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Heavy to Light Oil Conversion


usdtor05
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Hi all,

 

Was just going through some ideas and came across Ivanhoe Energy. I know this one has a ton of hair on it but what I really wanted to ask about was whether anyone had any knowledge on Ivanhoe's Heavy to Light conversion process. I did some googling on this and tried to find anyone else working on this specifically but nothing jumps out at me.

 

I know the Ivanhoe guys would write it in such a way, but the technology would seem to be quite transformational but no idea if it has a chance...if this really works the patents/company would seem to be worth a lot more than $100M, assuming no one else has cracked this, etc.

 

Any information you have would be much appreciated.

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1- Looking at this from a different angle... "science project" stocks are a really good way to scam investors.  Because it's a science project, you can promote the snot out of it and make overly optimistic projections about the future.  Most people don't understand the science so they can't figure out if it's BS or not.  Some people just want to gamble and that's the target market for this type of fraud.  Because the science is uncertain, it is really really difficult to charge insiders with fraud.  Were insiders lying or were they merely overly optimistic?  It's hard to prove beyond a reasonable doubt that insiders were clearly lying.

 

2a- I would consider underwater mining to largely be a "science project".

2b- Robert Friedland has promoted underwater mining in the past.  He is technically a convicted felon.  Steve Jobs hates him.  He is an environmental villain.  He is an interesting character.  He also happens to be a billionaire.

 

3- Is Ivanhoe Energy's proposed technology viable and have a good shot at being economic?  That's something you should research.

 

4- I think a lot of companies have been working on ways to *economically* convert heavy oil to lighter oil.

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Ya I would pass.

Look at Petrobank for a look at how science stocks work out.

It may work out or may not, but whats your advantage here?

 

Myth, What do you and others who know a good deal about what goes on in the oil patch think about the new developments at Petrobank?  They appear to have all but thrown in the towel on their THAI process and injected steam down into their wells. Presto! They are now producing 650 Bbls of oil per day and 1700 Bbls of liquids plus they are merging with Touchstone 60% 40% with Petrobank getting the majority of stock after the merger. Touchstone is producing  about  1600 Bbls of oil per day in Trinidad with the prospect of bringing in new wells at a cost of about $25,000/barrel per day of production.  Plus, Petrobank still has about half the cash pile it started with a year and four months ago before wasting almost half it's cash on THAI, plus no debt.

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I've discussed this with people whose job it is to evaluate oilsands technology, and the general consensus is that it's unlikely to be economic. Maybe they're one breakthrough away from hitting the big time, but I seriously doubt it. A lot of smart people are working on this, and they don't think Ivanhoe has it figured out.

 

You didn't ask this, but I've looked into their land in Alberta, and my opinion is that it has no value whatsoever at any time in the forseeable future. It is too deep to mine, and too shallow with insufficient caprock for SAGD or other in-situ processes. The regulator is cracking down on these shallow projects, which will at least stop them from dumping more money down an unproductive hole.

 

If the company just had the project I'd short them, but the technology adds a "lottery ticket" like aspect to the stock, which makes it too risky for me to short. Even if it doesn't work if they convince a major to pilot it somewhere the stock will pop.

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Usdtor: You might want to look at this a different way.

 

LT economics dictate that you upgrade on-site. The plants to do it are incredibly expensive to build, but once built .. inflation, increased throughput, & technology upgrades consistently give them year-over-year cost & market advantages. They are core utilities, provincially backstopped, allow development that could not otherwise take place, & should be viewed as utilities. There are not many, & they are well known.

 

Dilbit. Takes up a lot of space & exists solely to transport heavy crude via pipeline - so long as the pipelines have spare capacity. Restrict pipeline space, or significantly raise the price of dilbit - & dilbit use gets priced out of the stream; shutting in those heavy crude producers reliant upon it. Costs are materially reduced if you can recycle that dilbit. A simple google search will tell you who the vulnerable are.

 

Rail. Outbound dilbit goes by pipeline, inbound dilbit arrives by railcar, outbound railcars return full of crude. Returning railcars substitute for the space that dilbit occupies in the pipeline. Rail carriers are a very short list.

 

Lots of ways to invest.

 

Good luck.

