IFG Report: Billionaires’ Carbon Bomb – Figure 1

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Nebraska and Pipeline Politics

What’s at stake for Charles and David Koch with the Keystone XL pipeline is nothing less than a family fortune. The two brothers current combined net worth is now about $100 billion, according to Bloomberg’s Billionaires’ Index, while Kochs’ two million acres up in Alberta could potentially profit them another $100 billion with Keystone XL.

High net worth energy investment advisors retained by IFG projected Koch potential profits of $100 billion from Keystone XL in October 2013 when oil was worth about $100 per barrel. Since then, the US became the world’s largest oil producer and OPEC has responded by driving down global prices to about $50 per barrel as of January 2015. The price of oil historically fluctuates and will continue to do so.

More important than any specific figure of profit for Koch from Keystone XL are the potentially stranded assets in exploitable tar sands acreage leased in Alberta. These assets are highly valued, but at risk if major transportation infrastructure like the Keystone XL pipeline is not in place.

For more on our methodology, please read Box A below or view the full report here.

To take action, please sign the UNITY LETTER against the Keystone XL Pipeline, in partnership with 350.org and other organizations.
Click here to watch an anti-KXL video message from Lakota youth to President Obama.


Koch Industries’ gross potential profit from Keystone XL’s transport of producible Canadian tar sands can be projected by multiplying two key figures: 1) 15 billion barrels of profitable-to-produce Canadian tar sands oil that Koch Energy Canada (KEC) is estimated to have in reserve on its reported two million acres in Alberta’s tar sands territory; multiplied by 2) $15 gross production profit per barrel due to KXL. Here is how each input is derived:

1) To estimate how many recoverable barrels per acre might exist on Koch Energy Canada’s two million acres, we extrapolate a barrels-per-acre ratio from a large property in tar sands territory representing 1/6 of their 2 million acres for which the information is available. Sassoon’s same article cites KEC’s 2006 sale of 374,000 acres with “47 billion barrels of oil resource estimated to be in place.” The midpoint in the range of “in place” reserves that are typically recoverable is 13 percent, so 47 billion “in place” barrels could easily be 6 billion “recoverable” barrels. Dividing 6 billion barrels by 374,000 acres gives a recoverable-reserves-per-acre ratio of a little more than 16,000:1. Multiplying 16,000 by the two million acres equals 32 billion barrels of recoverable reserves. Assuming conservatively that less than half of those barrels will be profitable to produce still leaves 15 billion of recoverable, profitable to produce barrels.

2) $15 gross production profit per barrel due to KXL is based on an estimated per barrel discount prevented of $20, of which producers will capture only 75%. We use the term “discount prevented” because the value of KXL to producers is that it allows them to continue to increase their production without driving down the price they get for their crude- as much. KXL will drain excess crude from the Midwest market, relieving the oversupply that would otherwise drive down the price. We use the modest (given historical data) estimate that KXL will prevent on average a $20 discount to the price of a barrel of tar sands crude (see endnote for a summary of historical data). We estimate that the producer will only capture on average 75% of the prevented discount per barrel because we estimate that, of the barrels that will be profitable to produce, only half would have been profitable to produce without KXL. This half of KEC’s barrels would reap the full 100% of discount prevented, because it was already profitable to produce. Therefore, when it is $20 less discounted, it becomes $20 more profitable to produce. In contrast, the half of the barrels that would be profitable to produce with KXL, which would not be without KXL only capture on average 50% of the prevented discount. This is because 50% represents a midpoint in the range of possible percentages of the discount that could be captured by barrels that are only profitable to produce with KXL. To illustrate, if a particular barrel of tar sands costs $90 to produce, but without KXL the price it would sell for would only be $80, then when it sells for $100 as a result of KXL, you can only say that the producer profited $10, or 50% of the prevented discount as a result of KXL. This is because without KXL this particular barrel would have merely gone unproduced. 75% is simply the average of 50% and 100%.

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