Billionaire brothers dump leases as foreign exodus from oilsands continues
Koch Industries seals deal to sell land while Paramount expands holdings
CALGARY Once among the largest landholders in the oilsands, industrial conglomerate Koch Industries Inc. has sold 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, is expanding its oilsands holdings, which already include ownership in Cavalier and a stake in steam-based oilsands producer MEG Energy Corp. Founded by late billionaire geologist Clay Riddell, Paramount has 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 Calgary-based 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 in its investor presentation this month, beyond updating its land holdings.
The presentation says Cavalier now holds rights for 1,994 net sections of land in the oilsands, up from 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 divestments by Shell Canada Ltd., ConocoPhillips Co., Devon Energy Corp., Marathon Oil Corp., Statoil SA, Total SA and others since 2017 to sell producing and non-producing assets in the heavy oil formation. The moves come as a lack of new export pipelines has 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.
Now, Paramount through Cavalier has emerged as a major 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 and domestic producers bought 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 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 close to other oilsands projects. It’s unclear which leases were sold and which expired.