Heavy Oil Upgrading Presentation 2011

Heavy Oil UpgradingA key solution for heavy oil upstream and midstream operationsA key solution for heavy oil upstream and midstream operations

FORWARD-LOOKING STATEMENTS: This document includes forward-looking statements, includingforward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.Forward-looking statements include, but are not limited to, statements concerning the potential benefits ofIvanhoe Energy’s heavy oil upgrading technology, the potential for commercialization and futureapplication of the heavy oil upgrading technology and other technologies, statements relating to thecontinued advancement of Ivanhoe Energy’s projects, the potential for successful exploration anddevelopment drilling, dependence on new product development and associated costs, statements relatingto anticipated capital expenditures the necessity to seek additional funding statements relating toto anticipated capital expenditures, the necessity to seek additional funding, statements relating toincreases in production and other statements which are not historical facts. When used in this document,the words such as “could,” “plan,” “estimate,” “expect,” “intend,” “may,” “potential,” “should,” and similarexpressions relating to matters that are not historical facts are forward-looking statements. AlthoughIvanhoe Energy believes that its expectations reflected in these forward-looking statements arereasonable, such statements involve risks and uncertainties and no assurance can be given that actual, gresults will be consistent with these forward-looking statements. Important factors that could cause actualresults to differ from these forward-looking statements include the potential that the company’s projectswill experience technological and mechanical problems, new product development will not proceed asplanned, the HTL technology to upgrade bitumen and heavy oil may not be commercially viable,geological conditions in reservoirs may not result in commercial levels of oil and gas production, theavailability of drilling rigs and other support services, uncertainties about the estimates of reserves, therisk associated with doing business in foreign countries, environmental risks, changes in product prices,our ability to raise capital as and when required, competition and other risks disclosed in IvanhoeEnergy’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission onEDGAR and the Canadian Securities Commissions on SEDAR.

Our Company Profile

We are an international, heavy oil and gas company focused on pursuing long‐term growth in its reserves and production. Core operations are in Canada, China, Mongolia and Ecuador, with business development activities worldwide.

We use technologically innovative methods and proprietary technologies in the development of heavy oil and other oil and gas assets, including the application of our patented, Heavy‐to‐Light (HTL) upgrading process.p , y g ( ) pg g p

Ivanhoe Energy Inc.

Ivanhoe Energy Latin America Inc.

Ivanhoe Energy Canada Inc.

Sunwing Energy Ltd.

Ivanhoe Energy MENA Inc.

Ivanhoe Energy Ecuador Inc.

HTL enables economic development of Heavy Oil

Upgrade Heavy Oilinto Lighter Product

EliminateDiluent

Reduce Complexity& Integrate Facilities Lower Cap Ex

MaximizeProduct

Value

MinimizeProduction

Costs

Minimize use ofNatural GasConvert Byproducts

i t U bl E

Value Costs

into Usable Energy

Alliance with engineering &project management contractor

Completed Front End Engineering Cost Estimation Execution Strategy

CommercialReadiness

Validated process yieldsand proved scalability

The Global Heavy Oil Opportunity

• The IEA has estimated that heavy oil deposits (< 20 API) contain nearly 50%

• But, of the 1.0 trillion barrels of oil produced to date only 1% has

E ti t d R bl Oil

deposits (< 20 API) contain nearly 50% of global, future recoverable resources.

oil produced to date, only 1% has been contributed by heavy oil.

