Koch brothers gear up for Canadian oilsands development

VANCOUVER — U.S. billionaire industrialists the Koch brothers garnered headlines when it was revealed the group’s Canadian oil arm was the largest foreign stakeholder in the Alberta oilsands, with registered holdings of at least 4,451 sq. km, according to Alberta Energy.

And it looks like Koch Oil Sands — a Calgary-based subsidiary of Koch Industries — has started permitting to develop its Dunkirk in-situ project, 76 km west of Fort McMurray.

The company filed its reclamation certificate application with the Alberta Energy Regulator (AER) in April, and has reportedly partnered with the Fort MacKay First Nation, according to correspondence from Environment and Regulatory Manager Dan Stuckless of the Fort MacKay Sustainability Department.

Koch filed its terms of reference for an environmental impact assessment with the Alberta Environment and Sustainable Resource Development in January, though evidence of the company’s intention to develop Dunkirk surfaced in late 2013, when the company filed a pair of applications with the AER to punch 50 vertical drill holes at the site.

According to regulatory filings, the proposed operation would recover bitumen using steam-assisted gravity drainage (SAGD) technology and have a capacity of 60,000 barrels per day — developed in two phases of 30,000 barrels per day.

Eighty percent of Canada’s oilsands are too deep to mine and must be tapped using in-situ production, which is similar to conventional oil production. For example, Suncor Energy (TSX: SU; NYSE: SU) uses SAGD processes at its MacKay River and Firebag operations.

The Koch proposal also involves additional saline make-up water treatment, steam generation (including natural gas-fired cogeneration), vapour recovery, bitumen treating, produced water recycling and produced gas sweetening at a central processing facility. 

Field facilities would include multi-well production pads, source water wells, pumping stations, on-site power and utility corridors, access roads and borrow pits.

According to Koch it intends to begin construction in the fourth quarter of 2016, with production start-up in the fourth quarter of 2018, assuming it receives the necessary regulatory approvals.

As a cost comparison, Calgary-based Pengrowth Energy (TSX: PGF; NYSE: PGH) is set to complete its Lindbergh SAGD project — located 55 km north of Bonnyville, Alta. — in early 2015.

Lindbergh’s initial phase is set to operate at 12,500 barrels per day, which cost Pengrowth around $630 million. 

Though project parameters vary, the Koch project could carry a $3-billion price tag, assuming it hits 60,000 barrels per day.

The development decision follows a failed asset auction in 2012, wherein Koch attempted to divest itself of six Alberta oilsand properties covering 890 sq. km, including holdings in the Cold Lake, Mackay, Firebag, Muskwa, Namur and Pelican Lake regions.

Koch applied for a bitumen recovery permit at its Cold Lake holdings in March 2012, when the AER approved the construction of a 10,000-barrel-per-day SAGD operation at the company’s Gemini project.

Koch Industries — one of the largest privately owned companies in the U.S. — is led by Charles and David Koch, whose wealth has been estimated in the US$100-billion range. 

The brothers are active pro-Republican lobbyists in Washington, D.C., and support the Keystone XL pipeline, while opposing restrictions on carbon emissions.