Ivanhoe Gets Go-Ahead to Initiate Operations on Ecuador's Pungarayacu


Ecuador, South America
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Ivanhoe Energy Ecuador Inc. has received authority to assume control of Block 20 and initiate operations on the Pungarayacu field in Ecuador. This follows the receipt by Ivanhoe Energy Ecuador of a key environmental license issued by the Ecuadorean government, related to the development of the Pungarayacu field.

Pungarayacu is considered by Ecuador to be the country's largest known single accumulation of hydrocarbon resource. The Pungarayacu oil field, covering 250 square miles (647 square kilometres), was discovered and partly delineated approximately 30 years ago by Petroecuador. The field was found to include a substantial resource of heavy oil, but development was held back due to the challenges associated with heavy-oil production. Ivanhoe Energy's unique and patented HTL (Heavy-to-Light) heavy-oil upgrading process provides a solution to these challenges, enabling the field to be developed and produced.

The Environmental License

Ivanhoe Energy Ecuador received an important and highly-prized Environmental License from Ecuador's Ministry of Environment following the Ministry's review and approval of an Environmental Impact Study (EIS) carried out on Ivanhoe Energy's initial development plans. The EIS, initiated approximately six months ago, was carried out by an independent consulting firm certified by the Ministry of Environment. The EIS includes a detailed analysis of the potential impact of Ivanhoe's initial drilling program on the people and communities surrounding the proposed area of operations. Ivanhoe consulted with a number of local indigenous communities and incorporated their opinions into the proposed development plan.

The Ecuadorian government places great emphasis on the protection of the diverse natural habitat of the Amazon region. Ivanhoe is pleased that the government authorities appreciate Ivanhoe's perspectives on environmental stewardship and the environmental benefits of the company's Integrated Heavy-to-Light (HTL) heavy oil upgrading process.

Authority to Initiate Petroleum Operations

Admiral Luis Jaramillo, President of Petroecuador, and Captain Freddy Garcia, Vice President of Petroproducción, officiated in a ceremony yesterday that granted Ivanhoe Energy Ecuador the authority to begin petroleum operations on the Pungarayacu field in Block 20. This event formally initiated the Appraisal Period, the first of three phases of the development program. The authorization allows Ivanhoe Energy Ecuador to proceed to secure the permits to begin drilling operations in the field.

Pungarayacu Appraisal Schedule

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 Petroproducción in October, 2008. During the quarter, Ivanhoe accelerated a detailed geologic analysis of existing data on Block 20 to identify the most promising areas of the field for the early drilling program. This analysis also increased Ivanhoe's understanding of the future potential for Block 20. The early wells Ivanhoe Energy Ecuador proposes to drill will help to define the characteristics of the oil and the quality of the reservoir. Ivanhoe expects to begin drilling operations in the third quarter of 2009.

Pungarayacu Project Summary

The Pungarayacu Project is a heavy-oil project in Ecuador's Amazon Basin. Block 20 contains the Pungarayacu field, a heavy-oil field covering approximately 250 square miles that was discovered in the early 1980s. Block 20 covers a 426-square-mile (1,100-square-kilometre) area located approximately 125 miles (200 kilometres) southeast of Quito. Ivanhoe Energy Ecuador Inc. signed a Specific Services Contract with Petroecuador and Petroproduccion in October 2008 that provides Ivanhoe Energy Ecuador with the right to explore and develop Block 20 in exchange for a fixed fee per barrel of oil produced and delivered to Petroproducción.

The contract has an initial term of 30 years. To recover its investments, costs and expenses, and to provide for a profit, Ivanhoe Energy Ecuador will receive from Petroproducción a payment of US$37 per barrel of oil produced and delivered to Petroproducción. The payment will be indexed (adjusted) quarterly for inflation, starting from the contract date, using the weighted average of a basket of three U.S. Government-published producer price indices relating to steel products, refinery equipment and upstream oil and gas equipment. Ivanhoe Energy Ecuador also has the right to lift oil at a Pacific coast terminal in lieu of cash payments. Ivanhoe Energy Ecuador also has the right to develop, produce and blend any light oil that may be found on the block.
 

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