Ivanhoe Energy sees global interest in heavy-oil process

NORVAL SCOTT

With files from reporter Andy Hoffman

June 4, 2008

CALGARY -- Fresh from its purchase of several oil sands leases, Ivanhoe Energy Inc., the Vancouver-based oil junior run by mining billionaire Robert Friedland, is looking to use its heavy-oil technology to carve out niche opportunities worldwide.

Last week, Ivanhoe said it will develop an innovative, small-scale oil sands plant in Alberta on leases acquired from Talisman Energy Inc. The technology partially processes the crude on site and could make oil sands development more economical, unlocking the door for smaller producers.

Since then, investors from around the world have shown substantial interest in Ivanhoe's technology, while the company has also talked with other Canadian oil sands firms and state-owned oil companies elsewhere over potential deals and partnership opportunities, Mr. Friedland said.

"We got our top target, the No. 1 pick of the litter," he said of the Talisman deal in a conference call. "This is a very material step for the company ... but there's a large group of other opportunities for us. I've personally had very significant discussions with very powerful asset owners around the world."

Ivanhoe's heavy-oil technology, dubbed HTL, runs bitumen over a circulating bed of very hot sand, upgrading its quality by burning off the heaviest, least useful part of the barrel, leaving lighter crude in its place.

It plans to use that process at the oil sands leases it bought from Talisman last week for a total of $105-million, including only $30-million in cash up front.

Ivanhoe plans to build a small, technically advanced project - producing between 30,000 and 50,000 barrels a day - that will use far less natural gas or diluent than other projects.

"The task is to create both the kind of company we want and significant value along the way," Mr. Friedland said. "We've had some modest success in the past, and believe we can do it again."

While Mr. Friedland is a larger-than-life figure, with a history of successfully promoting long-shot mining projects and attracting investors to remote regions or complex plays, some of his projects have attracted a healthy dose of controversy. Nevertheless, he's best known for the $4.3-billion sale of former firm Diamond Fields Resources, which made a huge discovery of nickel at Voisey's Bay in Newfoundland in 1993.

These days, Mr. Friedland's most high-profile endeavour is the massive Oyu Tolgoi copper and gold project in Mongolia. Global mining giant Rio Tinto PLC has agreed to invest in Oyu Tolgoi with a 10-per-cent stake in Mr. Friedland's Ivanhoe Mines Ltd. Rio Tinto has said it will only increase its stake beyond 10 per cent if Ivanhoe can secure an investment agreement with the government of Mongolia. Ivanhoe has been trying for five years to secure the needed approval and is still talking with Mongolian officials.