Nov. 10 (Bloomberg) -- Days after Warren Buffett announced
his $26.5 billion buyout of railroad BNSF, he insisted that he’d paid a steep
price to own a business that would benefit his company, Berkshire Hathaway
Inc., over the next century.
“You don’t get bargains on things like that,” he said in a
November 2009 interview with Charlie Rose that aired on PBS. “It’s not cheap.”
Five years later, that assessment rings a bit hollow. Buoyed
by an onshore oil boom, BNSF has become a cash machine for Buffett. The
railroad had sent more than $15 billion in dividends to Berkshire through Sept.
30, according to quarterly regulatory filings, the latest of which was released
last week. More stunning: The business is on pace to return all the cash
Buffett spent taking it private by the end of this year.
Annual revenue at the railroad has risen 57 percent, and
earnings more than doubled to $3.8 billion since Buffett bought it. Sales have
climbed even as BNSF faced increased public scrutiny over service delays and
safety.
“He stole it,” said Jeff Matthews, a Berkshire shareholder
and author of books about the company. “He’s got to feel really good that he
bought it when he did, because it’s a wonderful asset, and it’s done nothing
but get more valuable in the time that he’s owned it.”
The railroad’s profit continued its climb in the third
quarter as revenue from agricultural and industrial shipments, including oil,
rose. The business accounted for more than a fifth of Omaha, Nebraska-based
Berkshire’s net income in the period, according to a Nov. 7 regulatory filing.
Oil Glut
Berkshire’s third-quarter profit slipped 8.6 percent to
$4.62 billion on investment results, including the impairment of a holding in
U.K. retailer Tesco Plc. Buffett’s company climbed 0.7 percent to $216,525 at
9:33 a.m. in New York trading after operating earnings beat analysts’ estimates
on gains at units including the railroad.
BNSF’s tracks sit on top of North Dakota’s Bakken formation,
where energy producers are using fracking and other extraction methods to pull
crude from the ground in unprecedented volumes. Because pipeline capacity is
limited in the area, oil companies have turned to BNSF to ship their product to
refineries.
The extra freight has exacerbated weather-related train
tie-ups that the railroad has spent months working to resolve. In June, the
U.S. Surface Transportation Board ordered BNSF and Canadian Pacific Railway
Ltd. to report plans for resolving the delays.
Below Standards
At a hearing in North Dakota in September, state officials
urged the railroad to improve service. BNSF has said it’s adding workers and
rail cars to improve operations. In the filing last week, Berkshire said that
the railroad’s service is still “well below” its standards.
The expansion of crude shipments has also created risks for
the industry. Derailments of oil tank cars in the U.S. and Canada have led to
fires, spills and the bankruptcy of smaller carrier Montreal, Maine &
Atlantic Railway Ltd. after a derailment in Quebec last year that killed 47
people.
BNSF has worked to allay concerns about oil shipments by
agreeing to buy 5,000 safer tank cars. It has also announced plans to apply a
surcharge on an older generation of cars that have been involved in some of the
worst accidents.
Investments like those have been common since Berkshire took
over. The railroad budgeted a record $5 billion this year to upgrade its
network, expand facilities and buy equipment. That’s about $1 billion more than
it spent in 2013.
Cash, Stock
Even with those increasing outlays, BNSF’s climbing earnings
have helped make the multiple that Buffett paid look small. Berkshire was
already the railroad’s largest shareholder when he agreed to buy out the
remaining 77.5 percent of the company. The price included Berkshire stock and
$15.9 billion in cash. Since the beginning of 2011, the railroad has paid
distributions to its parent of at least $750 million a quarter.
Union Pacific Corp., BNSF’s main competitor in the western
U.S., currently trades for about 12.6 times annual pretax, pre-interest income,
according to data compiled by Bloomberg. Were Buffett’s railroad to fetch that
kind of price now, 77.5 percent of it would be worth about $66.5 billion --
more than double what Berkshire paid.
Part of Buffett’s success with BNSF comes down to luck, said
James Armstrong, who oversees Berkshire shares as president of Henry H.
Armstrong Associates. Very little crude was being shipped by rail when Buffett
bought the company and it wasn’t widely known that BNSF would play such a big
role in transporting oil from where it was produced.
Luck aside, there’s little upside for Buffett in bragging,
said Armstrong. Berkshire is always looking to buy other businesses and it
needs to have a reputation for paying fair prices, he said.
“It’s never in Buffett’s interest to indicate that he got a
bargain, even though that’s what he’s shooting for,” Armstrong said. “He has to
manage other people’s perception of him.”
Source: http://www.bloomberg.com
ANOTHER ENVIRONMENTAL DISASTER IS UNLEASHED IN NORTH DAKOTA
BY WAR AND BUFFET’S DANGEROUS RAILROAD BNSF.
