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Koch Brothers Cashing In 220,000 Acres of Tar Sands Holdings

Recent action by Koch Oil Sands pulls the curtain back further on the Koch family's deep but quiet involvement in Canada's oil sands industry.

Sep 20, 2012
Koch Industries has had a stake going back 50-yearsin Canadian heavy oil through

A Canadian division of Koch Industries is reviewing a range of offers to buy up to 220,000 net acres of its many undeveloped oil sands properties within Alberta's vast reserves of oil sands.

The company, Calgary-based Koch Oil Sands Operating ULC, said in June it was looking for strategic investors to help accelerate production on six properties held by the limited partnership Koch Exploration Canada. The company later said it would entertain offers to acquire the entire Koch Exploration partnership or to buy any of the projects.

The Koch projects will extract bitumen using a non-mining technique called steam-assisted gravity drainage (SAGD), and are in various stages of development. The projects could ultimately yield an estimated 2.9 billion barrels of "recoverable" resources and could position the buyer "to be a top tier Canadian bitumen producer," according to an online description of the offering.

The move by Koch to sell off one of its partnerships pulls the curtain back further on the Koch family's deep but quiet involvement in Canada's tar sands industry. Koch Industries has had a stake going back 50 years in Canadian heavy oil through mining, pipeline development and refining. Its Pine Bend Refinery in Minnesota is now responsible for about 20 percent of the oil sands crude being piped into the United States and has played a key role in the growth of the family's fortune. The family stands to profit further from growing U.S. reliance on tar sands imports.

The potential sale of Koch Exploration Canada comes amid a wave of deals involving oil properties and projects in Western Canada, home to the world's third-largest proven reserves of crude oil.  The investment surge has sent billions of dollars to Alberta’s oil patch and is expected to fuel a doubling of oil production by 2020. It is being led by companies from China—though last month Kuwait's state-owned petroleum company announced a $4 billion joint venture it hopes to close in October.

"A number of companies are testing the water in acquisitions right now, just because they're seeing some pretty significant premiums being paid by a good number of foreign national oil companies who are willing to pay top dollar [for a stake in the oil sands]," said Scott Sharabura, a principal and expert on the Canadian oil and gas sectors at Booz & Co., a consulting firm. "In that respect, it can be a good time to be a seller."

The Koch offering is not among the largest batch of properties recently put up for sale, Sharabura said. But he added, "It's a significant opportunity ... industry participants are going to be interested in how it turns out."

Because Koch Industries is a privately held company and its holdings are generally not publicly disclosed, it's unclear how big the Koch Exploration Canada sale is in relation to the company's total oil sands lease holdings.

Oil sands developments are being closely watched by industry analysts and U.S. environmental groups because of their relevance to debates over America's energy future. The United States imports most of the 1.6 million barrels per day of tar sands crude produced in Alberta. The Obama administration faces an important decision about whether to deepen dependence on the controversial oil resource by approving a new import pipeline. The proposed Keystone XL, which can't proceed without the administration's approval, would carry up to 825,000 barrels a day of dilbit, or diluted bitumen, across the United States to oil refineries in Texas.

The oil sands activities of Koch Industries affiliates have been of particular interest in some circles because the Wichita-based parent company is owned by billionaire brothers Charles and David Koch.

The duo has funded efforts to protect their oil-related holdings, including supporting organizations that work to discredit climate science, undermine support for clean energy and weaken environmental regulations. The Koch brothers are also playing a large role in the current presidential and congressional election campaigns. They have been at the forefront of raising as much as $400 million from private interests to defeat Barack Obama and back mostly conservative causes and candidates.

In June, Koch Oil Sands Operating offered up ownership stakes in six undeveloped oil sands properties that encompass 220,000 net acres of oil leases and hold an estimated 8 billion net barrels of bitumen, the hydrocarbon resin that's extracted from oil sands and then upgraded to usable crude oil. 

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