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Globe & Mail: Like drawing water from sand (but it’s oil)

The challenge: For a bit player to join the billion-dollar oil sands game The call: Focus on technological innovation

NORVAL SCOTT

CALGARY — Columba Yeung admits he spent a solid year “banging my head against the wall” as he tried, and failed, to work out how his startup firm could compete with the world’s largest energy companies in Alberta’s oil sands.

The pounding seems to have paid off. Earlier this week, his boldly named Value Creation Inc. announced plans to build a $4-billion, 40,000-barrel-a-day oil sands project, with operations starting in 2011. The company believes it can ultimately produce 400,000 barrels a day — a huge target for a relatively unknown firm.

Key to the project is the eventual product of Dr. Yeung’s cogitations: Smart technology that looks set to dramatically lower the costs of producing crude from the oil sands.

“I spent a lot of time looking for the breakthrough, and I failed more often than I succeeded,” he said. “But you can’t expect the moment just to happen just like that — you must analyze your failure before success evolves.”

While Alberta’s oil sands reserves represent a vast resource for energy companies, the heavy crude, or bitumen, within it is extremely capital-intensive to develop. Produced bitumen is so thick that it must be diluted with lighter crudes to get it to flow down pipelines and it also can’t be processed by normal refineries, meaning producers need to build massively expensive upgraders to improve the crude before it gets to a refinery.

Dr. Yeung, a chemical engineer by training, encountered such problems in his previous position, developing Shell Canada’s Athabasca Oil Sands Project and its Scotford Upgrader. He became convinced that there had to be a way to be a “smart oil developer” and reduce such projects’ vast upgrading costs, which can account for around two-thirds of a project’s total outlay.

With that in mind, Dr. Yeung formed Value Creation in 1999. Success wasn’t immediately forthcoming. He spent time looking at how to utilize tailings — waste material left over from bitumen processing — more effectively, before realizing that development there alone wouldn’t provide the savings that might allow his firm to become an oil sands player.

The eureka moment came when he worked out a method to improve the bitumen by removing asphaltenes — the thickest part of the heavy crude that makes it impossible to ship by pipeline. The exact process is confidential, although it revolves in part around encouraging and accelerating natural processes to get asphaltenes to congeal, allowing their removal.

The cost savings are dramatic. Dr. Yeung estimated that Value Creation’s oil project — named Terre de Grace, after his wife — will have a development cost of around $45,000 per flowing barrel, or around half Shell Canada’s estimated costs for expanding its Athabasca project. He admits that not everyone is yet convinced of his figures, as his company’s technology isn’t yet fully understood. “This isn’t conventional, and the world is full of skeptics and critics when you do something unconventional.” He hopes the completion next year of an upgrader — constructed by Value Creation’s subsidiary, BA Energy Inc., with similar technology — will lay some doubts to rest.

Personally, Dr. Yeung was so convinced of the economic potential of his solution that, knowing he needed resources to develop for his firm to be successful, he started stealthily acquiring a huge land position in the oil sands, buying leases anonymously through agents and numbered companies. Not only did he use some funds originally intended for research, but he even used his own personal finances as transitional funding for Value Creation. The result is that the firm now has the largest land position — 100,000 hectares — held by a private company in the oil sands.

“The resource legitimizes us as a major oil sands player, but it doesn’t tell whether we are strong or weak,” he said, sitting in his company’s single-floor office in downtown Calgary. “We want to be smart, and it’s our innovation and technology that differentiates us as a company.”

On the corporate side, Dr. Yeung said he is enjoying Value Creation’s current position and structure, and that he has no plans for now to take it public. A hands-on chief executive, he enjoys an “honest and open” relationship with the company’s small number of shareholders, and professes a distaste for corporate politics. He also has a low-key approach to public relations, with this being a rare interview.

“I enjoy working as a team, and I think that challenges and problems need to be dealt with in an open way,” he said. “You can argue with someone in your company until you go red in the face, as long as you can go for a beer with them afterwards.”

Dr. Yeung said that while he’s faced challenges in dealing with people, particularly as Value Creation grows, he’s ended up with an experienced and dedicated team that is “stronger than I feel I deserve.”

“I enjoy situations that seem like Mission Impossible. If everyone thinks what you’re doing is a slam-dunk, it’s not a challenge. I like a bit of skepticism.”

Dr. Columba Yeung, Value Creation Inc.

Title: chairman and CEO

Education: PhD in chemical engineering from the University of Toronto

Background: Born in Hong Kong, moved to Canada for university. Spent 24 years with Royal Dutch Shell, including stints in Europe and Asia.

Downtime: Gardening. “I like making things grow. But, I also kill a lot of plants.”

Drives: A six-year-old Lexus.

Family: Wife Grace — the Terre de Grace project is named after her — and three daughters who are “the reason I’m still working . . . weddings don’t pay for themselves.”

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