Reliance Industries Express Interest in Acquiring Canadian Bitumen Upgrading Firm

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Researched by Industrial Info Resources (Sugar Land, Texas)--Reliance Industries Limited (BSE:500325) (RIL) (Mumbai), India's leading oil and gas and petrochemicals company, has submitted an expression of interest worth $2 billion for oil sands company Value Creation Incorporated (VCI) (Calgary, Alberta).

With leases that cover more than 110,000 hectares, VCI owns one of Canada's largest oil sands properties. VCI also owns proprietary upgrading technologies that promise the lowest costs to upgrade bitumen to refinery-ready light crudes. VCI is a subsidiary of Value Creation Group (VCG) (Calgary).

VCI acquired BA Energy Incorporated (Calgary) in March 2008, and the latter will apply VCG's technology for the first time at its Heartland Upgrader, which is being constructed in Strathcona County, which is northeast of Edmonton, Alberta. BA Energy has the exclusive right to commercially employ VCG's technology in the Greater Edmonton area.

The Heartland Upgrader is a commercial bitumen upgrader being developed to upgrade bitumen and heavy oil feedstock to high-quality synthetic crude oil. The upgrader is being developed in three phases. Each phase will include a train that will incorporate one Ultra Selective Pyrolysis (USP) and one Accelerated Decontamination (ADC) unit. Each train has been designed to process 77,500 barrels per day (BBL/d) of bitumen blend, which translates to 54,500 BBL/d of bitumen. The project has the necessary approval to upgrade up to 260,000 BBL/d of merchant bitumen from the oil sands of Alberta.

The VCG technology combines several processes to produce a synthetic crude oil that is sour but separated from its difficult sulfur compounds. The sulfur compounds that are left behind can be easily removed in hydrocrackers or hydrotreaters, which exist in all conventional refineries. The technology aims to lower the costs of oil sands production, transportation and bitumen upgrading, which are costs that hamper high production from the oil sands of Alberta.

VCI's plans also include the development of oil sands leases, with the application of the company's proprietary technology and synergistic technology, with Steam Assisted Gravity Drainage (SAGD). The SAGD technology is the only thermal recovery technology that is proven, and is economically feasible for bitumen resources that are too deep for surface mining. The first project that is expected to see the implementation of the technology is at Terre de Grace, which is near Fort McMurray in Alberta. The lease area covers more than 74,000 hectares of land, and the first oil is expected to be produced in 2011. As per plans, the Terre de Grace project will be developed in phases, with capacities of about 40,000 to 80,000 BBL/d, with the potential for capacity augmentation to more than 300,000 BBL/d. The central processing plant of the project will be fed by several resource sites that utilize integrated SAGD/ADC technology.

According to analysts, RIL has a cash balance of nearly $4 billion and almost $8 billion in treasury stock. The company is capable of financing an all-cash deal, should the VCI transaction go through. In November 2009, RIL made an offer of $13.5 billion to acquire international petrochemical group LyondellBasell Industries (Rotterdam, Netherlands). If both deals are successful, RIL will be transformed from a nearly all-Indian operation to a global company with more than $80 billion worth of sales.

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