"This move gives an immediate boost to our California natural gas production, access to expanded reserves and further exploration potential," said David R. Martin, Ivanhoe Chairman. "The realignment of our California assets fits perfectly with our short-term goal of focusing on exploration and development projects that can achieve early production and cash flow. We are pleased to increase our North American natural gas production capability at a time when natural gas prices are at historically high levels."
Ivanhoe has purchased its partner's assets in the Knights Landing natural gas project, which includes an interest in a total of 13 wells, associated gas gathering facilities and a net 1.02 billion cubic feet (bcf) of proved, producing gas reserves. As a result, Ivanhoe's total net daily production from this current project will be 1,900 mcf per day (317 barrels of oil equivalent per day), an increase of 130% over Ivanhoe's share of production prior to the transaction.
Ivanhoe originally farmed into this project near Sacramento in February 2004 for a 50% interest after payout. Ivanhoe drilled nine wells under the initial contract, with three resulting in gas discoveries. With this latest transaction, Ivanhoe becomes the operator and will increase its working interest to 100% in eight wells and will acquire an 80% interest in five additional wells, in which it did not previously hold any interest. Ivanhoe will also connect its three discovery wells, which have been tested, but not yet connected to the gas gathering facilities.
Ivanhoe plans to acquire a 3-D seismic survey over the area to more accurately define these existing and potential gas structures and improve drilling success ratios. Following the seismic interpretation, Ivanhoe expects to drill additional development and exploration wells. The purchase includes additional interest in leases on a total of 13,000 acres with undrilled gas prospects in addition to the producing areas. The Sacramento Basin is a major gas producing area located in northern California.
As part of this transaction, Ivanhoe has sold its interest in the Sledge Hamar project. Ivanhoe held a 40% working interest in one producing discovery well in this prospect, which provided Ivanhoe with minimal oil production, and an interest in 900 acres of surrounding leases. Ivanhoe participated in the drilling of two wells in the Sledge Hamar prospect.
The drilling of a number of new wells at Knights Landing and Sledge Hamar were originally planned for 2004 and were deferred during the company's strategic review of these projects. As a result, the company will drill fewer new wells this year than originally planned, but has improved the potential of its California properties. Worldwide, Ivanhoe has drilled a total of 40 wells to date in 2004, purchased an interest in 5 additional wells, and expects to drill three more before year end, for a total of 48 new wells in 2004.
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