Profiting from Oil Transportation Regulation

Written By Christian DeHaemer

Posted February 13, 2014

Last July, a runaway oil train derailed and exploded in the Quebec town of Lac-Mégantic, engulfing the town in a flaming black ball of death, killing 47 people, and destroying half of the town center.

fiery deathThen, last month, a 104-car oil train struck another train in Casselton, North Dakota, sending fireballs high into the sky as cars piled on each other and exploded. No one died, but 2,000 people fled in fear of toxic smoke.

Another fiery derailment occurred in Alabama in November.

Rolling Bombs

North American crude oil shipments by rail have increased by more than 400% since 2005. Some oil trains are more than 100 cars long.

Naturally, the same government that halted the much safer Keystone pipeline due to politics thinks more government regulation is the obvious answer.

According to Yahoo! News:

“Warning that a “major loss of life” could result from an accident involving the increasing use of trains to transport large amounts of crude oil, U.S. and Canadian accident investigators urged their governments Thursday to impose new safety rules.

The regulators also noted that it is still waiting for final action from government regulators on new requirements to improve the safety of tank cars used to transport oil. The safety board called for changes in the DOT-111 tank cars, which are used for a variety of flammable liquids, after a 2009 accident in Cherry Valley, Ill. The rules aren’t expected to be ready until next year.”

Profit from the Rules

As a trader, I love ridiculous government regulation. You show me a new rule, and I’ll tell you how to profit from it.

Already, The Greenbrier Companies Inc. (NYSE: GBX) is designing the “Tank Car of the Future.” This new safety car will transport crude oil, ethanol, or other flammable freight, and the design is in direct response to criticisms of the older DOT-111 tank cars.

The new design will incorporate thicker heads and bigger welds among other safety bells and whistles. It should start to sell in the next year to 18 months. The company believes it can build 2,500 to 3,000 a year in North America.

Greenbrier is also offering retrofit services for legacy DOT-111 cars with high-flow pressure relief valves, head shields, top fittings protection, and thermal protection. These retrofits could allow for extended service of DOT-111 tank cars as these cars are placed in lower-risk service.

Over the past five years, Greenbrier’s share price has run from $2 to $36.

Heck of a run%2C Bobby

The company has a forward P/E of 11.73 and a quarterly revenue growth rate of 18.10%. The share price is up 1.37% today.

Greenbrier Companies is just one more way to play the ring of fire fracking boom. I’d be a buyer around $33.

For your profits,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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