WHILE HE RAKES IN THE CASH, HE BLAMES THE OIL COMPANIES FOR THE
EXPLOSIONS AND FIRES.
The entire population of Heimdal, North Dakota has
been evacuated Wednesday morning after a train carrying crude oil derailed and
exploded.
A BNSF Railway oil train derailed around 7:30 am, setting at
least 10 oil tanker cars on fire. The Bismarck Tribune spoke
with emergency responders who "said the the sky was black with smoke near
the derailment site."
About 40 people from Heimdal and the surrounding farmlands
were evacuated; no injuries or fatalities have been reported.
"As this accident demonstrates, people, wildlife,
rivers and lakes will continue to pay the price for the government’s failure to
take steps to adequately protect us from these dangerous oil trains."
—Jared Margolis, Center for Biological Diversity
Valley News Live reports
that BNSF spokesperson Amy McBeth "says the tank cars involved in the
incident are the unjacketed CPC-1232 models."
These newer tank cars are supposedly safer than older
DOT-111 models, but environmentalists note
that four oil train accidents in the first three months of 2015 all involved
the newer CPC-1232 cars.
Just last week, groups warned
that the U.S. Department of Transportation's new oil-by-train safety standards
"leave communities at risk of catastrophe."
On Wednesday morning, the people of Heimdal saw such a
catastrophe up close.
The lesson was not lost on Earthjustice attorney Kristen
Boyles, who said in a statement: "Again another derailment and explosion
of a train carrying crude. Again another community evacuated and its people
counting their blessings this didn’t happen half a mile down the track in the
middle of town."
"We need to get these exploding death trains off the
tracks now."
—Kristen Boyles, Earthjustice
—Kristen Boyles, Earthjustice
She pointed out that "under the Department of
Transportation’s new rules, the type of oil tank cars that are burning in
Heimdal will stay on the rails for five to eight years. DOT’s new
industry-pleasing rule is too weak and too slow. We need to get these
exploding death trains off the tracks now."
"We will continue to see these fiery derailments even
with the new regulations in place, because they fail to take sufficient actions
to prevent oil trains wrecks," echoed
Jared Margolis, an attorney for the Center for Biological Diversity. "As
this accident demonstrates, people, wildlife, rivers and lakes will continue to
pay the price for the government’s failure to take steps to adequately protect
us from these dangerous oil trains."
CBD and Earthjustice are among many organizations calling
for an immediate moratorium on so-called "bomb trains."
As Margolis added Wednesday, "It's dangerous and
irresponsible to allow these trains—which have shown a propensity for going off
the rails—to come through our communities and across some our most pristine
landscapes."
The easiness with
which these trains derail and explode makes it clear that very little can be
done to prevent these explosions and fires. The railroad industry is a
"cheapskate" type of business. They do not make much money (so
they claim) and they have been under-invested in infrastructure improvements
for many-many-many years. The situation is helpless. Besides, it
costs much less money to them to deal with these disasters and explosions and
fires than to improve the railroad and tank car safety.
The oil and gas
industry is another "cheapskate" type of business, despite the
amounts of profits they make. They always spend the minimum amount on
safety, as it affects their bottom line by lowering their profits without
increasing oil or gas production.
Two cheapskates
(railroads and oil and gas industries) come together and we have multiple
of explosions and fires and property damage. Stay tuned, as things will
not improve by any measurable degree.
WAR AND BUFFET PROMISES TO FIX HIS TRAIN DISASTERS AFTER
LATEST BNSF OIL TRAIN CABOOM IN NORTH DAKOTA.
MEANWHILE, HAVE A COKE ON HIM
MAY 6, 2015
BISMARCK, N.D. (AP) — A train that derailed and caught fire
early Wednesday in rural North Dakota was hauling crude from the state's oil
patch, raising questions about whether new state standards intended to reduce
the volatility of such shipments are sufficient.
The six tank cars that exploded into flames were a model
slated to be phased out or retrofitted by 2020 under a federal rule announced
last week.
It's the fifth fiery accident since February involving that
type of tank car, and industry critics responded to the latest with calls for
them to be taken off the tracks immediately to prevent further fires.
No injuries were reported in the derailment of the 109-car
BNSF railway train at around 7:30 a.m. That prompted the evacuation of the
20-resident town of Heimdal, about 115 miles northeast of Bismarck.
The Health Department was monitoring air quality and
advising people not to breathe in the smoke. The danger from the smoke was
mainly the particles it contains such as ash, not toxic chemicals, State
Environmental Health Chief Dave Glatt said. Rain might have helped wash some of
the particles out of the smoke, though it might also keep the plume closer to
the ground and more likely to be encountered by people, he said.
