As oil prices rise and stimulus spending boosts demand for petroleum products worldwide, one energy company is set this week to enter a new phase of development in Latin America.
Marrying technology with geology, Ivanhoe Energy (NASDAQ: IVAN, Stock Forum) in recent months has spread its tentacles across Ecuador in a search for so-called heavy oil. The small company, its shares having doubled in two weeks on Nasdaq and in Canada, is pursuing multiple fronts in South America.
Ivanhoe Energy CEO Robert M. Friedland (pictured in California) told me Sunday, as I arrived back in California from the Bahamas Investment Conference in Nassau, that an Ivanhoe unit is engaged in sensitive negotiations with government officials.
Mr. Friedland said Ivanhoe “news” that will be reported in Latin America later this week – possibly Chile or Peru but not confirmed by the company -- is no April Fool’s joke and will have a “worldwide” impact.
“Our release will hit the wires at a carefully considered time. We are dealing with governments, and our message will be strictly controlled,” Mr. Friedland told me. Speculation centers on a private or public partnership with a large, cash-bearing company. Or a 30-year services contract similar to the one Ivanhoe Energy (TSX: T.IE, Stock Forum) negotiated in Ecuador – but located in heavy oil fields of another Latin American nation.
South American nations rely on oil exports for large portions of their gross domestic product. In Ecuador, oil production by overseas “partners” accounts for half of the country’s 525,000 barrels produced each day.
Mining magnate and Ivanhoe Capital Chairman Robert Friedland assumed the CEO spot of the wildcatting Ivanhoe Energy one year ago this month. About the same time, his publicly-owned Canadian company organized itself into units pursuing the retrieval of oil from fields in Ecuador and Canada.
Ivanhoe has logged 17 quarters of positive cash flow, largely from wells it operates near Bakersfield, Calif., and in China via a Sunwing subsidiary. Ivanhoe Energy produced 694,000 barrels of oil and oil-equivalent in 2008, according to statements by the company.
I am pursuing a full interview with Mr. Friedland, who one week ago provided investors in Vancouver, British Columbia, and at a Las Vegas conference a “big-picture” view of the global oil crunch headed our way. (Up-to-date reports are available to paying Ticker Trax subscribers.)
Also of great interest to investors watching Ivanhoe Energy’s shares rise from a half buck to more than a buck and a $300 million market worth in short order are comments and brief references to further potential for a 400-odd square-mile block of Ecuadoran oil plains, discovered 31 years ago and named Pungarayacu. Ivanhoe Energy in several filings and releases has indicated that exploration of the field, which lies alongside one side of Ecuador’s Amazon Basin, could yield significant amounts of light, clean crude oil. See more.
The Ecuador field that Ivanhoe is drilling is not far from the exquisite city of Quito, the nation’s capital and headquarters for the company.
One attendee at a recent presentation by Mr. Friedland said the forthcoming development, expected no later than Thursday in a major South American city, probably will focus on the company’s patented HTL technology. The various processes for refining and transforming biomass and heavy oil into more acceptable and higher-grade fuels rely on Ivanhoe Energy’s ventures with several companies and individuals.
Mr. Friedland told me this past weekend that the company’s “second generation HTL (heavy to light oil) plant runs better than a Swiss watch.” The plant is in San Antonio, Texas, and uses patented processes for transforming heavy oil into cleaner fuel products.
“Our technology is changing the world,” said Friedland, who is credited with discovering both a vast nickel deposit in Voisey’s Bay, Canada, and a copper and gold deposit hurtling toward full development in Mongolia. He divides his time between homes in Singapore; Tiburon, Calif. (also our home town); and the stratosphere.
Most recently, an Ivanhoe unit in Australia provided details of what could become a sprawling molybdenum and rhenium resource in Queensland. Chief geologist on the moly results is longtime Ivanhoe Mines specialist Douglas Kirwin, who presented Queensland findings earlier in March at the PDAC trade show for the mining industry. (I incorrectly spelled Douglas Kirwin’s name in a report last week.) Please see Ticker Trax for more.
Ivanhoe Energy, known by insiders as “The Energy” to distinguish itself from Mongolia-centered gold and copper miner Ivanhoe Mines (IVN in USA), has accelerated its on-site and off-site testing of heavy oil (approximate API gravities of 9 to 20 degrees).
Robert Graham, one of the founders and inventors of the HTL Process, and Robert Pirraglia of the company Ensyn, which sold Ivanhoe the technology that applies to “scrubbing” dirty petroleum, sit on Mr. Friedland’s board of directors.
