First Quarter Highlights
Tamarack Project -- Canada
During the first quarter of 2009, Ivanhoe Energy announced that a new evaluation by independent engineers has estimated that Ivanhoe Energy's Tamarack Project, in the Athabasca region of Western Canada, contains best-estimate contingent resources of 441 million barrels of bitumen. This represents an increase of 81% over the best estimate announced in conjunction with the purchase of this asset in mid-2008. The new estimate would support a project with an estimated capacity of approximately 50,000 barrels per day for 30 years.
At the time of the mid-2008 purchase of Lease 10 from Talisman Energy Canada, Ivanhoe Energy reported that independent reservoir engineers engaged by Talisman had estimated that Lease 10 contained best-estimate contingent resources of approximately 244 million barrels of bitumen, with low and high estimates of approximately 188 million and 313 million barrels, respectively.
The new Tamarack evaluation was carried out by GLJ Petroleum Consultants Ltd. (GLJ), independent reservoir engineers. This GLJ report follows significant analysis carried out by Ivanhoe Energy since the mid-2008 acquisition, including a) detailed core descriptions completed by Norwest Corporation; b) matching the petro-physical model to the core data; and c) developing a detailed facies characterization and establishing field performance based on analogue field data.
In addition to the geological and reservoir analysis carried out to support the new resource estimates, Ivanhoe Energy's Calgary-based heavy oil team, working with AMEC BDR, completed the upstream Design Basis Memorandum (DBM) during the first quarter and progressed a number of studies related to final delineation drilling, upgraded product marketing, infrastructure and transport logistics.
The Tamarack project is on track for final delineation drilling and the filing of regulatory approvals in mid-2010.
Pungarayacu Project -- Ecuador
The first quarter of 2009 was the first full quarter of activity on the Pungarayacu project following the signing of the contract with Petroecuador and Petroproduccion in October, 2008. During the first quarter of 2009, Ivanhoe Energy Ecuador accelerated the detailed geological analysis of existing data on Block 20 to develop the near-term development plans. This analysis provided Ivanhoe Energy Ecuador with additional confidence in the potential for Block 20 and led to the formulation of a development plan that includes an accelerated schedule for the drilling of a limited number of appraisal wells. These early wells, proposed to be drilled before new seismic acquisition and before the end of 2009, would help to more fully characterize the oil and the reservoir in what Ivanhoe Energy Ecuador believes to be the more prospective regions of the massive 426-square-mile Block 20.
To carry out this early drilling campaign, Ivanhoe Energy Ecuador has completed an Environmental Impact Assessment (EIA) study and has submitted this study to the Ministry of the Environment for its review and approval. As part of this process, Ivanhoe Energy Ecuador also consulted with the indigenous and other local communities within Block 20 that will be affected by drilling activity. Ivanhoe Energy Ecuador expects to finalize the approval process for this early drilling program by mid-2009, with drilling and testing to follow during the second half of 2009.
The significance of the Athabasca bitumen test is that it provided additional validation of the Company's operating assumptions underlying the economic models for the Tamarack Project in Canada and the Pungarayacu Project in Ecuador. In addition, these tests provided significant, hard engineering data and support for our engineers and AMEC, our Tier-1 contractor, as we work toward completion of the basic engineering designs for commercial facilities.
AMEC is a major international engineering firm based in London, UK, with operations worldwide. It has revenues of more than (pnds stlg)2.6 billion (approximately US $4 billion) and employs more than 22,000 people. AMEC, which has extensive experience in refineries and oil and gas processing, is completing a basic engineering design package for Ivanhoe Energy's Tamarack integrated oil sands project in Alberta, Canada.
Oil and gas revenue in the first quarter of 2009 fell 41% compared to the previous quarter, reflecting lower benchmark crude prices. Cash flow from operating activities was negative $4.1 million during the first quarter, compared with positive $9.7 million in the previous quarter, while capital investments for the quarter declined to $5.5 million compared with $8.7 million in the fourth quarter of 2008.
Liquidity and Capital Resources
Our operating activities generated negative $4.1 million in cash for the first quarter of 2009 and capital investments during the quarter were $5.5 million.
Our cash and cash equivalents at March 31, 2009 totalled $28.4 million.
Our two initial HTL projects will require significant capital for full development. These capital requirements will be relatively low during the second quarter, but will increase during the third and fourth quarters of 2009 and into 2010. Our strategy is to finance the development of these two projects primarily with funding from strategic partners. As discussed elsewhere in this release, we are engaged in various discussions and due diligence efforts related to the establishment of strategic and financing arrangements.
In the interim, we intend to utilize revenue from our US and China operations to fund our transition to a heavy-oil exploration, development and production company and non-heavy-oil-related investments in our portfolio will be leveraged and/or monetized as required.
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