Rapid Thermal Processing, RTP, heralded by one advocate as the “Holy Grail” of heavy oil development, was at the center of an otherwise unremarkable merger announced Dec. 13 between Ivanhoe Energy, a small exploration and production independent based in Canada, and RTP patent holder Ensyn Group of Boston, Mass.
RTP supporters say the technology, already employed by Ensyn to convert wood residues into liquids used to produce fuels and chemicals, also can instantly change low-quality heavy oil into more valuable light oil, thereby making untold billions of barrels of stranded heavy oil deposits around the world economic to develop.
It’s estimated that less than 1 percent of total heavy oil deposits worldwide has been extracted or is under active development.
“The lag in the development of heavy oil is related to technical and economic challenges of producing, transporting and processing raw heavy crude oil,” Ivanhoe Chairman David Martin said in a conference call with analysts. “We can take these stranded resources that are worth little or nothing and increase their value dramatically with this technology.”
Ensyn co-founder and chief executive Robert Graham, who will serve on Ivanhoe’s board of directors if the merger is approved by Ensyn shareholders and government regulators, said the RTP process is simple yet effective.
“We eject whatever feed material that needs to be upgraded into a tornado of hot sand,” Graham said. “In less than one second, the feed is vaporized, converted, cooled and then recovered as an upgraded product.”
Plants largely built with off-the-shelf components
RTP plants, constructed largely of off-the-shelf components, easily could be placed in oil fields to upgrade heavy oil, Ivanhoe’s Martin said. He said surplus energy created by the process could be used to produce steam to inject into reservoirs, a common industry practice to make the thick oil less viscous and easier to recover.
“The upgraded oil has a much lower viscosity, so it flows in the pipeline,” Martin said. “And the upgraded product fetches a higher price at market, as it does not require pre-processing before refining.”
In fact, prior to the merger agreement, Ensyn’s goal was to develop an “efficient, relatively small scale heavy oil upgrading process” for the field, Graham said. “We believe this goal characterizes the Holy Grail of heavy oil development,” he added.
Ivanhoe, which says it has kept a close watch on Ensyn and its proprietary RTP process since 2000, took a 10 percent stake in Ensyn in late 2003 and an additional 5 percent interest in the private company earlier this year. The transactions gave Ivanhoe the right to RTP in certain oil producing countries, including China, Mongolia, Oman, most of South America and war-torn Iraq.
In October, Ivanhoe and Iraq’s Ministry of Oil signed a memorandum of understanding for Ivanhoe to study and evaluate the shallow, heavy oil Qaiyarah in northern Iraq. If the evaluation studies indicate development of the field is economically viable, Ivanhoe will present a development plan and offer a commercial proposal to implement an enhanced oil recovery program for Qaiyarah.
Ivanhoe can now move to largest heavy oil areas
However, Ivanhoe’s 15 percent stake in Ensyn did not give the company access to the three of the largest heavy oil plums, Canada, Venezuela and the United States.
“This investment in Ensyn will now allow us to quickly move into markets where we do not have exclusive development rights but where we have significant interest in the technology,” said Leon Daniel, Ivanhoe’s president and chief executive officer.
Under terms of the merger agreement, Ivanhoe would acquire all of the outstanding shares of the privately held Ensyn Group, the parent company of Ensyn Petroleum, and Ensyn would become a wholly owned subsidiary of Ivanhoe. Ivanhoe also would pay $10 million in cash and issue Ivanhoe common shares valued at $75 million, with a minimum of 30 million common shares to be issued.
As part of the deal, Ensyn Group would spin off its wood or biomass processing business, Ensyn Renewables, to its shareholders prior to the closing of the transaction with Ivanhoe. Ensyn Renewables has operated commercial facilities since 1989 and has six commercial plants in operation, with a seventh under construction.
California plant under negotiation
Ivanhoe said it would pursue Ensyn initiatives, including a non-binding agreement with Aera Energy, a California limited liability company owned by affiliates of Shell and ExxonMobil, to advance negotiations for a 10,000-barrel per day RTP plant in California. Aera is California’s leading oil producer with about 250,000 barrels per day of production.
Ivanhoe also would inherit Ensyn’s 1,000-barrel per day RTP commercial demonstration plant, located in the Belridge heavy oil field near Bakersfield, Calif. Ensyn said it plans to use the facility to process local heavy oil, as well as to test a range of heavy crudes from around the world. Production was launched in mid-December.
Ivanhoe’s Daniel said it is the company’s intention to use the RTP technology primarily as a tool to build its own oil reserves and production. But he said Ivanhoe also is prepared to consider “alternative business models.”
“Ivanhoe and Ensyn have jointly held private technology briefings arranged by host government representatives in a number of oil producing countries around the world,” he said. “The benefits of RTP technology have been quickly recognized and we have had an excellent reception."
