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An old oil idea gets a new life

 Gabe Claypool is CEO of Dakota Plains Holdings, which ships oil to the East Coast and elsewhere by rail.
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Date published: 1/26/2013



Two years ago, Gabe Claypool had nothing to do with oil and railroads.

Today, he is CEO of a Wayzata, Minn.-based company that ships 3.5 percent of North Dakota's oil to East Coast and other refineries in railroad tank cars.

The company, Dakota Plains Holdings, is part of a revival of the old way of shipping crude oil--via rail--that last flourished during World War II. And it's another case of North Dakota's oil boom igniting spin-off businesses.

"If the capacity to move oil isn't there by pipeline, the only alternative is to get it out by rail--or you stop producing oil until the pipelines catch up," Claypool said in an interview.

Claypool, 37, who grew up on a farm in Hampton, Iowa, was living in Minnesota in 2011 when investors in Wayzata and Minneapolis approached him to run their startup crude-oil-to-rail business. At the time, he was a manager at a networking company and had spent nearly a decade at AT&T.

He was puzzled initially that anyone would ask him--a farm kid working in the technology industry--to run an oil business, he said. Then someone explained that the business model "is remarkably similar to a farmers' elevator," he said.

Dakota Plains in 2010 opened a crude-oil-to-rail loading terminal in New Town, N.D., in the Bakken oil region. The company was among the first to see that pipeline capacity would be insufficient to ship all of the region's oil.

Crude oil is brought to Dakota Plains' rail terminal by truck, then put on trains of up to 120 tank cars stretching more than a mile. Dakota Plains was the first crude-to-rail terminal on Canadian Pacific's North Dakota system, and it already has been expanded, with more growth planned.

Claypool said the company's 1,100 leased tank cars have carried crude to Albany, N.Y.; Philadelphia; St. John, New Brunswick; Galveston, Texas; and Walnut Hill, Fla.

Today, 20 crude-to-rail terminals have sprouted along the North Dakota tracks of Burlington Northern Santa Fe and Canadian Pacific. In November, the railroads hauled 57 percent of the region's crude.

An estimated 200,000 tank-car loads of crude oil rode the U.S. rails last year, up from just 9,500 in 2008, the Association of American Railroads says. That level of crude oil traffic hasn't been seen in decades.

More pipelines are planned in North Dakota, Minnesota and other states, but they are years away from completion.

BNSF, owned by Warren Buffett-led Berkshire Hathaway, said it shipped 100 million barrels of crude in 2012. It also invested nearly $200 million last year in North Dakota and Montana, and has hired more than 560 new workers since 2011, the company says.

"One of the reasons why the oil industry has really taken to heart the expansion of crude by rail is the flexibility," said John Miller, vice president of industrial products sales for BNSF. "If you load a unit train in North Dakota, you can go to the West Coast, you can go south or to the East Coast."

Miller said BNSF expects crude traffic to pick up in the East as more unloading terminals are built there.