I have been tracking Robert M. Friedland since first hearing him speak in 1991 or so. In 2003, he and his Ivanhoe Capital team worked furiously on assembling the pieces of the Oyu Tolgoi copper and gold deposit in Mongolia. (Neither I nor my family own shares of Ivanhoe Energy or Ivanhoe Mines.)
Mr. Friedland told me several years ago, on a trip through Mongolia and Beijing, how “The Energy” some day would become a multibillion-dollar petroleum products company as it follows the model of Occidental Petroleum’s Armand Hammer, a pioneer in notching contracts with national oil corporations in need of overseas capital and expertise.
Investors attending his latest presentations in Florida, Canada and Las Vegas say RMF, as his employees and baggage code-name him, are as forceful as they were in the mid-1990s, when he was pitching the potential of Voisey’s Bay. He is capable of what some in the mining business say is masterful story-telling, to the point of fever pitch.
“The situation,” he said at one recent gathering of brokers, investors and geologists, “is hopeless,” possibly referring to the meltdown in capital markets, or the lack of conventional oil deposits for North American and China consumption. “But it is not,” he added with his devilish trademark twist, “it is not serious.”
As for the almost 300 million shares of Ivanhoe Energy, Ticker Trax subscribers consider them an appetite index of worldwide equity risk.The IVAN and IEshares have been known to trade in stunning quantities. At current prices, the company sells for about four times yearly revenue and 15 times operating cash flow.
Mr. Friedland in mid-2007 brought into his company Michael Silverman as chief technology officer. Dr. Silverman is regarded as a pioneer in the mechanics of fluid catalytic cracking. He also has engineered large petroleum projects and construction.
Robert Friedland long has preached the ability of technologies to transform heavy oil into lighter grades of fuel. Clean diesel already is making the air in South American cities less toxic. Combustive air no longer entirely clouds the flowering boulevards of Medellin, of Rio, of Buenos Aires.
To be sure, Latin American cities, Caracas for example, and Santiago, have a long way to go to scrub decades of bad air from their atmospheres. Yet truck and heavy machinery diesel fuels, cleaner than ever, are allowing the sun’s rays to splash a little light here and there.
Those wanting to become the next Oxy Pete, wanting to become the next collector of neglected oil fields across South America, are placing bids now for technology partnerships. For national oil contracts; for the right to sift Latin sands in the search for retrievable, albeit filthy, crude.
Higher oil prices might make transformers safer bets for investors than such companies have been in the past. This past week, Mr. Friedland, looking much like actor Chris Cooper (pictured) in the opening scenes of 2005 film “Syriana,” told investors in Vancouver how his company soon might support far higher stock market value.
Yet for all of the melt-UP potential of Ivanhoe’s petroleum production, there are a legion of risks. TriStone Capital in Toronto, Calgary and London and Raymond James in Calgary are the two investment banks tracking Ivanhoe Energy.
In coverage of the company’s Canadian operations, analysts at both banks recently highlighted their concern about the billion-dollar-plus capital expenditures Ivanhoe Energy will require in coming years. The two banks both said they would feel more confident of the company’s prospects if it were to bring in a large partner with cash reserves. See Calgary newspaper coverage.
That event might or might not happen later this week. Garage-loft investors can only tune into mid-week news coming from Chile … or Peru … or Ecuador.
If Mr. Friedland, estimated to be worth more than US$1 billion, successfully serves up an exotic partnership (his Ivanhoe Mines is linked closely with giant Rio Tinto) or a national oil contract in Latin America, or both, he will be said to walking his talk and abiding by two of his longstanding beliefs:
1. “All the forces in the world are not so powerful as an idea whose time has come.” – Victor Hugo
2. When it comes to oil, “There is a customer born every minute.”
No fooling.
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THOM’S STORY:Thom Calandraduring 27 years of road work has helped his audience find value in a quagmire of investment choices. Thom co-founded CBS MarketWatch, MarketWatch.com and FT MarketWatch in Europe. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom fancied $300-ounce gold before that metal became an investment rage. Thom visited bioscience companies, metals mines and energy companies in a search for reliable sources and fine planetary prospects. Thom's novel PABLO BY NUMBERS was completed in 2008.
HOLDINGS: Thom’s cosmos of holdings is listed for all Stockhouse members on www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. It is public and free to view. He and his family also own recently minted gold and silver coins. They have no stake in Ivanhoe Energy or Ivanhoe Mines.
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