July 14, 2013

For rail company, rebirth may yield to ruin

The rising demand for crude oil transit gave hope to the Montreal, Maine & Atlantic Railway, but may also be prove to be its undoing.

By Eric Russell erussell@pressherald.com
Staff Writer

The ability to move crude oil along its tracks likely saved the Montreal, Maine & Atlantic Railway from financial collapse a little more than a year ago.

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In this Feb. 19, 2010 file photo, rail cars sit idled on the Montreal, Maine & Atlantic Railway junction in Oakfield, Maine.

AP

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Now, after a 73-car train hauling crude oil derailed from MM&A's tracks and ravaged the small Quebec town of Lac-Megantic only miles from the Maine border, the petroleum product could end up being the company's undoing.

"I don't know the entire situation and I don't know how they insure themselves, but an accident of this magnitude could put a small company out of business," said Richard Beall, a railroad litigation expert based in Georgia. "I've been involved in hundreds of lawsuits and insurance cases over my lifetime and they usually top out at a million dollars or two. This could be billions."

Montreal, Maine & Atlantic Railway is a relatively small company, but it's owned by a much bigger firm, Chicago-based Rail World Inc.

Sandra Dearden, founder of Highroad Consulting in Indiana, a firm that specializes in rail transportation and logistics, said she knows Rail World president and MM&A chairman Edward Burkhardt personally and has some knowledge of both companies' operations.

"The main concern initially is protecting people" and minimizing physical damage, she said. "Once you recover from that, though, it can still be very devastating."

Dearden said until there is a formal finding, it's premature to project how the company will rebound from the accident.

"I'm sure (Burkhardt) has good insurance. Is it adequate? I don't know," she said. "With the loss of life in this case, litigation will be significant."

Rail World Inc. bought about 750 miles of track in Quebec province, Vermont and Maine in 2003 after the prior owner, Iron Road Railways, went bankrupt. Another Burkhardt-led company already owned three lumber mills in Maine, and the railroad offered dreams of synergy.

Trains could haul lumber along the track, which had once been owned by the old Bangor and Aroostook Railroad. Rail World Inc. opened a local office in Hermon, just outside Bangor. The Montreal, Maine & Atlantic Railway was born.

But those dreams never materialized, at least not in the way Rail World hoped.

Almost immediately, MM&A had to reduce employee salaries by 25 percent, after the line's biggest anticipated customer, Great Northern Paper, shut down two mills in Millinocket and East Millinocket.

Demand for lumber continued to drop. Other mills struggled and some shuttered. The recession in 2008 made things worse.

In an effort to stay afloat, Rail World sold 233 miles of tracks in northern Maine to the state for $20.1 million in 2010. The state purchased the tracks with bond money and then turned around and sold them to another company.

The sale didn't solve the company's financial problems. Its remaining tracks were falling into disrepair because there wasn't enough profit coming in to maintain them. The next year, the company put the entire MM&A operation up for sale.

Before a buyer emerged, Irving came along.

The Canadian family -- owners of their country's largest oil empire and the largest private landowners in New Brunswick, Nova Scotia and in Maine -- had an offer to make:

Instead of hauling lumber along the tracks, why not transport oil from Western fields to Irving's refinery in Saint John, New Brunswick?

Irving already owned other stretches of track in New Brunswick and eastern Maine, and had recently purchased the 233 miles in northern Maine that MM&A sold to the state. But the MM&A line from Millinocket to Montreal was the missing piece. It is the most direct route from northern Maine east to the Irving refinery in Saint John and west to Montreal, which connects to the Bakken oil fields in North Dakota.

(Continued on page 2)

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