 

SD

 

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LT economics dictate that you upgrade on-site. The plants to do it are incredibly expensive to build, but once built .. inflation, increased throughput, & technology upgrades consistently give them year-over-year cost & market advantages.

 

Disagree. The cost of building an upgrader in N. Alberta is astronomical. I've done the math, and you can rail dilbit to the US and rail diluent back to Canada, and pay for the transportation forever (even using a very low discount rate) with the capital savings from not building an upgrader here and building your coking capacity in the US instead.

 

Also, if the pipelines don't get built (and my sources are cautiously confident on Northern Gateway getting cabinet approval) then the producers will build unit train rail capacity at site. This will eliminate the need for diluent, as the bitumen can be transported undiluted by rail (it doesn't need to flow). This eliminates the cost of securing diluent supply, but locks you into rail transport.

 

Even at a low utility-like cost of capital, upgrading at site in Alberta is not economic, which is why the producers aren't building new ones. Of course, if the government subsidizes it enough, someone will build it. (eg Value Creation in Redwater)

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Ya I would pass.

Look at Petrobank for a look at how science stocks work out.

It may work out or may not, but whats your advantage here?

 

Myth, What do you and others who know a good deal about what goes on in the oil patch think about the new developments at Petrobank?  They appear to have all but thrown in the towel on their THAI process and injected steam down into their wells. Presto! They are now producing 650 Bbls of oil per day and 1700 Bbls of liquids plus they are merging with Touchstone 60% 40% with Petrobank getting the majority of stock after the merger. Touchstone is producing  about  1600 Bbls of oil per day in Trinidad with the prospect of bringing in new wells at a cost of about $25,000/barrel per day of production.  Plus, Petrobank still has about half the cash pile it started with a year and four months ago before wasting almost half it's cash on THAI, plus no debt.

 

I'm currently long PBG, having bought when they announced they would stop spending on THAI if they couldn't get it to work by mid 2014. They're up ~20% since I bought, but they're still trading below NCAV (pre-deal), the touchstone assets appear to be worth at least what they paid for them, so at the current price you're essentially getting the Canadian heavy oil operations for free. With around 80MMbbl of contingent resource, that could double the value of the company, especially considering their existing Kerrobert wells/facility could be modified for SAGD. Definitely still has E&P risk, but its cheap so you don't need much to go right. I don't know much about Trinidad, but the quick metrics looked reasonable to me.

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I'm currently long PBG, having bought when they announced they would stop spending on THAI if they couldn't get it to work by mid 2014. They're up ~20% since I bought, but they're still trading below NCAV (pre-deal), the touchstone assets appear to be worth at least what they paid for them, so at the current price you're essentially getting the Canadian heavy oil operations for free. With around 80MMbbl of contingent resource, that could double the value of the company, especially considering their existing Kerrobert wells/facility could be modified for SAGD. Definitely still has E&P risk, but its cheap so you don't need much to go right. I don't know much about Trinidad, but the quick metrics looked reasonable to me.

 

  I am long PBG, also 20% up so far.  I think it is still quite cheap, but most people will not touch it because of the THAI stigma. There is a small thread here:

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pbg-to-petrobank/msg139888/#msg139888

 

 

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  • 2 weeks later...

Ya I would pass.

Look at Petrobank for a look at how science stocks work out.

It may work out or may not, but whats your advantage here?

 

Myth, What do you and others who know a good deal about what goes on in the oil patch think about the new developments at Petrobank?  They appear to have all but thrown in the towel on their THAI process and injected steam down into their wells. Presto! They are now producing 650 Bbls of oil per day and 1700 Bbls of liquids plus they are merging with Touchstone 60% 40% with Petrobank getting the majority of stock after the merger. Touchstone is producing  about  1600 Bbls of oil per day in Trinidad with the prospect of bringing in new wells at a cost of about $25,000/barrel per day of production.  Plus, Petrobank still has about half the cash pile it started with a year and four months ago before wasting almost half it's cash on THAI, plus no debt.

 

Havent paid attention. Was never in Petrobank, and too many easy stories in the Canadian Oil patch. I think this will take time to be rerated due to the THAI stench. May have a look now though. Even thinking of buying LTS again...

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