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William Ackman says CP’s ‘perceived energy exposure’ could provide investors with buying opportunity in company ‘that will grow at a high rate,’ director says.

Scott Eells/Bloomberg

Canadian Pacific Railway Ltd. director Bill Ackman says the plunge in oil prices that has hit the company's share price will dampen growth at the Calgary-based company.

CP shares have been on a roller coaster since October as investors weighed the effect of the lower crude prices on the company that has pegged one-third of its growth to soaring demand to move oil by train.

"Some of the growth will come from oil deliveries, and to the extent that there's less drilling in the United States and less oil sands recovery … that will have some effect on growth," Mr. Ackman said in an interview on Bloomberg Television.

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CP has not altered its revenue guidance as oil has plunged 43 per cent since Aug. 1, raising fears energy producers will slash production and cut rail shipments.

Mr. Ackman said markets have punished CP for its "perceived energy exposure," and provided a buying opportunity for investors.

"This is a company that will grow at a high rate," said Mr. Ackman, an activist investor whose firm, Pershing Square Capital Management LP, won a battle for control of CP's boardroom in 2012 and installed its own management team.

CP has said it plans to double its per-share profit and boost annual revenue to $10-billion, from $6-billion, by 2018. The Calgary-based railway said one-third of this growth will come from moving crude, and that oil carloads will almost double to about 200,000 next year.

A CP spokesman said on Wednesday that the company is sticking with its projection. "There is no sense of a crisis and there is no sense of a need to change our expectations for volumes going forward," said Martin Cej, adding that the outlook was conservative.

CP will spend about $1-billion on diesel fuel this year. Falling oil prices are a wash for the company, Mr. Cej said.

For CP and Canadian National Railway Co., the business of moving oil, drilling pipes and sand for hydraulic fracturing has grown to about 8 to 10 per cent of total revenue.

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Mr. Cej said much of the company's crude contracts are long term and weighted toward the Alberta oil sands, not the Bakken oil fields of North Dakota, where the price differential with benchmark West Texas intermediate (WTI) oil is much narrower.

The price differences, or spreads, are closely watched by oil shippers; they make money by buying oil in Alberta or the Bakken and selling it at higher prices to U.S. refineries. On Wednesday, the spread between WTI and Western Canadian Select was $16 (U.S.) a barrel, compared with about $5 for Bakken oil.

Since the beginning of October, the share prices of CP and CN have fallen by 5 and 3 per cent, respectively, compared with a 36-per-cent decline in the price of a barrel of oil.

Brandon Oglenski, an equities analyst with Barclays Capital Inc., said lower oil prices could reduce railway profits, but investors have already priced in the softer 2015 energy market.

Mr. Ackman also addressed the failed merger talks with Florida-based CSX Corp. He said consolidation will be driven by "common sense, and the owners of the business" as well as the need for railways to become more efficient in order to meet the needs of a growing economy.

"The management team at CP has done a remarkable job to take the worst-run railroad in North America and I think pretty soon it will be the best-run in terms of pure operating metrics. And if you apply those same metrics to another [railway], you can create enormous value," Mr. Ackman said.

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