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Brian Ferguson president and CEO of Cenovus Energy.TODD KOROL/Reuters

Oil companies pressed to ship oil out of the Bakken formation in Saskatchewan and North Dakota are flocking to sign transportation deals with rail companies as the threat of a pipeline shortage looms.

Cenovus Energy Inc., for example, just struck a deal with Canadian Pacific Railway Ltd. that gives the oil sands company access to 48 railcars with room for about 600 barrels each, executives said at the company's investor day on Wednesday. Cenovus will fill the 48 cars in Estevan, Sask., once every 20 to 35 days, depending on where the oil is headed.

This is Cenovus's first rail deal. But it is joining a growing list of competitors looking beyond pipelines as they strain to keep up with market shifts. CP on Tuesday opened a new facility in Estevan to serve oil producers operating in Saskatchewan's Bakken zone. The railway shipped 13,000 carloads of oil out of North Dakota's slice of the Bakken formation in 2011, up from 500 in 2009. It plans to move 70,000 carloads a year in the future.

Rail was dismissed as an ineffective and uneconomic mode of moving crude just a few years ago. But as new pipelines face regulatory delays and increasing controversy, rail is gaining ground.

"No one is saying rail will ever replace pipeline," Tracy Robinson, a vice-president at CP, said in an interview. "[But]the delays in the pipelines have given us a chance to demonstrate that we have a product that works."

At the same time, the U.S. subsidiary of pipeline company Enbridge Inc. is spending $145-million (U.S.) to add 80,000 barrels a day of capacity, by 2013, to a rail terminal near Berthold, N.D. The facility will be designed to accept an initial 10,000 barrels a day by next July.

According to one rail industry source, a series of companies is now building and planning terminals capable of loading one million barrels a day of oil onto railcars from the Bakken play in North Dakota and Montana. That is nearly triple the volume of oil currently coming out of that play.

Brian Ferguson, chief executive officer of Cenovus, said his company's rail deal with CP is a "short-term" solution to the shipping problems facing the energy industry, which expects to reach capacity of existing pipelines around 2014. But with crude production growing in the oil sands, Bakken plays, and other hotspots such as the Cardium formation, the push to sign rail deals underscores how desperate energy companies are to move their products to market as TransCanada Corp.'s proposed Keystone XL pipeline and Enbridge Inc.'s planned Northern Gateway line face difficulties. Keystone XL, which is designed to move heavy oil from northern Alberta to refineries on Texas' Gulf Coast, could also pick up crude out of parts of the Bakken.

Oil companies are also barging Bakken crude down the Mississippi to the Gulf Coast, Cenovus chief operating officer John Brannan said Tuesday. "There's quite a bit of that being moved on a daily basis."

Cenovus also signed a deal to move 11,500 barrels of oil per day on Kinder Morgan Inc.'s Trans Mountain pipeline, Mr. Ferguson said.

His energy company plans to spend between $3.1-billion and $3.4-billion next year, an increase of 23 per cent over its 2011 budget. Roughly 90 per cent of its budget will be spent on oil projects, executives said Wednesday.

The company, which was spun out from Encana Corp. in 2009 and has since outpaced its parent in the stock market as natural gas prices languish, expects to rake in between $2.9-billion and $3.5-billion in cash flow, a 4-per-cent drop from its 2011 budget. Mr. Ferguson said Cenovus's growth will be funded by its cash flow.

Cenovus focuses on the oil sands, extracting bitumen using steam-assisted gravity drainage techniques. Expansion plans at its Christina Lake and Foster Creek oil sands projects are ahead of schedule and larger than previously anticipated, helping to drive its growth. Christina Lake, for example, will produce twice as much oil in 2012 as it did in 2011.

The company also addressed its dividend ambitions. "We believe we are well positioned to allow our board of directors to consider growing the dividend in 2012," Ivor Ruste, Cenovus' chief financial officer, told investors and analysts Wednesday.

With files from reporter Nathan VanderKlippe