1 0

Oil Produced to Datetrillions of barrels

4 0

Estimated Recoverable Oiltrillions of barrels

Conventional 2 3

0.5

1.0Conventional, 1.0

2.0

4.0

Heavy, 2.0

Conventional, 2.3

0.0

Heavy, 0.01

0.0

IEA – International Energy AgencyIEA International Energy Agency”Resources to Reserves—Oil and Gas Technologies for the Energy Markets of the Future”, 2005

Heavy Oil Production Challenges

• Large amounts of external energy required for production,up to 25% of energy accounted for in the heavy oil itself

• High viscosity, requires diluent for transportation

• Low market value due to high content of residual oil

• Conventional upgrading solutions have large minimum

Low market value due to high content of residual oil

scale & are not integrated with upstream energy demand

Result

Stranded and Distressed assets worldwide

HTL Solves each Heavy Oil Challenge

Energy Intensive All byproduct coke & gas is converted on‐site to usable i th f f t l t i l

Heavy Oil Challenges HTL Solutions

gyenergy in the form of steam or electrical power

D t h lt d i i it b 99% dHigh Viscosity

Destroys asphaltenes, reducing viscosity by 99% and eliminating the need for diluent

Large Fractionof Residual Oil

HTL converts 90% of residual oil into lighter & more valuable products

TraditionalUpgradingE i ll

Economic at scales as low as 10,000 ‐ 30,000 bpd; Typical CapEx ranges from US$ 12,000 ‐ $20,000 per bblEconomically

Challenged

Typical CapEx ranges from US$ 12,000 $20,000 per bbl(USGC basis)

Fundamentals of the HTL Process

• Fast thermal cracking at low pressure

Hi h i ld f th ti d il• High yields of synthetic crude oil

• Conversion of all coke & gas into energy

• Effectively utilizes concept of thin films

• Non‐catalytic

• No hydrogen required

HTL Process Description

Prefractionation

HTL Process – Comparison to Crude Distillation Unit

HTL Prefrac. Products CDU Products

Atmospheric Distillate Light Naphtha

Prefractionation

Atmospheric Distillate Light Naphtha

Vacuum Distillate Heavy Naphtha

Vacuum Residuum Kerosene / Jet Fuel

Light Atmos. Gas Oil

Heavy Atmos. Gas Oil

Light Vacuum Gas Oilg

Heavy Vacuum Gas Oil

Vacuum Residuum


Prefractionation Reaction Section










Prefractionation Reaction Section Product Separation

HTL Mechanically Similar to a Fluid Catalytic Cracker

• Over 450 FCC’s operating globaly

• Robust, thoroughly proven, and reliable

HTL FCC

Reactor / Stripper

Regenerator

HTL Upgrades Residual Oil into Lighter SCO and Energy


EliminateDiluent


MaximizeProduct

Value

MinimizeProduction

Costs


Value Costs

into Usable Energy



CommercialReadiness

Validated process yieldsand proved scalability Continued Process

Improvement

Product Yields – Athabasca Bitumen Feedstock

Products

SCO 85 wt% (92 LV%)

