Koch brothers' quiet play

A company subsidiary holds leases on 1.1 million acres in the oil sands region of Alberta, Canada

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The biggest lease owner in Canada's oil sands isn't one of the well-known international oil giants. It's a subsidiary of Koch Industries, the privately owned cornerstone of the fortune of conservative Koch brothers Charles and David.

The Koch Industries subsidiary holds leases on 1.1 million acres -- an area nearly the size of Delaware -- in the oil sands region of Alberta, Canada, according to an activist group that studied Alberta provincial records. The Washington Post confirmed the group's findings with Alberta Energy, the provincial government's ministry of energy. Separately, industry sources familiar with oil sands leases said Koch's holdings could be closer to 2 million acres.

The companies with the next-biggest net acreage positions in oil sands leases are ConocoPhillips and Shell, both close behind.

What is Koch Industries doing there? The company wouldn't comment on its holdings or strategy, but it appears to be a long-term investment that could produce tens of thousands of barrels of the region's thick brand of crude oil in the next three years and perhaps hundreds of thousands of barrels later.

The finding about the Koch acreage is likely to inflame the contentious debate about the Keystone XL Pipeline and spur activists and environmentalists seeking to slow or stop planned expansions of production from the northern Alberta oil sands, or tar sands.

Environmental groups have made pipeline opposition their leading cause this spring, and Senate Majority Leader Harry Reid, D-Nev., has called Charles and David Koch "un-American" and "shadowy billionaires."

The link between Koch Industries and Keystone XL is, however, indirect at best. Koch's oil production in northern Alberta is "negligible," according to industry sources and quarterly publications of the provincial government. Moreover, Koch has not reserved any space in the Keystone XL pipeline, a process that usually occurs before a pipeline is built. The pipeline also does not run anywhere near Koch's refining facilities. And TransCanada, owner of the Keystone routes, says Koch is not expected to be one of the pipeline's customers.

Still, the activist group that is publicizing the figures about Koch holdings in the oil sands -- the International Forum on Globalization -- is arguing that Koch will benefit indirectly. The IFG contends that the Keystone XL pipeline will create competition among rail and other pipelines and lower transportation costs for all oil sands producers, bolstering profit margins and making additional reserves economically viable.

"The biggest way Koch could benefit from Keystone is by the pipeline's acting as the 'keystone' of oil industry strategy to increase the 'takeaway' capacity for producers of Canadian crude, thereby getting more oil to more lucrative markets, and ending the deep discounts on Canadian crude currently glutting markets," said IFG's Victor Menotti.

This new report is the second in six months from IFG about Koch Industries and the oil sands. In October, it said Koch owned 2 million acres in the oil sands; it lowered its estimate after obtaining the Alberta provincial government's mineral lease records.

Koch is not generally known as a major stakeholder in the oil sands where major players have been Royal Dutch Shell, ConocoPhillips, Exxon Mobil and Chevron.

The IFG report says Koch has 299 oil sands mineral leases purchased -- and in some cases, as long ago as 2002. The provincial government's Alberta Energy said Wednesday, "We confirm that Koch Oil Sands Operating ULC is the designated representative of 298 Alberta Crown Oil Sands leases covering approximately [1.1 million acres]."

The size of oil sands lease holdings is politically loaded, which is why it drew the eye of the IFG, a left-leaning think tank with roots opposing the North American Free Trade Agreement and the World Trade Organization.

In its earlier report, "The Billionaires' Carbon Bomb," the IFG said that "because of the Keystone XL Pipeline, the Kochs could make an additional $100 billion in profits from their production operations alone." The group, using rough estimates, assumed $15 a barrel in additional profit on 6 billion barrels of reserves that would become economically recoverable.

The IFG estimate is open to debate. Many of the leases held by Koch were bought before the Keystone XL pipeline was even proposed and were presumably economically viable without it, and at much lower oil prices. Moreover, the IFG's first report used higher acreage estimates.

Although Koch's oil sands production is "negligible," the company has been actively developing its properties and has made requests for permits for new production. In a 2012 offering to sell a portion of its lease holdings, Koch said it had drilled more than 100 wells and done seismic work to delineate its resources.

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