oil shale and vanadium and molybdenum

from energyreview.net

New technology raises oil shale hopes in Qld




Monday, May 29, 2006



NEW attempts to commercialise the Julia Creek oil shale deposits in northwest Queensland are being driven by corporate manoeuvres, the potential of technology called solvent hydrogenation, the probability of continuing high oil prices and Australia's indigenous crude oil shortage. By RICK WILKINSON



Oil shale.

The two groups involved are London-headquartered, Alternative Investment Market-listed Xtract Energy, which has a technology development arrangement with the CSIRO, and Sydney-based Australian Thermal Solutions (ATS), which has a patented technology developed by a mechanical/chemical engineer in the US named John Rendall.

Both groups have oil rights over permits covering the extensive marine Cretaceous-age Toolebuc Formation oil shale deposits that lie in the Eromanga Basin to the north and east of the small town of Julia Creek, about 600km west of Townsville and 200km east of Mt Isa.

Xtract Energy has by far the larger acreage position with 12 permits, eight of which surround ATS' permit that occupies the hole in the donut. Nevertheless, ATS believes its area contains some of the richest and shallowest deposits.

The oil shales of Julia Creek are certainly not a new discovery. They were investigated as much for their high vanadium (and to a lesser extent, molybdenum) content as for oil potential by several companies between the late 1960s and the end of the 1990s, including an Aquitaine/TOSCO joint venture, CSR (with research by CSIRO), Placer Exploration, CRA Exploration and, finally, Fimiston Mining.

The shales were found to have an average thickness of 9m and lie at depths below the surface from a few metres to 50m. A Bureau of Mineral Resources (now Geoscience Australia) study in 1984 suggested an in situ mass of 4 billion tonnes of shale with an average (dry) yield of 70 litres per tonne and a potential recoverable resource of 1.7 billion barrels of oil.

Fimiston Mining estimated the resources of vanadium oxide in one of its project areas near St Elmo Station at 340 million tonnes at 0.33% vanadium oxide.

But estimates of the extent of the resource are fairly meaningless as they take little account of depth of burial, mining economics and shifting commodity prices. Suffice to say the potential is large.

Even so, despite extensive drilling and evaluation, none of the companies during that 30-year period could see an economic proposition for either commodity during their respective tenures.

Xtract
One former CRA executive, Dr John Shirley, maintained an interest by establishing a company called Xtract Oil and applying for a very small permit 15km east of Julia Creek township. It was granted in May 2005.

At the same time, he set up a subsidiary company called Xtract Technologies and formed an alliance with CSIRO to investigate new avenues of extracting oil from the shale other than the conventional retort process.

During this period, a Perth ASX-listed minerals explorer called Intermin Resources began picking up a 11 much larger permits over the Julia Creek oil shales as they were relinquished by the outgoing Fimiston Mining.

Intermin's primary interest was (and still is) in the vanadium/molybdenum content. In October 2005, it signed an agreement with Xtract giving the latter the right to mine the oil shale deposits from one of Intermin's central permits for the hydrocarbon content. Intermin retained the mineral rights, but the deal did give Xtract its second foothold in the region.

At this point, a London-headquartered firm with Australian connections called Resmex entered the picture.

Resmex, chaired by Melbourne oil and mining entrepreneur Rob Annells (who is also chairman of Lakes Oil and Minotaur Exploration as well as a director of Gippsland Offshore Petroleum), was established in the UK in 2004 to take advantage of better funding opportunities there.

The company has a worldwide brief and began with interests in gold mining areas in northern Mexico. The company was listed on London's AIM market in March 2005 and recently appointed former Melbourne stockbroker and experienced company executive John Newton as chief executive.

The Mexican gold leases are still active but Annells' nose for petroleum opportunities and his knowledge of the industry also led him and Newton to Intermin's door in October last year.

They also signed a deal with Intermin, giving Resmex the right to mine the shale from Intermin's other 10 Julia Creek permits for their petroleum content, again leaving Intermin with the mineral rights.