Coke 10 wt% convertedCoke 10 wt%

Gas 5 wt%Feed

Athabasca Bitumen

converted to steam

Feed and Product Property Comparison

Athabasca Bitumen Upgrading, Feed and Product Properties

Bitumen SCOBitumen SCO

o API 8.5 18.8

Viscosity @40oC, cSt 23,000+ 23

Sulfur, wt% 5.0 2.9

Nitrogen, wt% 0.7 0.4

Nickel, ppm 79 15

Vanadium ppm 209 27Vanadium, ppm 209 27

Resid, 1000oF+, wt% 52 6

Feed and Product Composition Comparison

100%

Athabasca Bitumen Upgrading, Feed and Product Composition

75%

80%

85%

90%

95%

Naphtha, IBP‐375F

50%

55%

60%

65%

70%

75%

olum

e %

Kerosene, 375‐455F

Distillate, 455‐650F

30%

35%

40%

45%

50%

D1160, vo

VGO, 650~1000F

5%

10%

15%

20%

25%

Resid, ~1000F+

0%

Athabasca Bitumen Synthetic Crude Oil

HTL enables Low Cost Production of Heavy Oil


EliminateDiluent


MaximizeProduct

Value

MinimizeProduction

Costs


i t U bl E

Value Costs

into Usable Energy



CommercialReadiness

Validated process yieldsand proved scalability Continued Process

Improvement

Lower Production Costs – Energy Integration

• Byproduct coke and gas converted within the HTL unit to steam

• Minimizes Natural Gas required for thermal EOR

2.4 bbls of High Pressure Steam produced by HTL…

1 bbl f… per 1 bbl of Athabasca Bitumen processed in HTL

Lower Production Costs – Integration of Facilities

SAGD CPF

SHAREDOFFSITES, UTILITIES & INFRASTRUCTURE

PRODUCTIONFACILITIES

• Tank Farm• Roads & Pipelines• Electrical Power• Source Water Treating

• Oil Degassing• Oil Dewatering• Waste Water Treating• Steam Generation g

• Boiler Water Supply• Air / Nitrogen Utilities

Lower Production Costs – Integration of Facilities

SAGD CPFIntegrated CPF


PRODUCTIONFACILITIES HTL FACILITIES


PRODUCTIONFACILITIES


• Oil Degassing• Oil Dewatering• Waste Water Treating• Steam Generation

• Heavy Oil Upgrading• Steam Generation


• Oil Degassing• Oil Dewatering• Waste Water Treating• Steam Generation g

• Boiler Water Supply• Air / Nitrogen Utilities

g• Boiler Water Supply• Air / Nitrogen Utilities

Minimize Infrastructure Investment & Operating Expenses

Production Field

Current Future

bpd 40 000 10 000

Production rate of lighter oil in decline due to depleting resources

bpd 40,000 10,000

API 31 31Marker Crude w/ Pipeline & Contract Specifications

Current FutureProduction Field

Current Future

bpd 40,000 40,000

API 25 19

Current Future

bpd 80,000 80,000

API 28 17

viscosity 100 cP 3,800 cPAPI 25 19

Heavy Production Field

Current Future

bpd 0 30,000

API n/a 8

Main Oil Pipeline

Future projects will bring heavy resources into production

Minimize Infrastructure Investment & Operating Expenses

Production Field

Current Future

bpd 40 000 10 000

Downstream refiners limited by heavy oil processing capabilitiesbpd 40,000 10,000

API 31 31Marker Crude w/ Pipeline & Contract Specifications

Current Future

heavy oil processing capabilities

Production Field

Current Future

bpd 40,000 40,000

API 25 19

Current Future

bpd 80,000 80,000

API 28 17

viscosity 100 cP 3,800 cPAPI 25 19

Heavy Production Field

Current Future

bpd 0 30,000

API n/a 8

Main Oil Pipeline

Pipeline facilities stressed due to increasing viscosity of oilto increasing viscosity of oil

HTL offers a unique Midstream Solution

Midstream HTL upgrades heavy crude oil into lighter, transportable SCO and produces electrical power from excess energy

Gross production of Electrical Power ranges from 1 3 1 7 MW per mpbd of HTL capacityGross production of Electrical Power ranges from 1.3 – 1.7 MW per mpbd of HTL capacity

Minimize Capital Intensity & Complexity of Upgrading

HTL Upgrader

Distillation UnitHTL /

Distillate; < 1000 oF

Sour, Synthetic Distillation Unit

Reactor/Reheater

Integrated Energy Recovery

Heavy Crude

Residuum Crude Oil

Electrical Power

Delayed Coking Upgrader

orSteam

HydrogenPlant

Sulfur Recovery Units

Distillate; S t

SulfurNatural Gas H2 H2S

DistillationUnit

HydrotreatingUnitsHeavy

Crude

;< 1000 oF Sweet,

Synthetic Crude Oil

Delayed CokingUnit

Residuum Coke


GHA – Distillation UnitB – Light Hydrotreating UnitsC – Coking Unit

F CA

gD – Heavy Hydrotreating UnitsE – Hydrogen UnitF – Sulfur Recovery UnitsG – Coke StorageH Sulfur Storage

BEDH – Sulfur Storage


70 000

HTL economic advantage increases at smaller capacity due to a less complex facility

