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Americans for Prosperity Foundation chairman David Koch.

Phelan M. Ebenhack/AP

The Canadian oil arm of the conglomerate owned by the U.S. billionaire Koch brothers has begun initial regulatory work on a multibillion-dollar oil sands project after an asset-sales effort two years ago left it holding a number of leases.

Koch Oil Sands Operating LLC, the Calgary-based unit of Koch Industries Inc., has made an initial filing with Alberta regulators and has been in consultation with the nearby Fort McKay First Nation regarding the proposed development.

"We intend to develop a bitumen recovery project identified as the Dunkirk In Situ Project and have submitted the proposed Terms of Reference for an Environmental Impact Assessment to Alberta Environment and Sustainable Resource Development," Paul Baltzer, spokesman for the Wichita, Kan.-based company, said in an e-mail.

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According to the terms of reference document, the steam-driven project would produce 60,000 barrels a day of bitumen, to be developed in two 30,000-barrel-a-day phases.

Mr. Baltzer did not provide a cost estimate for the development, although similar steam-assisted gravity drainage projects – in which steam is injected deep underground so the heavy oil can flow to the surface in wells – have recently cost up to $35,000 to $45,000 per daily barrel of production.

Using that rough calculation, the midpoint would be $2.4-billion, although each project has unique attributes and costs of labour and materials can vary greatly.

Assuming it wins regulatory approval, Koch would start construction in the fourth quarter of 2016, with production targeted for 2018, according to the filing.

Koch is proceeding with Dunkirk after a sales effort in 2012 for six properties comprising 220,000 net acres ended with it finding a buyer for just a few of the assets. It decided to hang on to the rest for future development.

Koch Industries, one of the largest privately owned companies in the United States, is led by Charles and David Koch, who are known for championing conservative political causes. They have become lightning rods for controversy for backing organizations that oppose policies to fight global warming.

The anti-Keystone XL forces in the U.S. link them with the pipeline project, given their company's extensive energy holdings in Canada, although Keystone proponent TransCanada Corp. has said Koch is not directly involved in its long-delayed proposal.

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Koch has been active in Canada for many years, through such units as Flint Hills Resources Ltd., a major oil trading and crude oil storage firm. Flint Hills also operates a major refinery at Pine Bend, Minn., that is one of the largest single buyers of Canadian heavy oil.

A subsidiary had planned to develop what has now become the Suncor Energy Inc.-led Fort Hills oil sands development, but it scrapped the plans in 2003 over soaring costs and then sold its interest.

For Dunkirk, Koch began talks with Fort McKay long before the project has taken shape, said Dan Stuckless, the First Nation's regulatory and environment manager.

Fort McKay, located in the heart of the oil sands region has built up successful businesses to serve the industry, but its leaders have also recently shown its discomfort with the level of activity on and near its lands. Koch's project is located about 60 km West of the native community.

"They came to us quite early in the process compared to most these days," Mr. Stuckless said. Discussions have shown a desire by the developer to learn about Fort McKay and its priorities, he said.

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