Not satisfied with that, Resmex set its sights on obtaining Xtract's non-retort style technology for extracting oil from shale and the research arrangement with CSIRO.

To do that, Resmex made an arrangement with another AIM-listed company called Cambrian Mining run by fellow Melbourne mining entrepreneur John Byrne. Cambrian invested £1 million ($A2.45 million) to purchase a 22.3% shareholding in Resmex.

Armed with those funds, Resmex bought an initial 21.7% stake in Xtract Oil (and Xtract Technologies) in October 2005 and completed a 100% buy out of the company in February this year.

The final move came at the Resmex annual general meeting at the beginning of May when Resmex gained approval from shareholders to change its name to Xtract Energy.

The end result is that Xtract Energy now has oil rights to 12 Julia Creek oil shale permits as well as the Xtract technology and the research/test agreement with CSIRO.

The company has also expanded its horizons to apply for an exploration licence over oil shale deposits in the Nevis Valley of New Zealand's South Island just east of Queenstown, and expects to take drill samples from the region later this year.

CEO Newton is based in London. Also on the board in an executive capacity is consultant geologist/geophysicist Carl Layden (based in Melbourne) who is a former managing director of Gawler Gold.

Annells is non-executive chairman and Shirley remains on the board of the Xtract Technologies subsidiary.

Byrne's Cambrian Mining retains a 22.3% shareholding in Xtract Energy, while Intermin Resources also has a small percentage shareholding as part of the Julia Creek permit entry deal.

And what of the oil extraction process itself?

On that point, not surprisingly given the industry's competitive nature, Annells is less forthcoming.

"The only thing I can tell you," he said, "is that it processes oil shale in the presence of hydrogen solvents and it's called supercritical solvent hydrogenation.

"The whole process, including the heating of the shale, is in enclosed vessels and carried out at moderate temperatures that do not liberate carbon dioxide."

Bench tests indicate the oil yield from shale will be much higher than from conventional retorting techniques. The solid waste is non-toxic and suitable for return as mine fill. There is additional potential to recover minerals (like vanadium) from the shale waste with further processing.

Annells said the CSIRO's energy division was continuing its bench-top studies in Melbourne and Sydney. A scientific advisory committee is being established to review the ongoing program to ensure the focus remains on a commercial outcome.







Australian Thermal Solutions
The other group at Julia Creek is ATS, a private company set up in April 2005.

ATS became involved in the oil shale province when it bought 100% equity in an entity called Fiva Resource Corporation, a subsidiary of Fimiston Mining, the company that had been evaluating and then gradually relinquishing the Julia Creek leases since the late 1990s.

By 2005, Fiva held one remaining tenement covering 93 sq.km, which it believed encompassed the deposit's core area and richest shale. This permit passed to the ATS portfolio.

Meanwhile, ATS has also negotiated (subject to a one-off fee) the right to the exclusive licence in Australia to use and sub-license a patented technology for a non-retort method of extracting of oil from oil shale, along with a 30% interest in all revenue arising from licensing of the technology elsewhere.

The company now aims to raise funds to establish a pilot plant to prove the commerciality of the process and set it on the world stage.

John Blumer, chairman and managing director of Robsearch geological consultancy firm, is a director of ATS and says the company has two business objectives.

"We want to reap the benefits from licensing this technology worldwide. But to do that, we have to show it works at commercial scale," he says.

"The pre-requisites are a shale source, which we now have at Julia Creek, and the establishment of a pilot plant, which we plan to build in Townsville as soon as possible."

To carry out this program, ATS needs about $40 million and Blumer says the intention is to raise the money through an initial public offer of the company's subsidiary, Fiva.

The process will begin with a reverse takeover of an ASX-listed but dormant Sydney company called Blue Ensign Technologies, which was previously involved in the electronic communication business.

Last week, ATS said it had entered an agreement with Blue Ensign under which Blue Ensign would acquire all the issued capital of ATS in return for the issue of new Blue Ensign shares and options to ATS shareholders.

