One of the largest short line railroad companies in the nation that’s in pursuit of purchasing the Mitchell to Rapid City (MRC) Rail Line pitched its proposal to the state’s Railroad Board on Wednesday.
Watco Companies, a Kansas-based short line railroad operator, is seeking to purchase the MRC Rail Line that’s owned by the state of South Dakota. The rail line stretches roughly 285 miles through Rapid City and Mitchell. Watco's asking price for the MRC line is $13 million, which would include the mainline railroad tracks, sidings, extra width property facilities, along with any property that is currently leased by the state to a third party. However, the state has outlined a number of conditions with the sale.
Rick Webb, executive chairman of Watco Companies, provided an extensive background of the railroad company’s past success in serving its customers. According to Webb, Watco could pay up to $5 million in cash at closing of the sale, which would be paid in five equal installments on the anniversary of the closing date, if the sale is approved by the state’s Railroad Board at the upcoming September meeting and receives Gov. Kristi Noem’s stamp of approval.
“We want to earn the right to be a partner with you, and more importantly we want to earn the right to serve customers in the state of South Dakota,” Webb said. “We see a tremendous amount of opportunity and success with this line.”
Watco would make annual improvements to the railroad as part of its three-year maintenance plan. The railroad company would pour about $6.4 million worth of improvements into the MRC rail line in its first three years of ownership.
Among the notable improvements that would be included in the three-year plan are the installation of 5,000 new relay ties, along with applying 15,000 tons of ballast, costing up $850,000 combining the two projects. In addition, tamping would be done twice per year at a cost of $800,000.
As of now, Dakota Southern Railway operates 190 miles of the MRC line between Mitchell and Kadoka.
Webb emphasized the company’s customer-first approach of doing business, while noting a Watco representative recently visited with local customers and elected officials residing in communities that are located along the portion of the MRC railroad Watco is seeking to purchase. Jimmy Patterson, senior vice president of sales with Watco Companies, relayed some of the discussions he had with customers they would serve on the MRC line.
“We gathered from the shippers that there is a lot of opportunity and a lot of desire to ship more on this line,” Patterson said. “As I drove around the rail line in South Dakota, I couldn’t help but notice it looked a lot like what we have back home in Kansas. And those commonalities would help us manage this line effectively.”
Steve Coomes, vice president of operations with Watco, highlighted Watco’s extensive experience in transporting wheat and grain on a number of railroads the company operates.
“We have very good ratings with how we get wheat transported to its destinations,” Coomes said. “We have the resources and access to be able to capitalize on providing a direct line for shippers.”
The BNSF Railway company also utilizes the MRC line through various interchanging points of the railroad. Webb highlighted the “good” working relationship Watco has with the BNSF, pointing to it as a benefit for the future of the MRC line.
“If we can make this transaction, we have to make sure the BNSF agrees with you as the state, and all I can say is we’ve negotiated many agreements with the BNSF,” Webb said.
Of the 43 short lines Watco operates, Webb said roughly half of those lines that the company has secured have been negotiated deals with BNSF.
“We want to look at this investment as a 100 year investment,” Webb said. “My point is we will make sure the BNSF will treat us and the state of South Dakota fairly.”
Webb pointed to the economic impact that Watco could have on its customers that rely on the MRC line. According to Webb, Watco has historically grown new railroad profit centers at about 10% compounded annual growth rates for the first five years of operation.
“We will take this thing to the next level,” Webb said.