U.S. agency says companies shipping crude in unsafe rail cars, Judge grants railroad bankruptcy protection after Lac-Mégantic disaster, About 100 residents remain homeless for a year

Province of Quebec admits that taxpayers will have to pay for the cleanup

MM&A granted creditor protection in wake of Lac-Mégantic disaster by Sophie Cousineau, August 8, 2013, The Globe and Mail
The Canadian subsidiary of Montreal, Maine & Atlantic Railway, whose train ravaged Lac-Mégantic, got the creditor protection it was seeking, but the Quebec Superior Court judge who granted its request had some harsh words for the railway’s directors. Justice Martin Castonguay granted the stay of proceedings against the railway company on Thursday to “avoid judicial anarchy.” “It is in everybody’s interest to maximize the value of the assets,” he said in an oral decision. However, the judge initially excluded the directors of Montreal Maine & Atlantic Canada from the court’s protection. To earn that privilege, the judge explained, directors must “act in good faith.”

“The tribunal is not impressed at all by the way MM&A behaved,” Justice Castonguay said. “Since the beginning of the events, their conduct has been totally lamentable,” he added. But the judge later changed his mind when the lawyer representing MM&A’s Canadian affiliate, Denis St-Onge, pointed out that allowing lawsuits to proceed against the railway’s directors might deplete the company’s $25-million insurance policy, leaving little money for other claimants such as the Quebec government, which is now footing the clean-up bill. Justice Castonguay then ordered a stay of proceedings against the company’s directors, but only in relation to claims pertaining to the train derailment and the ensuing explosions. This would still allow former employees to seek compensation for their unpaid vacation, a situation their union, the Syndicat des Métallos, denounced as a “theft” on Wednesday. “I find it scandalous when a company doesn’t pay its employees,” Justice Castonguay commented. The decision to allow some claims to proceed against the directors of MM&A’s Canadian affiliate could however be revised, when Justice Castonguay passes the bankruptcy case to a judge based in the Eastern Townships. “For me it’s totally obvious that this trial needs to be heard close to where the people in Lac-Mégantic live. They shouldn’t have to drive for hours to find out what is happening.” Justice Castonguay offered his condolences to the Lac-Mégantic community on behalf of the judicial authorities, in a case he had earlier described as an “exceptional situation that requires exceptional remedies.” “There are secured and unsecured creditors, and then there are extraordinary creditors,” he said. “It is not a legal term but it applies to the disaster victims.” [Emphasis added]

Judge blasts ‘lamentable’ behaviour of railway in Lac-Mégantic disaster but approves bankruptcy protection by Sue Montgomery, August 8, 2013, The Montreal Gazette
A Superior Court judge has granted Montreal, Maine and Atlantic Railway permission to go into bankruptcy protection, but had harsh words for the company, whose train crash was responsible for 47 deaths and millions of dollars in damages in Lac-Mégantic. Justice Martin Castonguay said the victims of the July 6 disaster would be included as creditors and said there would be no protection for the directors of the rail company. “Their behaviour has been lamentable since the beginning of the situation,” he said in Quebec Superior Court Thursday. The judge ordered that the file be transferred to a court in the Eastern Townships, where the population directly affected is located. Louis Coallier, lawyer for the town of 6,000 people, called the judgment “human.” But the company is basically insolvent, he said, so it’s unlikely the victims will get much compensation. “It’s like when someone is dying and you make them comfortable in a bed rather than leave them out on the street to die.” [Emphasis added]

Rail Agency Probes Possible Safety Flaws in Crude Transit by Jim Snyder, August 8, 2013, Bloomberg
Federal Railroad Administration said it is investigating the safety of transporting crude oil by rail, including whether chemicals used in hydraulic fracturing are corroding tank cars. The Federal Railroad Administration said it is investigating the safety of transporting crude oil by rail, including whether chemicals used in hydraulic fracturing are corroding tank cars. Regulators in July 29 a letter to the American Petroleum Institute, a Washington-based lobbying and standards-setting group for the oil and gas industry, said the chemical composition of the crude is sometimes misclassified at a lower hazard level, violating existing safety rules. In some cases, the tank cars shipping the hazardous material may not be equipped with “required design enhancements,” the FRA said in the letter sent three weeks after a deadly explosion in Quebec of a train hauling oil.

