Buffett's BNSF Bet is Blinging...Thanks to Hydrofracking
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Warren Buffett may not be winning on nat gas, but railroading a railroad sounds cooler anyway.
According to Bloomberg on Thursday, Buffett's many, many billion-dollar bet on Burlington Northern (BNSF) is turning out to be a lollipop. Gains on BNSF paid a distribution of $1 billion to Buffett's Berkshire (NYSE: BRK-A)(NYSE: BRK-B) last month, slowly chipping away at the $26.5 billion or so shelled out in 2010 to acquire the remaining portion of BNSF Berkshire didn't already own.
BNSF realized a 16 percent gain in carloads through 2011, attributed mostly to increases in mineral and chemical shipments, data from Association of American Railroads (AAR) shows.
Another reason for the strong performance is a solid presence in North Dakota and Montana, where Bakken Shale plays are expanding as hydraulic fracturing techniques used to extract crude continue to become commonplace. With no pipelines running from the region currently, producers have no choice but to use railroads for shipments of goods to and from locations in the region.
But more than just Bakken, BNSF serves about 30 percent of refineries, meaning it can easily pick up shipments from drillers and carry them along many of its 32,000-mile system to refiners in different locations. Union Pacific (NYSE: UNP), a competitor to BNSF, actually needs to exchange carloads with BNSF, or peer Canadian Pacific (NYSE: CP), in order to move petroleum to refineries on its network -- more costly to Union Pacific and more lucrative for BNSF.
AAR data for 2011 shows BNSF carloads of non-metallic minerals and products grew about 15 percent, while chemicals climbed 5.4 percent. Bloomberg noted fracking sand and petroleum are included in the latter two categories and BNSF doesn't offer separate metrics for the products.
According to Bloomberg on Thursday, Buffett's many, many billion-dollar bet on Burlington Northern (BNSF) is turning out to be a lollipop. Gains on BNSF paid a distribution of $1 billion to Buffett's Berkshire (NYSE: BRK-A)(NYSE: BRK-B) last month, slowly chipping away at the $26.5 billion or so shelled out in 2010 to acquire the remaining portion of BNSF Berkshire didn't already own.
BNSF realized a 16 percent gain in carloads through 2011, attributed mostly to increases in mineral and chemical shipments, data from Association of American Railroads (AAR) shows.
Another reason for the strong performance is a solid presence in North Dakota and Montana, where Bakken Shale plays are expanding as hydraulic fracturing techniques used to extract crude continue to become commonplace. With no pipelines running from the region currently, producers have no choice but to use railroads for shipments of goods to and from locations in the region.
But more than just Bakken, BNSF serves about 30 percent of refineries, meaning it can easily pick up shipments from drillers and carry them along many of its 32,000-mile system to refiners in different locations. Union Pacific (NYSE: UNP), a competitor to BNSF, actually needs to exchange carloads with BNSF, or peer Canadian Pacific (NYSE: CP), in order to move petroleum to refineries on its network -- more costly to Union Pacific and more lucrative for BNSF.
AAR data for 2011 shows BNSF carloads of non-metallic minerals and products grew about 15 percent, while chemicals climbed 5.4 percent. Bloomberg noted fracking sand and petroleum are included in the latter two categories and BNSF doesn't offer separate metrics for the products.
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