Ivanhoe Energy to Acquire Oil Sands Assets; First Commercial Application of HTL Upgrading Technology

30 May 2008

HTL processing in High Quality mode. Vacuum tower bottoms (VTBs) are routed to the Reactor where thermal cracking takes place. Upgraded VTBs (product) are quenched at the exit of the Reactor Cyclone and routed to the Atmospheric Distillation Unit where distillate and lighter material is sent to product tank and blended with straight run gas oils. Atmospheric bottoms are recycled to the front end of the Vacuum unit to separate VGO and lighter material. VTB’s can be recycled to extinction depending on the site specific energy requirements. Click to enlarge.

Ivanhoe Energy Inc. has signed a preliminary agreement with Talisman Energy Canada to acquire all of Talisman’s interests in three leases located in the heart of the Athabasca oil sands region in Alberta, Canada. The transaction will enable the first commercial application of Ivanhoe Energy’s proprietary HTL heavy-oil upgrading technology in a major, integrated heavy-oil project.

HTL is a field-located upgrading process that converts heavy oil to a transportable, partially upgraded synthetic crude oil and converts the upgrading byproducts to onsite energy. The process frees the heavy oil producer from the need to purchase diluent for transport, significantly eliminates the need to purchase natural gas to steam the reservoir, and allows the producer to capture the majority of the heavy oil-light oil value differential. In addition, a study by Enbridge in 2002 concluded that partial field upgrading of bitumen could reduce total greenhouse gas emissions by more than 20% from a generic Steam Assisted Gravity Drainage (SAGD) operation.

HTL upgrading uses a continuous, short contact time thermal conversion process (Rapid Thermal Processing or RTP), which takes place at moderate temperatures and at atmospheric pressure. It uses a circulating transported bed of hot sand in the system to quickly heat the feedstock and convert it to more valuable products, in the absence of air. There are two general commercial process configurations of HTL (High Yield and High Quality) applicable to heavy oil or bitumen upgrading.

Furthermore, the HTL process is technically and economically scalable down to as low as 10,000-30,000 barrels of oil per day, allowing for vertical integration of smaller heavy oil assets in Canada and internationally.

The underlying HTL process was initially developed by the Ensyn Group in the early 1980s and has been applied commercially for more than 15 years in the biomass (wood) industry. Seven commercial Ensyn biomass processing facilities are in operation in the United States and Canada.

The technology was piloted in 1998 using various heavy crude sources. A commercial demonstration facility (CDF) with a feed capacity of 1,000 barrels per day was built and operated since 2004. Ivanhoe Energy and Ensyn merged in April 2005, and Ivanhoe Energy gained full ownership of the upgrading technology. Ensyn Group spun off its existing biomass processing business, Ensyn Renewables Inc., to its shareholders prior to the closing of the merger with Ivanhoe Energy.

The total purchase price for the Talisman transaction is C$105 million, of which C$30 million is payable at closing.

Recent evaluations of the Talisman leases estimate that they contain approximately 294 million barrels of contingent bitumen resources (with low and high estimates of approximately 216 million and 394 million barrels, respectively) out of approximately 752 million barrels of discovered petroleum initially-in-place.

The proposed home for the initial, integrated HTL heavy-oil project will be Lease 10, near Fort McMurray. Based on estimates of contingent bitumen resources, Lease 10—the principal block being acquired—would be capable of producing between 30,000 and 50,000 barrels of oil per day.

Talisman will retain back in rights of up to 20% in all of the acquired leases for a period of three years. During this period, Talisman will also have the right of first offer to acquire any participation interests in heavy oil projects in Alberta that Ivanhoe wishes to sell, excluding the acquired leases, on mutually agreeable terms. In addition, in order to allow Talisman to effectively monitor the commercial effectiveness of Ivanhoe’s HTL technology, Ivanhoe and Talisman will sign an HTL Data Monitoring Agreement.

We now have achieved our initial objective. We are anchoring the roll-out of our HTL heavy-oil upgrading process with a first-class, high-quality resource asset in the centre of the Athabasca oil sands region. We will now proceed full speed ahead with preparations for an integrated HTL heavy oil project on Lease 10, while at the same time progressing discussions relating to additional heavy oil opportunities in Canada and internationally.

—Robert Friedland, Deputy Chairman of Ivanhoe Energy

Lease 10 has a relatively high level of delineation (four wells per section). It is believed to be a high-quality reservoir and an excellent candidate for thermal recovery production using the SAGD (steam-assisted gravity drainage) process. The Lease 10 reservoir characteristics are believed by Ivanhoe to be similar to those at Petro-Canada’s 30,000 barrels per day MacKay River project—one of the most successful and longest running SAGD projects in the Athabasca oil sands.

Ivanhoe intends to integrate established SAGD thermal recovery techniques with its patented HTL upgrading process, producing and marketing a light, synthetic sour crude.

Resources

• HTL Technology Paper