60,000

70,000

40,000

50,000

Delayed Coking Upgrader, Installed Cost$ / bbl capacity,

20,000

30,000Delayed Coking Upgrader, Installed Cost$ / bbl capacity,

USGC cost basis

0

10,000

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

HTL Upgrader, Installed Cost

Barrels per day Upgrading Capacity


• HTL process is less severe than coking, and nets a higher liquid product yield

• Captures a majority of quality differential through the rejection of heavy, residual oil

100%

Bitumen9 API5% Sulfur50% > 1000oF Resid

95%

ProductHTL SCO19 API3% Sulfur

85%

90%Yield, vol% 5% > 1000oF Resid

80%

85%

5 10 15 20 25 30

Traditional SCO28 API0.5% Sulfur0% > 1000oF Resid

5 10 15 20 25 30

Product API Gravity

Commercial Readiness


EliminateDiluent


MaximizeProduct

Value

MinimizeProduction

Costs


i t U bl E

Value Costs

into Usable Energy


Completion of Front End Engineering Cost Estimation Execution Strategy

CommercialReadiness

Validation of process yieldsand proved scalability Continued Process

Improvement

Technology Development History

Ensyn Canadian company – developed Rapid Thermal p y p p

Processing (RTP) for conversion of biomass into liquids

― 7 units operating commercially

― demonstrates robust time on‐stream

extended core RTP process to heavy oils → HTL

Ivanhoe acquired HTL process in April 2005


Commercial Demonstration Facility (CDF)Commercial Demonstration Facility (CDF) proved commercial scalability

tested multitude of heavy crudes

demonstrated high quality of products

provided commercial design parameters

showcased HTL in an operating field


Feedstock Test Facility (FTF) Mission

• Improve HTL process – test design enhancements and modifications

• Provide product yield & quality data for commercial heavy oil feeds

• Expand upon & refine design parameters for HTL commercial units

30 ft

FTF to Commercialization

FTF Results provide a multi‐discipline design basis for commercial HTL facilities

Safety‐ HAZOP

‐ Risk Assessments

Instrumentation‐ Instrument Selection

‐ Control and Data acquisition‐Training ‐ Cause and Effect

ProcessProcess‐ Heat and Material Balance

‐ Design Philosophies

Mechanical‐Material Selection HTL Commercial

D i B i

FTF Results

‐Mechanical Datasheets Design Basis

Process Advancement Achieved through the FTF

HTL Performance Parameters for Athabasca Bitumen, before and after FTF Design Improvements

Before After

Once‐Through Residuum (1000oF+ in Product), lv% 40% 5%

Yield, Synthetic Crude Oil (SCO), wt% 75% 85%

Synthetic Crude Oil (SCO), lv% 81% 92%

Coke, wt% 16% 10%

C4 minus Gas, wt% 9% 5%

HTL capital intensity lowered by 10%, achieved through reduction in equipment sizing

HTL Commercial Deployment

Engineering and Project Execution Strategy

International provider of engineering & project management services

Project E iOperator & Execution‐ Engineering‐ Procurement‐ Construction

Operator & Internal HTL

Licensor

Tier 1Contractor

‐ Project Mgmt

Engineering Advancements – Field Integrated HTL

• FEED has been completed for Tamarack HTL

blueprint for design of other field integrated HTL projects

d l d h d modularization strategy incorporated into the design

Class 3 cost estimate (+25 / ‐20 %)

Midstream HTL Engineering Advancement

• Conceptual engineering completed for midstream HTL

Tamarack FEED utilized as a blueprint for HTL core processing facility

d ld l d f d l & l engaged world class vendors for desalter, water treating, & power generation solutions

Class 4 (AACE) cost estimate and schedule (+35/‐30 %)

HTL enables economic development of Heavy Oil


EliminateDiluent


MaximizeProduct

Value

MinimizeProduction

Costs


i t U bl E

Value Costs

into Usable Energy



CommercialReadiness

Validated process yieldsand proved scalability

Documents

Heavy Oil Upgrading Presentation 2011