26 January 2011

CP Weighs Shipping Wyoming's Clean Coal

Powder River Basin Wyoming USA - Canadian Pacific Railway Ltd. is welcoming a high-profile endorsement of clean coal from U.S. President Barack Obama as the freight carrier ponders whether to approve a US$6-billion plan to transport Wyoming coal.
 
Coal from Wyoming's Powder River basin contains less sulphur than some other deposits, so it creates fewer byproducts when burned, an advantage that will factor into CP's review of potentially shipping coal from the U.S. Midwest to the east coast.
 
Calgary-based CP took control of Dakota Minnesota & Eastern Railroad Corp. (DM&E), inheriting the U.S. regional railway's proposal to haul thermal coal from the Powder River basin.
 
Thermal coal is used to fuel plants that generate electricity.
 
"The coal market is what's really been driving the overall business case. That is still a work in progress," CP chief financial officer Kathryn McQuade said during a conference call with analysts Wednesday.
 
She noted that in Mr. Obama's State of the Union address on Tuesday night, he set a goal of having 80 percent of U.S. electricity production come from "clean energy sources" such as wind, solar, nuclear, natural gas, and clean coal by 2035.
 
Burlington Northern Santa Fe Corp. of Fort Worth, Texas, and Omaha-based Union Pacific Corp. currently haul coal from the Powder River basin's mines.
 
Given the massive undertaking required to transport Wyoming coal, "It would probably require us to be partnered with someone in order to move forward with it," Ms. McQuade said.
 
CP's potential partners include utilities, construction companies, financing firms, or another major railway.
 
The project would require billions in capital spending, including installing and rebuilding tracks from the Powder River coal basin to DM&E's South Dakota lines.
 
Trains would carry coal from Wyoming to South Dakota and Minnesota, en route to coal-fired power plants farther east.
 
CP still needs to negotiate rights-of-way, access to coal mines, approvals for permits, and competitive freight contracts, Ms. McQuade said, adding that the Powder River project is "one that we keep on the radar. It's one we're constantly working."
 
She made the comments after CP announced that it posted a $650.7-million (Canadian) profit last year, up 18 percent from $550-million in 2009.
 
Revenue climbed to almost $5-billion from $4.4-billion, lifted by an economic recovery that spurred robust shipments of sulphur, fertilizer, forest products, and consumer goods.
 
In the fourth quarter, CP's profit jumped 27 percent to $185.8-million while its revenue rose 13 percent to $1.3-billion.
 
The company's adjusted diluted earnings per share of $1.12 exceeded analysts' expectations of $1.08 for the fourth quarter.
 
CP's operating ratio, a key indicator of productivity that measures operating costs as a percentage of revenue, improved last year.
 
A lower operating ratio is better, and CP's adjusted ratio dipped to 77.6 percent in 2010, compared with 81.7 percent in 2009.
 
CP chief executive officer Fred Green said he is aiming to reduce the company's operating ratio to the low-70s within three to five years.
 
The railway had an impressive fourth quarter, despite winter storms and the temporary shutdown of a grain terminal, said UBS Securities Canada Inc. analyst Tasneem Azim.
 
Brent Jang.