Before completion, a major unnamed Sydney institution will subscribe $3 million for new ATS shares, which will then be acquired by Blue Ensign after completion (expected by the end of June) and will become part of the new Blue Ensign issue.

The $3 million will be used to pay debts, the one-off technology licence fee and acquire a site in Townsville for the proposed pilot plant.

By the end of September, the restructuring process for ATS should be completed and a prospectus in readiness for Fiva's IPO to raise the required $40 million to establish the Townsville plant.

At this stage, no decision has been made about a change of name for the new entity but moves will be made to apply to the ASX for re-quotation of Blue Ensign's shares within 12 months.

The new board of Blue Ensign (ATS) will initially comprise Blumer, Christopher Ryan (a long-time director and now chairman of Blue Ensign and a founder and former director of ATS) and Frank Ciotti (a US business partner of Rendall, the shale oil process developer).

Although not a member of the proposed board, Rendall and his patented technology are pivotal to the whole enterprise.

The 71-year-old, now living in Albuquerque, New Mexico, has been involved with tar sands and shale oil extraction processes for three decades. Speaking by phone from the US this week, Rendall said he began questioning the retorting method to release kerogen from oil shale back in the 1970s.

"Retorting is inefficient because the shale burns unevenly in the presence of air and is prone to release pollutants into the atmosphere," Rendall says.

"It also requires large volumes of water to quench the waste shale to prevent spontaneous combustion as it exits the retort.

"I began looking at a liquid-to-solid heat transfer medium and worked with supercritical solvents in an enclosed system. I found the oil yield was up to 60% more than the Fischer assay value and there were no environmental problems associated with dust or odours released to atmosphere."

Rendall's technique involves two steps.

First is the thermal conversion and hydrogenation of oil shale in a hydrogen-donor solvent in a fully-enclosed anoxic (no oxygen) system, where the solvent is a naphthalene with four extra hydrogen atoms in its matrix.

Methane off-gas from the process produces hydrogen that can be used to re-generate the naphthalene solvent for recycling.

The second step is a supercritical solvent extraction that strips the stable pipelineable crude oil product from the spent shale residue.

"Although I have worked with US shales in Colorado, Utah and New Mexico, and the US authorities are interested in the technique, I am not financially strong enough to buy into any leases there," Rendall says.

"There are also 20 environmental agencies to deal with in Colorado alone – this creates an enormous time factor of about two years before anything can be done on the ground.

"My first opportunity to move from bench testing is in Australia and I have taken out an Australian patent. The plan is to establish a one tonne per hour pilot plant in Townsville with ATS and then move to a first-stage commercial plant and mine at Julia Creek to treat 600 tonnes of shale an hour and produce 14,000 barrels of shale oil a day."

Rendall hopes to have a pilot plant operating within 18 months, He is confident his process will be viable but admits that there will be unknowns thrown into the ring during the scale-up.

Rivalry
The reticence of both the ATS and Xtract groups to go into detail makes it hard to identify differences between the Rendall and CSIRO techniques, but it appears that ATS will be the first to establish a pilot trial.

Both groups have focused on the marked improvement in yield over retort processing.

They have also highlighted the benefits to the environment through the lack of emissions and the minimal need for process water – important in northwest Queensland where large draw-downs on the artesian water table would be frowned upon.

Both processes also promise a clean dry waste. In the Julia Creek shale case this can be subject to further mineral extraction and the shale's limestone matrix could allow the manufacture of high-grade cement.

ATS has said preliminary indications for a 14,000 bpd first stage commercial plant are $US200 million ($A264 million) and a cash-operating cost of less than $15/bbl.

Xtract declines to put any figures forward, but is confident of a viable operation at oil prices of the last few years.

There are sceptics, of course. But if bench-top solvent hydrogenation translates to a viable commercial process, it opens up a potential resource of many billions of barrels of oil in Queensland as well as trillions of barrels in the US and other countries.