The Energy Information Administration reported that in 2012, American refineries were receiving more than 1 million barrels of oil per day via pipeline alternatives like truck, rail, and barge. Producers are forced to utilize these transportation options because production is growing by leaps and bounds in regions that have not traditionally produced significant quantities of oil, and therefore are not served by adequate pipeline infrastructure. With that in mind, today we're looking at three ways to benefit from this trend.
There is far more American crude moving via rail than Canadian crude right now, but that trend may not last much longer. Canadian Pacific Railway (NYSE: CP ) is a great opportunity here. Beginning in 2014, the company will carry crude from two recently announced Alberta rail terminals.
The first terminal is a joint venture in Edmonton between Keyera and Kinder Morgan Energy Partners (NYSE: KMP ) . The terminal will have an initial loading capacity of 40,000 barrels per day, with potential to grow as high as 165,000 bpd. Canadian Pacific will share takeaway duties with Canadian National Railway (NYSE: CNI ) , carting oil south to an undisclosed American refiner. The second terminal will be built near Hardisty by Gibson Energy and the U.S. Development Group, sending crude south to the U.S. via Canadian Pacific's North Main Line .
I've mentioned Martin Midstream Partners (NASDAQ: MMLP ) as a player in the barge game before, on account of the partnership's prime Gulf Coast assets. It operates a fleet of 54 inland barges, 29 inland push boats, and four offshore tug/barge units. In the second quarter, revenue from the partnership's marine transportation business grew 23% on a year over year basis. Despite the revenue bump, cash flow was flat because management plowed cash into bringing recent maritime acquisitions up to its standards. Cash flow should pop in the third and fourth quarters . Additionally, a recent partnership with Alinda Capital Partners will give Martin a cash infusion used to pay down debt and target future projects to drive distribution growth .
3. Rail and barge
Trinity Industries (NYSE: TRN ) is a company that floats under the radar, but it is one investors should consider if they are looking to exploit this trend. The company manufactures freight cars, tank cars, and miscellany rail infrastructure for sale, but it also leases rail cars. In addition to its rail business, Trinity also manufacturers inland barges, and, for those investors who love a side of green energy, wind towers .
Trinity is coming off a very strong second quarter. The rail group received orders for 5,000 new rail cars while the barge group received orders topping the $230 million mark. The order backlogs for rail and barge now stand at $5.1 billion and $564 million, respectively . The success ultimately encouraged management to increase full-year guidance. On top of that, Standard & Poor's upgraded the company's credit rating to BBB- in May .
Soaring American energy production will benefit a multitude of companies outside of traditional oil producers, and increasingly that includes railroad and barge companies.
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