TBY talks to Santiago Pástor Morris, General Manager & Operations VP of Ivanhoe Energy Ecuador on the company’s unique oil processing technology, prospects for Block 20 production, and support programs for the local community.
THE BUSINESS YEAR What market factors led to the establishment of Ivanhoe Energy in Ecuador in 2008?
SANTIAGO PÁSTOR MORRIS In 2008, Ivanhoe Energy Ecuador (IEE) signed a contract with Petroecuador to develop Block 20 of the Pungarayacu oil field. Block 20 is a major heavy oil field some 1,102 square kilometers in size, located approximately 180 kilometers southeast of Quito. During the first stage of the contract, it is mandatory for a company to conduct an exploration program, engineering work, and research in order to prepare a development plan for a block. Once we hand in our proposal, it should be reviewed and approved by EP Petroecuador, the national oil company, and then we may begin exploitation of the field. Recently, EP Petroecuador approved, as part of the appraisal stage, drilling a new well in the pre-cretaceous reservoirs, which is part of our contract with the state. If we are successful in exploring and exploiting this new well, I believe that Ecuador will enter a new phase of major oil development. IEE is taking this risk with full knowledge of the complexity of these unknown reservoirs, as part of the company's commitment to its project in the country.
What are your production prospects for the Block 20 field?
To date, we have carried out 2D seismic and technical studies. We expect to produce large volumes of heavy crude oil. However, this depends on the results of our appraisal and exploration work, which will be available by the end of 2013. As stated by the government of Ecuador, the Pungarayacu field could be key to further development of the oil industry in the country; the field has large reserves of some 6 billion barrels of heavy crude oil. We believe that Ecuador is gradually moving from light oil toward heavy oil production. In this regard, our current drilling of the IP-17 well (pre-cretaceous) is key, as it could open new opportunities in the pre-cretaceous reservoirs for the industry, creating new exploration and production areas.
Who owns the Block 20 concession in the Pungarayacu field?
EP Petroecuador owns Block 20 and Ivanhoe Energy Ecuador is responsible for specific services, operation, production, and investments in the block. Our company, using its patented Heavy To Light (HTL[TM]) technology, has the possibility to transform heavy crude into a lighter product, and is also leading exploration work in potential wells. Once we begin production activities, we will transfer crude oil to EP Petroecuador as per our contract, and it will distribute it.
Since Ivanhoe owns the HTL technology patent, could you tell us more about this process?
HTL is an upgrading process that can be located on-site at heavy oil fields and is completely integrated with upstream operations. The HTL process converts heavy oil to lighter oil, a more valuable product that can be transported by pipeline without the need for light blend oils. In addition, coke and gas—products gained from the upgrading process—are converted in situ to steam or power, which becomes available to the operator developing the field. HTL is based on the time-tested concept of thermal cracking and carbon rejection, and incorporates ultra-short processing times compared with those of conventional technology. Moreover, the process does not require catalysts, hydrogen, or significant pressure. The net result is relatively small-scale, low-cost facilities that can be located where the energy is, maximizing the benefits of heat integration. We are able to transform heavy oil into light oil, as well as gas and electricity by-products, thanks to this technology. Ivanhoe Energy’s HTL process represents the application of a commercial technology to a new feedstock, and incorporates the benefits of this unique development process to any heavy and/or ultra heavy oil field.
What are the opportunities for Ivanhoe in Ecuador?
Up until now, IEE has focused on the first stage of the Pungarayacu oil field project, and we are aiming to speed up exploration and engineering studies to carry the project through to the next stage. We have focused on this strategy since we were established in Ecuador, and we expect to begin applying our unique technology once we have completed exploration activities in the southern part of Block 20 and have received approval for our development plan by the Ecuadorean authorities. Outside of our block, taking into account the Ecuadorean government’s plan to seek the development of oil blocks in the southern part of country, if companies discover heavy oil there, our technology will be key, considering the difficulty in moving any potential production of heavy oils to export points. Thus, looking forward, we believe potential operating companies will seek an in situ technology that transforms heavy oil into a lighter product, and Ivanhoe will be there for those companies.
Is Ivanhoe Energy currently holding talks with potential companies that could be operating in the southern fields?
Thus far, we have not consulted with other companies about this possibility. However, we are in the process of establishing partnerships and associations with enterprises in other countries. I believe that in the near future, Ivanhoe Energy will take similar steps in Ecuador.
What are your expectations in terms of gas and electricity production?
The HTL process makes it possible to generate electricity as a by-product, which is very important for optimizing operational costs, and as such gas and electricity production is internally used for production. It remains difficult to transfer such energy to the national grid for other types of consumption.
What role does Ecuador play in Ivanhoe Energy’s global strategy?
Ecuador is a key market for the company’s global business strategy; both Ecuador and the Latin American region are potential markets for the development of the company at an international level. I am confident that we will see high levels of investment in the region, starting with the application of HTL technological processes in many Latin American oil fields.
What level of investment can we expect from Ivanhoe Energy in Ecuador over the next few years?
Ivanhoe Energy will complete the first stage of investment in Block 20. We are planning to invest in a heavy oil pilot well, where we will apply a technology that is new to Ecuador and optimizes heavy oil production. This budget line is also part of our estimated investment. Once we receive results from the exploration work, we will develop a 30-year investment plan and a strategy for Block 20. We aim to start producing as soon as possible in the wells we will operate.
What are the characteristics of Ivanhoe Energy’s potential partners?
Potential partners have to contribute capital and know-how, especially regarding subsoil activities. Because we are a strong company in the technological field, we are not looking for a partner similar to Ivanhoe Energy.
What are the main challenges Ivanhoe Energy faces in Ecuador?
There are three major challenges. Moving heavy oils without affecting the local population represents the main technical challenge, because Ecuador needs to strengthen its logistical infrastructure. Another is applying our technology to convert heavy oil into a lighter product that reduces the impact on the environment, lowers costs, and generates as much energy as possible. We also face a social challenge in terms of working with the existing communities near the wells we are planning to operate in the near future. In this regard, we plan to implement an educational project for technological transfer with the government of Ecuador and the local communities, especially in the city of Tena, where there is no oil industry culture yet.
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© The Business Year - June 2012