“FRA recommends that shippers evaluate their processes for testing, classifying and packaging the crude oil” that they transport, according to the letter. The agency said it may fine companies that it finds aren’t complying with rules for transporting hazardous materials. The U.S. agency is investigating after a parked 72-car train with crude oil from North Dakota’s Bakken started to roll, derailed and exploded in the town of Lac-Megantic in Quebec, killing 47 people. A wall of flames 12 stories high incinerated buildings in the town’s center. Canadian regulators are testing the chemical composition of the fuel being transported. One question is why the derailment led to such an intense inferno, which regulators have said was “abnormal.”

North Dakota
“We did take samples from the tank cars to get a better understanding of what was actually carried in them and verifying that against the shipping documents,” said Chris Krepski, a spokesman for the Transportation Safety Board of Canada. Investigators went to North Dakota as part of their review, he said. The letter to API, reported earlier today by the Wall Street Journal, notes that the number of crude shipments has increased 443 percent since 2005. North Dakota accounts for much of the increase. About 75 percent of North Dakota’s oil is shipped by rail, with the rest over pipeline. Hydraulic fracturing in shale rock formations has pushed U.S. oil production to the highest levels in two decades, with trains hauling much of the increased production.

Tanker Corrosion
In fracking, drillers pump chemicals, water and sand deep underground to break apart rock so that trapped oil and gas can flow to the surface. Some of the chemicals come back up with the oil and can be corrosive to the tank cars, according the FRA.
“Proper identification of these elements will enable a shipper to ensure the reliability of the tank car,” according to the letter. As part of its investigation, regulators said they are seeking data that would support the shippers’ classification of the crude being transported.
Last week, the Federal Railroad Administration imposed emergency rules to prevent parked trains from rolling on their own. The order prohibits operators from leaving trains carrying hazardous materials unattended without prior authorization and requires employees to tell dispatchers the number of hand brakes used. Canadian investigators have said that not enough force was applied to the hand brakes to keep the train from moving. [Emphasis added]

U.S. agency says American companies shipping crude in unsafe rail cars by William Marsden, Post Media News, August 9, 2013, Calgary Herald
U.S. companies are shipping crude oil in unsafe rail cars that are often overloaded and that potentially contain corrosive, explosive and flammable materials that are not fully identified on shipping manifests, according to the U.S. Federal Railroad Administration. Because the content of the crude is not properly identified, crude oil is being shipped in tanker cars that don’t meet federal safety standards for shipping this type of extremely hazardous material, the FRA claims. In all likelihood, these unsafe shipments are also going into Canada.

The FRA said it discovered the safety problems during its preliminary investigation into whether the industry is properly analyzing and classifying the substances in its crude oil shipments for their corrosive and flammable potential. Such content verification is required so that shippers can make sure the crude is transported in tanker cars that are equipped to contain hazardous materials in the event of an accident. In a July 29 letter to the American Petroleum Institute, Thomas Herrmann, acting director for safety assurance and compliance at the FRA, states the administration has launched a broad investigation into whether the shipping practices of the industry meet safety regulations. The letter notifies the petroleum institute that it will request its members turn over analytical data on the content of their crude shipments plus information on crude oil loading practices. The letter states FRA will do its own testing if the data is not made available.

Oil companies are increasingly using rail to ship their product to market when pipelines are unavailable. Crude oil shipments have increased 443 per cent since 2005 and are the fastest growing of all hazardous material shipments by rail. In some regions demand is so high there is a deficit of tanker cars.

