Water by rail ready to roll

A terminal serving the crude oil industry is offering help for drought-stricken California.

Curious things are happening in southeastern New Mexico. In an area famous for UFO sightings and suspected alien encounters, companies connected to the oil trade are managing to flourish while oil producers elsewhere are struggling to get back on their feet.

According to data compiled by the U.S. Energy Information Administration, the Permian Basin,which straddles the New Mexico/Texas border, was one of only two oil shale formations in America that was seeing an increase in total output at the start of 2016. A report issued on Feb. 8, 2016 said, “The EIA estimates that the Permian Basin’s crude oil production amounted to ~2.0 million barrels per day in January 2016. This was 0.6% higher than December 2015’s production and a whopping 20% higher than production in January 2015.”

One company that has capitalized on the New Mexico/West Texas oil boom is Ironhorse Permian Basin (IPB), which owns a sprawling rail terminal on 520 acres outside Artesia, N.Mex. With more than 47,000 track-feet and growing, the site has been staging and offloading inbound railcars of frac sand (holding as many as 250 cars at a time), and it’s also been used to offload and store pipe, as well as load occasional shipments of outbound crude-by-rail (CBR). A record-setting 151-car sand train was delivered to IPB in June 2016. IPB is currently undertaking a major expansion that will immediately serve the region’s oil producers, but IPB says it’s hedging its bet with an option to load and ship one other commodity: water.

“We’re permitted to go,” IPB Founder and CEO Kyle Ramage tells Railway Age, referring to state authorization to increase commercial sales of water from wells that IPB owns. Those same wells have already been supplying a limited amount of water (shipped out via truck) to nearby oilfields. Ramage says, “We could pump, load, and sell 14 million barrels until November 2016, then it resets. After the reset, we’ll be able to do 7.6 million barrels per year for the next five years.” That would amount to roughly 3.5 unit trains per week, according to Ramage.

IPB Vice President Operations and Safety Paul Pappas described their present expansion phase. “Our design incorporates two 14,000-foot loops, one dedicated to crude or water, the other for sand. We feel our location in Artesia is very desirable given our close proximity to wells, existing pipelines (Centurion is four miles away), and the Navajo refinery (six miles).” Pappas says the site has “ample space for any other materials that would be transported by rail.” On March 1, IPB President and CFO Khory Ramage was quoted in the Wall Street Journal as saying the company is also looking into making space available to the sudden demand for storing surplus crude in loaded railway tank cars.

In addition to completing the unit train loading tracks, IPB will need to expand its water-handling infrastructure. During initial conversations about WBR back in April 2015, Kyle Ramage told Railway Age, “It would require massive amounts of storage to have the volume on hand to load the unit trains. You do not want a unit train waiting longer than 24 hours.” IPB already has four water pumps, each one able to move 1,100 gallons per minute.

Kyle Ramage started his rail career in 2001 as a scrapper and recycler of track materials. That business quickly expanded into installation of new track for industrial/commercial sites. Assisting with that process has been BNSF retiree Albert Alba, Jr., a 32-year rail veteran. IPB COO Kenny Van Winkle, with whom Kyle Ramage partnered earlier under Double K Recycling & Supply, is also the owner of a “dirt work company” that specializes in railway grade work. That same outfit is performing the dirt and roadbed preparation at the IPB terminal. Khory Ramage came to IPB from a background in the oil and gas industry, having once managed more than a billion dollars in assets and assisted with the development of oil and gas projects in both the Williston (Bakken) and Permian basins. IPB’s property previously housed a dairy owned by David Hoekstra, who is now on IPB’s Board of Directors. Rounding out the team are two more Ramage brothers, Kegan and Kevin, who handle operations and financials, respectively.

It was the upward cycle in crude-by-rail that prompted the Ramage brothers to bring their tracklaying and oilfield knowledge together. Kyle Ramage says, “We bought this property for the frac sand and oil, then we got contacted by this group about water.” Initially, that buyer seemed interested mainly in water for oilfield use, but then the word “California” entered the conversation.

IPB and its client are aware that thousands of crude service tank cars are currently stored empty throughout the U.S., and that those cars are larger than the 20,000- to 22,000-gallon load limit for carrying water by rail (WBR). Also, as mentioned last year in Railway Age (“Drought Relief by Rail,” August 2015), it could cost up to $6,000 per car to blast out crude residue and reline the interiors for water service. IPB says, “Our buyer is looking into a bladder to occupy the interior and be filled.”

National Steel Car Senior Vice President-Marketing and Sales Bob Pickel says, “Theoretically, it does seem plausible, using the bladder as a liner, if you will. The bladder or ‘bags’ concept has been considered for various applications such as oil in open top hoppers and gondolas, but this is the first that I’ve heard about one for a tank car. The lining would add weight, reducing the gallonage.” Whether using re-purposed 30,000-gallon tank cars (such as older DOT-111s that can no longer be used for crude) or load-appropriate 20,000-gallon cars, IPB says it’s ready to begin shipping water from the Permian Basin to southern or central California.

This proposed start-up of WBR comes just as the rail line serving IPB’s terminal and much of the Permian Basin is undergoing a transition of its own. Since 2004, BNSF Railway’s 183-mile branch from Clovis, N.Mex., south through Roswell and Artesia to Carlsbad (including additional spurs reaching east and south beyond Carlsbad) has been operated and maintained by short line Southwestern Railroad (SWRR) through a long-term lease arrangement. In July 2016, BNSF issued a statement to shippers that confirmed what IPB’s Kyle Ramage had heard from a rail official several months earlier: “BNSF is coming back.” BNSF says it will take over service of the Clovis-Carlsbad line effective Jan. 17, 2017.

It remains to be seen whether municipalities or private buyers will pay to haul water by train from New Mexico – or anywhere else – to California. For its part, Ironhorse Permian Basin is ahead of the game in terms of getting infrastructure ready to answer that call.