Once among the largest landholders in the oilsands, industrial conglomerate Koch Industries Inc. has sold off its upstream leases and abandoned licences in the heavy oil play, joining a stream of foreign companies exiting the bitumen-bearing formation.
Wichita, Kan.-based Koch Industries struck an agreement to sell thousands of hectares of land in the oilsands to Calgary-based Cavalier Energy Inc., a subsidiary of the Riddell family-controlled Paramount Resources Ltd., in a transaction that occurred in June, the Financial Post has confirmed.
Koch, one of the world’s largest private companies owned by American billionaires and Republican donors Charles and David Koch, has also abandoned the licences it did not sell in the transaction with Paramount and has been allowing its leases in the play to expire.
Paramount, meanwhile, expands its holdings in the oilsands, which already includes ownership in Cavalier and a stake in steam-based oilsands producer MEG Energy Corp. Founded by late billionaire geologist Clay Riddell, Paramount built a reputation for exploring oil and gas resources in new plays and in untapped corners of existing plays. In 2002, his son Jim Riddell became president and COO of Paramount and has amassed more and more responsibility over the company and its subsidiaries. He’s now president and CEO of Paramount and executive chairman of Cavalier.
“The majority of Koch Oil Sands licences have been transferred to Paramount Resources Ltd. All of the remaining licences for well sites have been abandoned, which means that they have been permanently sealed and taken out of service,” Alberta Energy Regulator spokesperson Shawn Roth said in an email.
Paramount, which has a market capitalization of $806 million, did not disclose the transaction beyond updating its land holdings in its investor presentation this month. The company’s latest investor presentation says Cavalier now holds rights for 1,994 net sections of land in the oilsands — a 512 per cent increase over the 326 net sections it held at the beginning of the year.
The government of Alberta lists one section of land as 640 acres, meaning Cavalier could hold close to 1.3 million acres of land in the oilsands — six times larger than the footprint of Calgary.
Neither Paramount nor Cavalier responded to requests for comment.
Koch remains invested in the Canadian energy industry through its Flint Hills Resources subsidiary, which owns oil storage tanks at Hardisty, Alta., and refineries in the U.S. that process diluted bitumen from the oilsands.
However, the company confirmed it had sold down its upstream oilsands holdings and surrendered expired leases in the play.
“Those leases, which were held by Koch Oil Sands Holdings, have varied over the years. These recent transactions are merely a reflection of the opportunities that are currently available in the marketplace and our desire to prioritize other initiatives,” Koch spokesperson Rob Carlton said in an email.
Koch’s departure from the oilsands continues a trend of exits by foreign companies from the play, following multi-billion-dollar divestments by Shell Canada Ltd., ConocoPhillips Co., Devon Energy Corp., Marathon Oil Corp., Statoil SA, Total SA and others since 2017 to sell off producing and non-producing assets in the heavy oil formation, as a lack of new export pipelines made developing the area more difficult and lucrative plays like the Permian basin in Texas wooed investors away from Canada.
Most of the buyers have been large Canadian producers such as Suncor Energy Inc., Canadian Natural Resources Ltd., Cenovus Energy Inc., and Athabasca Oil Corp. who have solidified their positions in the oilsands.
These recent transactions are merely a reflection of the opportunities that are currently available … and our desire to prioritize other initiatives
Koch spokesperson Rob Carlton
Now, Paramount through Cavalier has emerged as a major Canadian acquirer of oilsands leases.
While the value of the Koch-Cavaliar deal was not disclosed, prices of undeveloped land in the oilsands have fallen dramatically from their peak 10 years ago when foreign companies and domestic producers were buying up blocks in the play at inflated prices, said Eight Capital analyst Phil Skolnick.
Most of the land that has changed hands in the play recently shows attempts by major companies to acquire parcels contiguous to their existing facilities, which looks like “filling in the checkerboard,” Skolnick said.
CNRL’s recent deal to buy Total’s unused Joslyn oilsands lease to expand its own Horizon oilsands mine was an example of how land adjacent to existing projects is valuable, he said.
Oilsands leases farther afield from the hub of activity near Fort McMurray and Cold Lake, Alta., are less valuable and Koch isn’t the only company handing leases back to the province rather than developing the land.
The Post could not confirm whether the Koch leases Paramount acquired were in close proximity to other oilsands projects. Some of Koch’s vast land holdings have been in more remote, deeper and more technically challenging parts of the oilsands region called the carbonates, but it’s unclear which leases were sold and which expired.
Koch is not the only company allowing leases in the oilsands to expire as the pace of development in the play has slowed in recent years.
In a move to cut costs, MEG Energy president and CEO Derek Evans said on his company’s recent earnings call that his company would allow leases on its longer-term holdings to expire rather than pay escalating rents on the land.
“There’s some land in, what I would call our fourth growth project in the Duncan area, these are lands that we’re dropping. We’re not going to renew the leases on them,” Evans said. “They were at a point in their life where the annual rentals on those leases were about to increase in cost.”