The FRA investigation was sparked by the July 6 derailment of a runaway train carrying crude oil in Lac-Megantic, Que. The accident ignited an explosive fire that killed 47 people and destroyed a broad swath of the downtown. Canada’s Transportation Safety Board is analyzing the contents of the tankers to test whether they reflect what was identified on the shipping documents. They said the fire appeared to be more intense than would normally be expected from the contents listed on the waybills. They are also examining the tanker cars to assess whether they were the right safety classification to be carrying such hazardous oil properties. In the event of rail accident, shipping documents are usually the only indication for emergency crews of the dangers they face.

Crude oil is blended from different source wells before it is shipped. Contents of this blended crude are not tested before it is pumped into each tanker car, according to the FRA. So shippers are not fully aware of what chemical properties are in the oil before they pump it into tankers. The FRA found that one shipper had put the highest degree of hazardous crude into a rail tanker suitable only for the lowest degree.

The FRA states that because of a lack of data it “can only speculate” as to the number of potential crude oil shipments that travel in unsafe tankers. “It is critical that shippers determine the proper classification of the crude oil,” the letter states. The FRA also has discovered that cars are frequently overloaded. Crude oil heats and expands during transportation. The overloading can result in leaks through valves and other fittings. The FRA claims that leaks from crude oil tankers were twice as frequent as leaks from the next highest hazardous material — alcohol. This is despite the fact that almost the same volume of alcohol is transported by rail. Again, the FRA indicated that it has no idea how many tanker cars carrying crude oil are overloaded. Crude is normally transported in what are called “unit trains,” which have multiple tanker cars. Cars in a unit train “do not typically pass over weigh-in-motion scales in classification yards” and therefore can’t be identified as overloaded, according to the FRA.

The FRA audit also reveals “increasing number of incidents” involving corrosive damage to the inside of tank cars, so-called “manway” covers, valves and fittings. The FRA says fracking compounds cause the corrosion. They include highly corrosive chemicals such as hydrochloric acid that aid in the release of crude from oil well rock formations. The chemicals get mixed in with the crude. The American Petroleum Institute did not respond to requests for comments on the FRA letter.

Railroad files for bankruptcy in wake of Quebec disaster by MaineBiz, August 8, 2013
The Maine, Montreal and Atlantic Railway has filed for protection from creditors in Maine and Canada, just 33 days after one of its oil trains careened unattended through the Quebec town of Lac-Mégantic and derailed, killing 47 people. The Portland Press Herald reported the company may seek a buyer or a way to sort out its debts so it can continue operating. Ed Burkhardt, the railroad’s chairman, said in a written statement that the company’s obligations outstrip its assets and that the bankruptcy process is the “best way to ensure fairness of treatment to all in these tragic circumstances.” … The filing confirmed worries of Maine officials, who began speaking with the state’s four other freight operators late last month about taking over the rail service should MMA declare bankruptcy. Companies depending on that rail line to ship products through and out of the state have had to find other shipment options, often costing more, in the interim. Should the railroad stop operating, the Press Herald reported, federal regulators have the authority to order another operator to take over and provide service to its approximately 200 customers. Gov. Paul LePage said in a written statement Wednesday that the Maine Department of Transportation will participate in the bankruptcy proceedings and any regulatory measures to continue service on that line. In bankruptcy filings, the company estimates it is worth between $50 million and $100 million and that it owes around $39 million to its largest creditors. The largest, and one of two secured creditors, is the Federal Railroad Administration, which is owed $27.5 million on a $34 million loan issued in March 2005. The second secured creditor is the Wheeling & Lake Erie Railway Co., which is owed $6 million for a line of credit issued in 2009.  The company also lists 17 unsecured creditors claiming around $5.5 million from the company. That includes eight claims the company plans to dispute and a nearly $800,000 claim from Chairman Burkhardt for “indemnification and/or contribution in connection with wrongful death litigation and other claims.” Burkhardt was named as a defendant in a lawsuit filed in July by two Lac-Mégantic residents seeking class-action status for the claims.

