numbers of people who use those resources and facilities on a daily basis — the Tribe is justifiably and gravely concerned with BNSF’s shipment of Bakken Crude across the Right-of-Way in a manner and in quantities at odds with the explicit terms of the Easement Agreement.”

The Swinomish are concerned that trains carrying Bakken crude oil run over bridges spanning the Tribe’s fishing grounds in the Swinomish Channel and Padilla Bay. They also noted that the track runs across the “heart of the Tribe’s economic development enterprises,” which includes the Tribe’s Swinomish Casino and Lodge, a Chevron station and convenience store, and an RV Park, as well as a Tribal waste treatment plant.

The Tribe noted that these enterprises are the “primary financial source for funding of the Tribe’s essential governmental functions and programs.”

The 1991 Easement Agreement granted the Right-of-Way for an initial 40-year term, along with two 20-year option periods. The current agreement will expire no later than 2071.

The tribe is seeking a “permanent injunction prohibiting BNSF from (1) running more than one train of twenty-five cars or less in each direction over the Right-of-Way per day and (2) shipping Bakken Crude across the Reservation.”

The Swinomish are also seeking monetary damages for the prior trespasses and breach of contract in an amount to be determined at trial.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Despite dire predictions that falling oil prices would dry up oil drilling in the Bakken Formation, and drastically cut the number of 100-car oil trains hauled by BNSF, petroleum carloads are holding fairly steady.

Carloads of petroleum as of August 15, 2015 are 321,855 as compared to 339,981 for the same period of 2014. The change is only down 5.33% from last year.

The change in carloads has had minimal impact on BNSF, as carloads of coal and grain are both up, giving the railroad a total increase in carloads of 1.14% over this time last year.

Why the High Number of Carloads?

Carloads of crude oil have held strong because predictions that new wells in the Bakken Formation would be uneconomical below $60 a barrel have been way off base.

The marginal cost to produce a barrel of oil has dropped in recent years, and while the breakeven price varies county by county, with it being as high $77 in McLean County, North Dakota, the North Dakota Department of Mineral Resources notes that it is as low as $30 in McKenzie County, North Dakota, and only $29 a barrel in Dunn County, North Dakota.

You Can Cut Even That in Half

The volume also stays high because the cost to pump oil for existing wells is even cheaper. The Bakken Magazine notes that, “The price at which production from existing wells would be shut-in occurs when the oil prices drop to $15 per barrel.”

The per barrel price of oil from the Bakken Formation sells at a discount as compared to oil from some other areas due to additional shipping costs.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Union Pacific Corp has followed BNSF’s Railway in having a higher price for hauling older DOT-111 tank cars. Union Pacific is charging $1,200 per DOT-111 tank car, and BNSF began adding $1,000 per tank car in January.

BNSF’s price change brought an immediate lawsuit from the American Fuel & Petrochemical Manufacturers (AFPM), the trade group of the U.S.’s petroleum refiners.

Surcharge or Discount?

BNSF is disputing that they are adding a surcharge. They are calling the price change a new rate for older tank cars with a discount for tank cars that meet the new DOT-117 standards.

As common carriers, Union Pacific and BNSF can’t refuse to haul DOT-111 tank cars. The big question is whether they can have different rates for different tank cars.

Replacing the Entire Fleet

The pricing difference will go away in a few years as DOT-111s are phased out. Under the Enhanced Standards for New and Existing Tank Cars for use in an HHFT—New tank cars constructed after October 1, 2015, are required to meet the new DOT Specification 117 design or performance criteria. The standards will require replacing the entire fleet of DOT-111 tank cars for Packing Group I, which covers most crude shipped by rail, within three years and all non-jacketed CPC-1232s, in the same service, within approximately five years.

The total new DOT 117/TC-117 tank cars that will ultimately be hitting the rails will be around 160,000 units.

Millions of Dollars a Day

Currently, both Union Pacific and BNSF are collecting over $100,000 additional per oil train, and with the number of trains they run, it amounts to millions of dollars a day. The cost to the refiners is roughly an additional $1.20 per barrel of oil, and eventually a court will decide whether the railroads have to give it back.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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With Bakken crude oil shipments putting carload pressures on BNSF the past few years, grain producers were left griping about shipping delays and premium per car prices.

“We had a lot of grain on the ground about 18 months ago,” Tom Tunnell, the president and CEO of the Kansas Grain and Feed Association, noted in Midwest Producer. “The cost to get rail cars was extremely high, way above normal. The premiums were in the thousands of dollars per car range, but all that’s gone away. We’re back down into a more normal range.”

