Ivanhoe and Ensyn Petroleum also announced earlier today, that Ensyn Petroleum's heavy-to-light oil commercial demonstration facility, located in the Belridge heavy oil field near Bakersfield, California, has started up and is processing heavy crude oil. Ensyn plans to use the facility to process local heavy oil, as well as to test a range of heavy crudes from around the world.
Under the merger agreement, Ivanhoe will acquire all of the outstanding shares of Ensyn Group, and as a result, Ensyn Petroleum will become a wholly- owned subsidiary of Ivanhoe. Ivanhoe currently owns 15% of Ensyn Petroleum. Ivanhoe will pay $10 million in cash and issue Ivanhoe common shares valued at $75 million. The number of common shares to be issued will be based on the weighted, 10-day average of Ivanhoe's closing share price on the NASDAQ SmallCap market prior to the approval of the transaction by Ensyn shareholders. A minimum of 30 million common shares will be issued.
Ivanhoe Chairman David R. Martin said Ivanhoe has been working closely with Ensyn for nearly 18 months and believes there is tremendous potential for the application of Ensyn's proprietary Rapid Thermal Processing (RTP(TM)) technology in developing heavy-oil deposits around the world.
"There is an abundance of untapped heavy oil and bitumen deposits worldwide," commented David Martin. "The development of heavy oil is in the initial stages of enormous growth, fueled by advances in heavy oil technology and declining conventional reserves of light oil and natural gas. However, these heavy oil deposits often are difficult and expensive to handle, transport and upgrade. Ensyn's technology has significant potential to address a number of the existing technical and economic challenges in heavy oil development. Our investment in Ensyn will provide Ivanhoe with a global technology platform, from which we intend to acquire heavy oil reserves world- wide."
Dr. Robert G. Graham, Ensyn Group Chairman and Chief Executive Officer said "We believe Ivanhoe offers an ideal complement for our petroleum activities. Their management team offers decades of successful experience in building oil and gas reserves worldwide by applying state-of-the-art technology in the petroleum sector. We look forward to joining Ivanhoe as they implement this technology."
Ivanhoe intends to apply Ensyn's leading-edge, RTP(TM) technology to upgrade heavy oil in the field to produce lighter, more valuable crude oil at lower costs and in smaller size plants than required by conventional technologies. The upgraded heavy oil, similar to less viscous conventional light crude oil, brings a higher price and can be easily transported. In addition to a dramatic improvement in oil quality, an RTP(TM) facility can yield large amounts of surplus energy for production of steam and electricity used in heavy-oil production. The thermal energy from the process provides heavy-oil producers with an alternative to high-priced natural gas that now is widely used to generate steam. The RTP(TM) technology offers an excellent opportunity to optimize the development of mature heavy oil fields and also enables the development of "stranded" heavy oil deposits.
Ivanhoe has an agreement in place to study the use of the RTP(TM) technology in the development of a heavy oil field in Iraq. This acquisition now gives Ivanhoe the ability to leverage the RTP(TM) upgrading technology to significant opportunities in other countries with heavy oil deposits, including the world-class resources in Venezuela, Canada and the United States. In addition, Ivanhoe will pursue initiatives that Ensyn has developed, including a non-binding agreement with Aera Energy LLC (Aera), a California limited liability company owned by affiliates of Shell and ExxonMobil, to advance negotiations for a 10,000-barrel-per-day RTP(TM) plant in California. Aera is California's leading oil producer with about 250,000 barrels per day of production.
In conjunction with this transaction, Ivanhoe commissioned technical and cost reviews of the RTP(TM) process by two leading North American engineering firms. The studies confirmed that Ensyn's RTP(TM) technology is a unique and viable approach to heavy crude oil upgrading, comparable to established technologies, at significantly lower operating and capital costs.
Several key Ensyn personnel who developed the RTP(TM) technology and founded Ensyn are expected to join, or be contracted to, Ivanhoe following the acquisition to continue to advance the technology. They include key technical staff and individuals that have been leading the commercial development.
The Boards of Directors of both Ivanhoe and Ensyn Group have approved the merger transaction. The merger transaction will require the approval of Ensyn shareholders and may require the approval of Ivanhoe shareholders, depending on the number of common shares Ivanhoe is required to issue. The merger transaction is also subject to applicable regulatory approvals and other closing conditions customary in transactions of this nature.
Closing of the transaction is expected to occur early in the second quarter of 2005, following regulatory approvals and after Ensyn has satisfied Ivanhoe's defined performance criteria and parameters for the commercial demonstration facility in California. These performance criteria relate primarily to upgraded product yields and end-product quality and values, as well as the quantity of surplus energy generated.
Ensyn Group, Inc., the parent company of Ensyn Petroleum International Ltd., is a privately held company with two principal subsidiaries, each applying the same core RTP(TM) technology to different feedstocks. Ensyn Renewables Inc. produces fuels and chemicals from biomass and other renewable resources, while Ensyn Petroleum International Ltd. upgrades heavy oil and bitumen. Ensyn Renewables has operated commercial facilities since 1989 and has six commercial biomass facilities in operation, with a seventh under construction. Ensyn Petroleum has been testing its patented RTP(TM) technology on heavy crude oils from around the world at its Canadian pilot facility since 1998. Dr. Robert Graham, a founder of Ensyn, is Ensyn Group's largest shareholder, followed by Credit Suisse First Boston (CSFB). CSFB holds approximately 19% of Ensyn Group's common shares.
Ivanhoe Energy trades on the NASDAQ SmallCap market with the ticker symbol IVAN and on the Toronto Stock Exchange with the symbol IE and IE.U.
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