Dagang Oil Project
Ivanhoe Energy's wholly-owned subsidiary, Sunwing Energy, has drilled seven new wells since it commenced its development program in December, 2003. Three of the seven new wells now are producing, one is under completion and production testing and three are being completed. The company now has three drilling rigs under contract. Current production from the project is approximately 900 barrels of oil per day (bopd). The development program is on schedule for a year-end 2004 production target of 2,500 bopd.
Sunwing's June oil production was sold at an average price of US$33.08 a barrel. Oil sales are in U.S. dollars and paid directly into a North American bank account. State of the art drilling and completion techniques and equipment modernization have reduced capital and operating costs.
The Dagang Project, located approximately 125 miles south east of Beijing, is being developed under a 30-year production-sharing contract with PetroChina Company Limited. It covers an area of 22,400 gross acres divided into six blocks in the Kongnan oilfield in Dagang. Total development of the Dagang Project is expected to result in up to 115 new wells being drilled and 28 existing wells being recompleted over the next three years.
Under terms of the contract with PetroChina, Ivanhoe and its new joint venture partner, China International Trust & Investment Corporation (CITIC), will develop the project and fund 100% of the development costs to earn 82% of the net revenue from oil production until achieving full investment and operating cost recovery, after which the entitlement reverts to 49% for the duration of the contract period.
The company is pleased to have CITIC, a major global enterprise owned by the government of China, as a 40% joint venture partner on the Dagang Oil Project. CITIC is working closely with Ivanhoe Energy in active discussions with leading European and Chinese lenders to arrange project financing of between US$100 and US$120 million to cover the remainder of the estimated investment required to fully develop the Dagang project.
Zitong Gas Project
In Sichuan, Sunwing holds a 100% working interest in the 880,000-acre in the Zitong Gas Exploration and Development Block. PetroChina has drilled a number of gas discoveries on the block that have tested gas at rates varying between 1 mmscf/d and 32 mmscf/d.
Sunwing now has completed reprocessing the 2,500 kilometers of previously shot 2-D seismic and has completed an additional 870 kilometers of new 2-D seismic. The seismic work was designed to delineate additional prospects that will be targeted in an initial two-well drilling program. The data from the reprocessed lines and new lines now are being integrated into new prospect maps for the block. The prospects are targeting potential deposits of gas that may be contained within formations from 5,000 feet and deeper.
Drilling operations are expected to commence in the fourth quarter of 2004, to be followed by a second well in 2005.
The Sichuan Basin is one of the major gas-producing basins in China. Gas demand from power and industrial users has grown during the past two years to more than 900,000mmcf/d and now outstrips supply. There is a gas pipeline within the Zitong Block that connects the area to an extensive provincial gas pipeline, allowing gas to be shipped to end users throughout the province and to industrial complexes located in the Chongqing Municipal District.
A new pipeline also is being built to export gas from the basin to industrial centres in Hunan Province. The pipeline's initial capacity of 380,000 mmcf/d is fully subscribed through take-or-pay contracts. Current wellhead gas prices in the Sichuan Basin range from approximately US$2.00 to US$3.00/mcf and are rising.
Ivanhoe Energy trades on the NASDAQ SmallCap market with the ticker symbol IVAN and on the Toronto Stock Exchange with the symbol IE.
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