AimCo seeks ways to narrow Canadian crude discount

Thu Jan 17, 2013 4:25pm EST

* CEO says technology could trump pipeline expansion

* In talks on potential investments

* AimCo scored 10 percent return in 2012

By Jeffrey Jones

CALGARY, Alberta, Jan 17 (Reuters) - Pipeline expansions may not be the only way to narrow a deep discount on Canadian oil, and the head of Alberta's public sector pension fund has been approached with some technological ideas that could eventually yield solutions.

Leo de Bever, chief executive of Alberta Investment Management Corp, said on Thursday that shipping the western province's bitumen to faraway markets like the southern United States might not be the only or best way to get the highest value for the vast supplies.

Finding ways to use less energy to produce or ship tar-sands-derived crude might bring longer-term rewards, said de Bever, whose agency manages C$70 billion ($71 billion) in assets. AimCo has not traditionally invested in oil sands-producing companies.

"A number of people have approached us on the following kind of model: 'We've got these deposits, we've got this technology to exploit them - I'd like to use the deposits as collateral for the technology.' That would work for us," he said in a meeting with reporters.

"So there are a number of proposals that are at various stages of discussion where that's the case."

Oil producers and the Alberta government have been hit hard by a discount on Canadian heavy crude oil that has deepened at times to more than $41 a barrel compared with U.S. benchmark crude over the last two months. That means Canadian crude is worth less than half as much as international Brent oil.

The main reasons cited include tight capacity to move the supplies to U.S. markets and regulatory wrangling that has delayed new projects, such as TransCanada Corp's Keystone XL pipeline to Texas.

The Conservative government of Alberta Premier Alison Redford has already warned that the low prices could force it to miss its goal of balancing its books this year. Cost cutting is expected in an upcoming budget.

De Bever said it is worth considering whether lower production might make more sense as prices languish.

"My point is simply that you've got resources in Alberta. They have a value and the value differs very much with the technology that you have available to you to exploit it," de Bever said. "Who says that shipping it to Louisiana or Oklahoma is the most efficient and the most valuable way in the long run of making use of this resource?"

The situation, along with surging light oil production from North Dakota, has also spawned a boom in oil rail transport, allowing crude to be shipped to more locations.

De Bever said one possibility was to turn the bitumen into a solid substance, rather than liquefying it, and ship it in containers.

Other technology could cut the amount of energy needed to produce the heavy crude and reduce overall costs, he said.

Under de Bever, AimCo has concentrated its investments in the fields of food, energy and materials. But he has added "enabling technologies" in a host of fields to the mix, he said.

AimCo manages public sector pensions as well as Alberta government funds such as the Heritage Savings Trust Fund and Sustainability Fund. It had an overall return of about 10 percent in 2012, which would be its second-best-ever showing, de Bever said.

He sought to cool any expectations that there will be similar results this year, with stocks likely to outperform bonds.

"Going forward, things get more and more dicey for bonds. I only see two scenarios there: a bad one and a really bad one," he said.

Meanwhile, AimCo is still seeing investment opportunities in public infrastructure, especially in the United States, as banks exit some of those businesses, he said.