New technology could make Ivanhoe crude profit

Dan Healing, Calgary Herald
Published: Wednesday, June 04, 2008

The refining technology touted for use in Alberta's oilsands by co-founder Robert Friedland of Ivanhoe Energy Inc. is attracting investors and potential partners in droves, the billionaire financier said in an analysts' conference call Tuesday.

Friedland, whose Ivanhoe Mines discovered the massive nickel deposit at Voisey's Bay in Newfoundland and is now trying to develop a $3-billion gold and copper mine in Mongolia with partner Rio Tinto, discussed his energy company's purchase of three leases from Talisman Energy of Calgary and the $1.8-billion integrated oilsands project it hopes to build there.

Ivanhoe Energy estimates that completing a 30,000-barrel-a-day steam-assisted gravity drainage project with upgrader will cost about $60,000 per flowing barrel, a number analysts say is about two-thirds of the current cost of technology used in many existing projects. It could deliver its first synthetic sour crude oil in about five years.

The market apparently liked what it heard as Ivanhoe Energy shares continued a steady three-month climb to a 52-week high of $2.92, up two cents.

Here are Friedland's comments made during the call:

- On highlights of the Talisman purchase for a combination of cash and notes, announced last Thursday:

"The fact we are only required to pay $30 million on closing, out of $105 million, is a very significant value to Ivanhoe as it mitigates dilution at this stage in our company's development.

"We're very pleased Talisman has elected to take back certain rights to participate with us in these acquired leases and may also do so in respect of other Canadian heavy oil transactions which we are reviewing at this time and in the future. . . .

"The longer the period of time Talisman takes to back in, the greater the financial consideration to our shareholders."

- On locating its first HTL (heavy to light oil) project in the Alberta oilsands:

"Our stated goal has been to anchor the rollout of our HTL technology by securing a first-class heavy oil resource in Athabasca, given there is well more than a trillion barrels in place, and the world's largest heavy oil resource, in the Athabasca.

"It's clear this is a physical locale with no political risk that would be associated with an international development and in a location where the rollout and development of our technology is almost infinitely scalable."

- On growth potential in the Athabasca region:

"This first transaction has triggered an enormous amount of interest from other stranded resource owners in the Athabasca and, if we develop a following in the financial community and requisite currency in our common shares, the opportunity for acquisition of other known resources in the Athabasca is very profound."

- On potential international deals for HTL technology:

"At last count, I drew up a list and (there are) 17 countries, most of whom are national oil companies or are very close to national oil companies, with whom we've had intensive dialogues.

"This is a business that could go worldwide, reminding everyone there are about three barrels of heavy oil in the world for every one barrel of conventional light oil."

- On the technology Ivanhoe obtained by merging with Ensyn Group in 2005, a refining process which is said to be capable of converting bitumen to a transportable, partially upgraded synthetic crude without the use of diluent or natural gas, lowering operating costs by around $15 per barrel.

"In the second half of last year we completed the HTL testing phase in California after a multi-year effort.

"We took the detailed results of that testing program and distilled those results into comprehensive detailed financial models that clearly demonstrate the value-add of HTL technology.

"We also lined up a number of bankers and advisers. We pressed home our commercial discussions and we are continuing to do so both in Canada and internationally."

- On the two major initiatives in Ivanhoe Energy's reorganization proposed in March and endorsed at last week's general meeting:

"First, that Ivanhoe Energy . . . will dedicate itself primarily to developing heavy oil opportunities in North America and in particular to the Athabasca oilsands.

"It will also incorporate the HTL technology group and our California operations.

"All of our international operations will be carried out in a series of self-funding subsidiaries and we currently contemplate, at a minimum, one for Latin America, one for the Middle East and North Africa, and one for China, which will be based in our existing Sunwing (Energy) operations. . . .

"Secondly, this restructuring was complemented by management changes and a board reorganization. This appointed the person who is speaking as chairman, president and CEO, and reduces the board from 12 to a much more manageable and effective board of seven individuals."

- On his leadership:

"Our task is to create the kind of company we want and also to create significant shareholder value along the way.

"I've had some experience in doing this in my life and some modest success. I think we are now trained and we're up to the task of doing it again."

- On weather in northern Alberta and potential cold-related project risks:

"Everybody in the Athabasca has to deal with the weather.

"The weather is pretty miserable in Saudi Arabia as well, at the other end. (But) when you're near an HTL plant and it's running, it's a wildly exothermic process. It throws off a huge amount of heat."