Judge grants railroad bankruptcy protection after Quebec disaster, About 100 Lac-Mégantic residents to remain homeless for one year by The Canadian Press, August 8, 2013, Calgary Herald
A Quebec Superior Court justice handed down the ruling after a request by Montreal, Maine & Atlantic Canada Co. The company filed the documents on Wednesday and was seeking relief from its creditors under the Companies’ Creditors Arrangement Act. The CCAA allows companies protection while they work out ways of avoiding bankruptcy. Wednesday’s court filing came on the same day that the company’s sister firm, the Montreal, Maine & Atlantic Railway, initiated proceedings for Chapter 11 bankruptcy protection in a U.S. court. The filings come as MMA faces lawsuits and enormous cleanup costs following the fiery July 6 crash that wiped out the downtown core of Lac-Megantic, set off several explosions and killed 47 people.

MMA estimates the cleanup costs will surpass $200 million. Montreal, Maine & Atlantic Canada Co. says in its court documents it has just under $18 million in assets. Documents filed in U.S. court say MMA has between $50 million and $100 million in estimated assets and between $1 million and $10 million in estimated liabilities. The bankruptcy-court filing was posted on the website of Maine’s Bangor Daily News. “It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as a direct result of the tragic derailment at Lac-Megantic,” Ed Burkhardt, chairman of both companies, said in a statement Wednesday. “A process under Chapter 11 and the CCAA is the best way to ensure fairness of treatment to all in these tragic circumstances.” Company attorney Roger Clement said he anticipates there will be serious consideration to putting the railroads up for sale to repay creditors. … The town and the Quebec government have sent legal notices to the railway, demanding that it reimburse Lac-Megantic $7.8 million in environmental mop-up costs after millions of litres of [frac’d Bakken] crude oil were released into the environment. Burkhardt has said the railway was depending on its insurers to start cutting cheques to address the contamination. One expert in civil responsibility has questioned whether the company’s insurance would be enough to cover the huge costs and said taxpayers could be stuck with a bill in the hundreds of millions of dollars. [Emphasis added]

MM&A granted creditor protection in wake of Lac-Mégantic disaster by The Canadian Press, August 8, 2013, The Globe and Mail
The embattled railroad at the centre of the deadly Lac-Mégantic train derailment was granted creditor protection in Canada on Thursday. A Quebec Superior Court justice handed down the ruling after a request by Montreal, Maine & Atlantic Canada Co. The company filed the documents on Wednesday and was seeking relief from its creditors under the Companies’ Creditors Arrangement Act. The CCAA allows companies protection while they work out ways of avoiding bankruptcy. Wednesday’s court filing came on the same day that the company’s sister firm, the Montreal, Maine & Atlantic Railway, initiated proceedings for Chapter 11 bankruptcy protection in a U.S. court. The filings come as MMA faces lawsuits and enormous cleanup costs following the fiery July 6 crash that wiped out the downtown core of Lac-Mégantic, set off several explosions and killed 47 people. MMA estimates the cleanup costs will surpass $200-million. Montreal, Maine & Atlantic Canada Co. says in its court documents it has just under $18-million in assets. Documents filed in U.S. court say MMA has between $50-million and $100-million in estimated assets and between $1-million and $10-million in estimated liabilities. The bankruptcy-court filing was posted on the website of Maine’s Bangor Daily News. “It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries, as a direct result of the tragic derailment at Lac-Mégantic,” Ed Burkhardt, chairman of both companies, said in a statement Wednesday. A process under Chapter 11 and the CCAA is the best way to ensure fairness of treatment to all in these tragic circumstances.”

