Koch has made efforts to develop some of its leaseholdings. Canada's Energy Resource Conservation Board maintains various lists, each hundreds of pages long, of well pads and other facilities that have been established on leaseholds in the oil sands region. InsideClimate News found that almost 500 well sites and facilities tracked by regulators under the Koch name are scattered across the oil sands regions.
Pipelines and Terminals
One of Koch Industries' fundamental business capabilities has been transporting oil, ever since its founding as Rock Island Oil and Refining, which was built around oil gathering assets. Over the span of four decades in Canada the company came to own four "feeder" pipeline systems, three in Alberta and one in Saskatchewan that by the late 1990s had a throughput of more than 300,000 barrels per day.
In 1997, Koch Industries formed Koch Pipelines, a publicly traded company, and bundled these pipeline assets together into a sale that netted $375 million (Canadian) on the Toronto stock exchange. Koch retained almost half the shares and maintained control as the general partner.
As a publicly traded company, Koch Pipelines had to conduct business with transparency unusual for the private company. The company's first annual report made rare public disclosures about its energy-related interests in Canada.
"Koch is directly involved in crude oil exploration and production, oil and gas trading, and providing risk management services to the energy sector," the report said. "In fact, Koch has grown to become the largest exporter and one of the largest refiners of Canadian crude oil."
Koch expanded its feeder system and increased Canadian oil exports to Montana refineries, rewarding shareholders with tens of millions of dollars in annual distributions. But throughput on the system remained flat and Koch sold its interests in 2002. Koch Pipelines was renamed Inter Pipeline, which today can handle more than 600,000 barrels of oil sands crude a day.
In 1998, Koch also established a presence in Hardisty, Alberta, an oil transport hub. It built five storage tanks with a combined total capacity of 670,000 barrels for blending feedstock for the refinery in Pine Bend. The regulator who granted the permit noted that "the flexibility and confidentiality afforded by the operation of its own facility was of the utmost importance" to Koch Industries.
Koch said its facility would handle custom-blended products "involving unconventional diluents and heavy oils," as well as 85,000 barrels a day from various sources, including 30,000 barrels from Suncor through a 10-year supply contract. Suncor was the first company to start commercial oil sands production in Alberta, and the contract with Koch, its largest to that point, was an important milestone in Suncor's growth.
Today the flow of oil to Pine Bend begins at the Hardisty transport hub, where Enbridge pipelines take it across Canada and into Enbridge's Lakehead system in the United States. At Clearbrook, Minn. it is moved into a pipeline system owned by Koch Industries and Marathon Oil. It is then taken to Pine Bend.
The Kochs also own a 537-mile pipeline system that distributes products from Pine Bend to regional customers. Pine Bend is responsible for a large percentage of the jet fuel used at the Minneapolis-St. Paul International Airport, as well as about 40 percent of Wisconsin's transportation fuel. It also supplies gasoline to the Kwik Trip convenience store chain, which has hundreds of outlets in Wisconsin, Minnesota and Iowa.
Pine Bend has allowed Koch to develop other profitable lines of business. A barrel of bitumen yields only about 15 percent of the gasoline that a conventional barrel of oil does, but Koch turns the "bottoms" in each barrel into products, like asphalt, that boost its returns. In 2001 the company was granted a permit to build two storage tanks for asphalt cement with a combined capacity of 4.2 million gallons at a facility it owns in Marshall, Minn. that already had 40 storage tanks on site.
How big Koch's asphalt business became is indicated by two transactions the company concluded in the last decade. In 2005 Koch sold 47 asphalt terminals in the U.S. and 13 in Mexico, plus other related assets, to SemGroup, a Mexican company. The price wasn't disclosed. The following year, Koch sold asphalt interests it had developed in China to Royal Dutch Shell. Shell highlighted the acquisition of asphalt resources, also called "bitumen," in its annual report.
"The deal increases Shell's bitumen production—more than doubling it in China to 6,600 tonnes per day, which represents around 20% of Shell Bitumen global volume," the report said.
Even after these divestitures, Koch was still in the asphalt business. The company announced it was retaining facilities in North Dakota, South Dakota, Minnesota, Wisconsin, Iowa and Nebraska to receive asphalt produced at Pine Bend.
Burned by Kyoto
Less than 10 years ago Koch Industries made an abrupt and attention-getting exit from one of the biggest oil sands mines under development in Alberta at the time.
Its TrueNorth Energy Corp held a 78 percent stake in what is known as the Fort Hills project, estimated to contain 2.8 billion barrels of recoverable oil. But in 2003, after investing years of effort and $125 million, Koch decided to indefinitely defer development of the project, closed its offices and terminated its staff, citing "general uncertainty regarding the potential impacts of the Kyoto Accord" as one of the reasons.