A Winter of Discontent

Back in the winter of 2014, grain shipments were running weeks late with the shipping time from the Midwest grain belt to the Pacific Northwest running a whopping 22 days. The delays added substantial costs to grain producers, as they paid ocean-going freight ships between $30,000-$50,000 per day to sit in port waiting for the delayed grain.

So far for 2015 BNSF grain shipments are up a solid 10.7% year-to-date over the same period in 2014. Shipments increased from 219,747 carloads in 2014 to 243,268 carloads in 2015.

“We have substantially better Ag shuttle turns per month as compared to last year,” a BNSF official said in May. “Last year we were below 2 turns per month, and now we are over 2.5 turns per month.”

The increase comes despite crude oil shipments only having minor 1.41% decrease in carloads. Despite the collapse in worldwide oil prices, oil train shipping still moved 245,356 tank cars of petroleum, as compared to 248,868 tank cars for the same period in 2014.

Adding Capacity

BNSF is working hard to eliminate grain shipping bottlenecks, including adding 900 new cover-hopper grain cars as part of the 7,800 rail cars it is purchasing in 2015. BNSF’s $6 billion in capital improvements in 2015 is a record for any railroad, and also includes 300 new locomotives.

The most critical time for grain shipments is August through October, and hopefully BNSF will be ready to meet the demand with increased capacity and fewer delays.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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BNSF Railway and Washington State-based oil refineries have inked a Mutual Aid Agreement to respond to accidents. The agreement between BNSF and the Western States Petroleum Association (WSPA), which includes Phillips 66, BP Cherry Point, Shell Oil Products US, Tesoro Companies, and U.S. Oil Refining Company, covers both rail accidents and refinery accidents.

“We are extremely pleased to enter into this agreement to further advance rail safety. Working hand-in-hand with community first responders and emergency managers has long been ingrained in the BNSF culture,” said John Lovenburg, BNSF’s vice president, Environmental. “This agreement is an extension of our long-standing practice to provide aid to communities no matter if an incident involves rail or not. Nothing is more important than safely operating through the communities we serve and we are absolutely committed to ensuring local first responders have access to training, information and access to BNSF’s safety experts and response equipment.”

Pressure Builds for Safer Oil Trains

Growing pressure over railroad oil train accidents has BNSF taking a number of measures to increase safety. The measures include lower speeds in high-population density areas, new tank car safety standards that include increasing the thickness of tank car walls, and increased training for emergency responders along BNSF routes.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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A decade long dispute between the Missouri Basin Power Project and BNSF Railway over coal transportation rates has finally been settled. The dispute predated Berkshire’s Hathaway’s ownership of BNSF.

The lawsuit was originally filed in 2004 by coal suppliers Basin Electric and Western Fuels Association Inc., complaining that BNSF (at that time still known as Burlington Northern Santa Fe) had doubled the shipping rates for coal transported to the Laramie River Station located near Wheatland, Wyoming.

BNSF hauls 8 million tons of coal each year from mines in Wyoming’s Powder River Basin.

The members of the Missouri Basin Power Project are Basin Electric, Lincoln Electric System, Tri-State Generation & Transmission Association Inc., Western Minnesota Municipal Power Agency, Heartland Consumers Power District, and the Wyoming Municipal Power Agency.

In 2009, the Surface Transportation Board (STB) concluded that BNSF’s coal transportation rates were “unlawfully high” at roughly six times the cost of providing the transportation. The STB ordered $345 million in reparations and rate reductions from the railroad. Under the ruling, BNSF was obligated to reimburse the Utilities for roughly $100 million in overcharges from 2004 through 2008 based on the volume of coal transported from the various PRB mines between 2004 and 2008.

The award was the single largest award to a captive shipper (a shipper with no alternative carrier) ever made by the STB.

The STB noted that “customers have been bearing the burden of these unreasonably high transportation rates in their monthly electric bills, a burden they should no longer be forced to bear.” The award was the single largest award to a captive shipper (a shipper with no alternative carrier) ever made by the STB.

BNSF appealed the ruling, spending the next six years in the appeals process, and the negotiated settlement came as a result of the STB’s order for both parties to “confer and resolve the precise amount of damages due the Utilities.”

The exact terms of the settlement between BNSF and the Missouri Basin Power Project have not been released, but BNSF spokeswoman Roxanne Butler said that “both parties are satisfied with the outcome.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.