In the immediate aftermath of the accident, BNSF vice president
Mike Trevino said, the intensity of the blaze prevented firefighters from
directly attacking the flames. As of Wednesday evening, two cars out of six
continued to burn, he said.
State officials initially reported 10 cars on fire but later
revised that to six. They were hauling Bakken oil loaded in the Tioga area,
said Jeff Zent, spokesman for Gov. Jack Dalrymple.
The six cars that caught fire were carrying approximately
180,000 gallons of oil, Trevino said. Investigators haven't been able to get
close enough to the spill to determine how much of the oil burned off, spilled
or remained in the cars, authorities said.
Curt Benson, a 68-year-old retired sheriff who alerted
authorities, said he was getting ready for the day when the explosion outside
town rattled his house. With the large number of oil trains that come through
the community each day, he figured that was the cause.
"I got in my car, still in my underwear, had shaving
cream on my face, and drove down there," he said.
There was no immediate word on the cause.
Industry representatives and state officials said oil
companies have been complying with a standard that went into effect April 1
requiring them to remove propane, butane and other gases that occur in North
Dakota crude to reduce the chance of tank cars catching fire. There was nothing
to immediately indicate a violation of that rule with the train involved in
Wednesday's accident.
The crude in the tank cars was being shipped by the Hess
Corporation, and regulators were seeking details on tests of the crude done by
the Texas-based company prior to the accident, said Federal Railroad
Administrator Sarah Feinberg.
Hess representatives did not immediately respond to a
request for comment.
North Dakota officials said the new standard makes the volatility
of treated oil comparable to unleaded gasoline.
Members of Congress, who have called for a stricter standard
to be imposed at the federal level, said Wednesday's accident underscored that
more needs to be done to prevent oil train fires that could cause a major
disaster in an urban area. In 2013, a train loaded with crude from the Bakken
region derailed and exploded in the small town of Lac-Megantic, Quebec, killing
47 people.
"With trains carrying this highly-explosive material by
homes, schools and businesses each day, we need a strong national volatility
standard as opposed to a patchwork of state laws," said U.S. Rep. Nita
Lowey of New York, the ranking Democrat on the House Appropriations Committee.
Tessa Sandstrom with the North Dakota Petroleum Council said
safety efforts should instead focus on preventing accidents through enhanced
inspections of tracks and railroad equipment.
The rail line through Heimdal runs next to an intermittent
waterway known as the Big Slough, which drains into the James River about 15
miles downstream near Bremen, North Dakota.
There were preliminary indications that some oil from the
derailed cars got into Big Slough, but it will be difficult to verify until the
fire dies down, Glatt said. In a similar incident outside Casselton, North
Dakota, in December 2013, almost all of the spilled oil was consumed in the
fire, he said.
The Federal Railroad Administration, the National
Transportation Safety Board and the Environmental Protection Agency all sent
investigators. The EPA planned to gauge any contamination to waterways in the
vicinity, spokesman Rich Mylott said.
Since 2006, the U.S. and Canada have seen at least 24 oil
train accidents involving a fire, derailment or significant amount of fuel
spilled. Wednesday's derailment comes after the Department of Transportation
announced a rule Friday to toughen construction standards for tens of thousands
of tank cars that haul oil and other flammable liquids.
Feinberg said the Heimdal accident was "yet another
reminder" of the need for changes that have been resisted by the oil
industry, which has said it could take more than a decade to get unsafe tank
cars replaced or off the tracks. She said federal officials planned additional
steps to improve oil train safety but offered no specifics.
The cars that derailed were constructed under a 2011
voluntary rail industry standard intended to make them tougher than older cars
that were long known to pose a safety risk. But the new cars, each carrying
30,000 gallons of fuel, have proved equally dangerous.
Roughly 22,000 of the new cars that are used to haul crude
oil lack an extra layer of protection to shield them against fires or
explosions.
The easiness with
which these trains derail and explode makes it clear that very little can be
done to prevent these explosions and fires. The railroad industry is a
"cheapskate" type of business. They do not make much money (so
they claim) and they have been under-invested in infrastructure improvements
for many-many-many years. The situation is helpless. Besides, it
costs much less money to them to deal with these disasters and explosions and
fires than to improve the railroad and tank car safety.
The oil and gas
industry is another "cheapskate" type of business, despite the
amounts of profits they make. They always spend the minimum amount on
safety, as it affects their bottom line by lowering their profits without
increasing oil or gas production.
Two cheapskates
(railroads and oil and gas industries) come together and we have multiple
of explosions and fires and property damage. Stay tuned, as things will
not improve by any measurable degree.
