CP CEO Hunter Harrison told a New York conference that , CEO of CP Rail during an interview Sep 17, 2013 in Toronto. (Moe Doiron/The Globe and Mail)Moe Doiron/The Globe and Mail
A plunge in oil prices poses no risk to Canadian Pacific Railway Ltd.'s financial targets, and should give a boost to exports and the economy, chief executive officer Hunter Harrison says.
Speaking at an investors conference in New York on Wednesday, Mr. Harrison said oil's 37-per-cent drop since June should not cause any meaningful cut in demand to move oil by rail in North Dakota's Bakken region nor in Western Canada – two areas where the Calgary-based railway has seen a surge of demand amid a lack of pipeline capacity.
"I don't think we're going to see any knee-jerk reaction. I don't think we're going to see anything stopped in the Bakken. You just can't cap a well and shut it down without a lot of damage," he said.
CP, which relies on the energy business for 7 per cent of its revenue, is more exposed to the oil market than Montreal-based rival Canadian National Railway Co.
Mr. Harrison said CP is still signing contracts to move oil, mostly in the Bakken region. He said the company signed a deal on Tuesday, and has heard from shippers who want train service that would start next month.
CP recently laid out a plan to move from cost-cutting to growth, saying it aims to double profit by 2018. It said it expects to double its crude business by hauling 200,000 cars in 2015.
Mr. Harrison said the plunge in crude prices has not altered any of the guidance the company has offered, and there are no changes to its capital expenditure plans.
He left open the possibility that he was overly optimistic about the robustness of demand for crude by rail, but said CP has always been conservative in its capital expenditures for moving crude. Any decline in demand would simply free up locomotive power for other goods, he said.
"What appeared to be a bad thing is now maybe a good thing," Mr. Harrison said, noting other railways have invested heavily in new power and tank cars to move oil. "So I'm not sure what their plans are now. I guess locomotive prices will go down."
CP said in October that merger talks with Florida-based CSX Corp. had broken off, but it would continue to pursue sales or acquisitions in order to break the logjams on the rails, especially around Chicago. Merger rumours sent CSX shares soaring more than 20 per cent. But CSX, which has never publicly commented on the talks, has said it doubted any merger would be approved by the U.S. regulator.
Still, Mr. Harrison was seemingly caught off-guard by the first question from the floor of the Credit Suisse conference. One investor said CSX had been saying in private meetings that if CP was serious about a deal, it would place CSX in a voting trust to be operated independently until a merger was approved by the U.S. regulator, the Surface Transportation Board.
"I don't know if this is a trap or not," Mr. Harrison said of the question. "I hope they're not saying that. I think we made it clear that the deal is off and behind us. … I don't know if they say one thing [privately] and one thing in the media. But that's kind of troubling."
A spokeswoman for CSX said she had no comment.
Speaking at the same conference earlier on Wednesday, CSX's chief financial officer Fredrik Eliasson said he doubted U.S. regulators would believe any merger would leader to greater competition, and that the efficiencies of a merger were not clear to him.
"Now having said all this, our board, like any other board, is going to evaluate any offer that comes in," Mr. Eliasson said. "But I think we just don't see that [the] environment is right now, and I don't think the value equation necessarily makes sense."
Eric Atkins