Halliburton says profit being hurt by CN service delays

Share

U.S. oilfield services company Halliburton Co. says Canadian National Railway Co.'s service delays are being felt on its bottom line.

Christopher Weber, chief financial officer of Halliburton, said CN's recent halt of frac sand shipments in parts of Minnesota and Wisconsin have slowed drilling and will reduce the Houston-based company's per-share profit by 10 cents U.S. in the first quarter.

Frac sand and water are used to extract oil and gas from underground shale formations.

Halliburton's share price fell by 2 per cent after Mr. Weber's comments. CN's share price fell by less than 1 per cent on Thursday.

"We are seeing disruptions in our supply due to the cold weather," Mr. Weber said in a webcast investors' presentation. "But what's been more of a challenge is the impact of the cold weather on the rail lines. That's led to delays in sand delivery."

Mr. Weber said since the beginning of February the company has faced delays in sand deliveries of 72 to 96 hours.

"That's three to four days' worth of sand. And then on Thursday of last week we got a big surprise, something we haven't seen before," Mr. Weber said. "We were informed by the Canadian National Railway that they are halting all new shipments across a wide section of Minnesota and Wisconsin for a full week. And we've got multiple sand operators in this region that are impacted … from which we purchase one third of our total sand volume."

CN spokesman Patrick Waldron said the railway's service has been negatively affected by extreme cold and heavy snowfalls combined with higher freight volumes.

"So far this year, 75 per cent of days have had cold so severe that we've needed to run shorter trains on significant portions of CN's network. Shorter trains mean more trains are needed to move the same volume of freight," Mr. Waldron said. "This combined with increased volume levels overall has resulted in congestion for all of our commodities and all our customers along our busy Chicago-to-Edmonton mainline corridor."

The Montreal-based railway has said its network congestion is due to higher-than-usual volumes of freight, including at the port of Prince Rupert, B.C. To cope with the surge, CN is hiring about 5,500 people in 2017 and 2018 and will buy 200 locomotives.

Walter Spracklin, a stock analyst with Royal Bank of Canada, said anecdotal reports of CN's service problems are confirmed by the American Association of Railroads. The industry group's weekly data show CN's train velocity is down by 17 per cent, year over year, compared with a 9-per-cent drop for the other major railways.

"Management has responded by indicating that these are due to digestion issues of too much volume coming on in a lumpy way last year, which was then aggravated by winter weather and certain derailments," Mr. Spracklin said in a note to clients.

"On the one hand, [CN] has aggressively hired new workers and bought or leased new locomotives to deal with the congestion. The problem is that comes with a cost, which then affects bottom line returns," he said, adding it could be the third or fourth quarter before CN's network returns to normal.