Burkhardt has said the railway was depending on its insurers to start cutting cheques to address the contamination. One expert in civil responsibility has questioned whether the company’s insurance would be enough to cover the huge costs and said taxpayers could be stuck with a bill in the hundreds of millions of dollars. [Emphasis added]

Railway company to stop transporting oil after Lac-Megantic disaster by Riley Sparks, August 6, 2013, The Montreal Gazette in Calgary Herald
Rail traffic may begin running through Lac-Mégantic again this week, but the Montreal, Maine and Atlantic railway has decided it will stop hauling oil after one of its trains derailed and exploded here last month. “It’s proven to be more trouble than it’s worth, and I guess that’s putting this mildly,” company chairman Ed Burkhardt said on Monday, a month after a runaway MMA train exploded downtown, killing 47 people and levelling much of the town. “We don’t plan to continue with oil transportation. That traffic is going to go other ways, not over our lines,” he said. The train that derailed on July 6 was loaded with crude oil extracted from fields in North Dakota, and was bound for an Irving refinery in St. John, N.B. Much of Lac-Mégantic remains closed as crews haul away debris and dig up oil-contaminated soil, but MMA plans to resume service soon — possibly this week — on the undamaged tracks on the east side of the blast site, Burkhardt said. The area around the western end of the tracks — which form a Y-shaped junction around the crash site — was almost completely flattened during the explosion. That section of track will take longer to reopen. “I can’t hazard a guess on that,” Burkhardt said. “I do hope people will see some carloads of paper, wood pulp, logs and automobiles and that kind of stuff go through Mégantic, before too long. And I would hope that they wouldn’t see that as some kind of threat to them,” he said. “If we can start to see an uptick in freight volume, we won’t be laying anybody else off, and we actually might start to call people back to work,” Burkhardt said. The railway has laid off 24 employees in Quebec and 64 in Maine since the explosion. “Well, there have been a bunch of layoffs, so they’re not happy,” Burkhardt said, when asked how the company’s employees were doing. The company has not ruled out declaring bankruptcy, he said. “Those possibilities haven’t gone away,” Burkhardt said. “We haven’t added up, yet, where we think we stand. But we do intend to keep operating … and we believe we’re bringing in enough cash to continue operating.”

“Now, we wish that our finances would allow us to do more work than we do, but we have to pay our way. The money is not unlimited,” he said. MMA has not paid for any of the cleanup work, and last week, Lac-Mégantic had to cover the $7.8 million bill run up by contractors working on the site. Work is now continuing, after the town and province guaranteed the contractors would be paid. “That’s been very helpful because that’s kept them on the job, but that can’t go on that way forever,” Burkhardt said. MMA’s insurance company has agreed to pay for the work, but is withholding cheques due to a “technical reason,” he said. “I think they acknowledge they have to pay it out, but the form and the timing for which they make the payment is what’s bothered them. “I can’t quite describe their problem, because it’s their problem. But it becomes our problem them because they’re not paying us. They’re not paying anybody. We’d like them to pay these contractors,” he added. “I wish we had that resolved. But as of this moment we don’t,” he said. Burkhardt said he still had not spoken with Lac-Mégantic’s mayor, Colette Roy-Laroche. “I had hoped the company would behave like a good corporate neighbour. That’s the least one could hope for,” Roy-Laroche said on July 25, after MMA missed the town’s deadline to settle the cleanup bill. Burkhardt’s visit to the town a few days after the explosion ended shortly after police officers showed up at a press scrum to bring him in for questioning. “What do you say in those circumstances, other than to say that this is awful? I wasn’t the guy who pulled the switch on this, I didn’t cause it, but being the chairman I guess I’m going to take all the criticism and the anger. So, okay, I’m a big boy, I can take that, and I did, but other than maybe some people felt better by yelling at me, it didn’t really accomplish a whole lot,” he said. “I would hope that over a period of time that some of the sting would fade and people would be more objective and recognize that Ed Burkhardt isn’t Jack the Ripper or somebody like that,” he added. [Emphasis added]

[Refer also to:

SHALE OIL WIPES OUT CANADIAN TOWN !

Frac’d Bakken Oil: Abnormal ‘strength of the fire’ puzzles investigators, Lac Megantic oil spill size remains company secret, confidentiality agreement with Montreal, Maine & Atlantic Railway keeps spill size covered up

Is Saskatchewan and North Dakota Bakken Oil safe enough for the Greater Toronto Area? Cenovus Bakken Oil’s flammability is Level 4, highest level there is ]

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