Ivanhoe Energy will file its Quarterly Report on Form 10-Q today for the quarter ended June 30, 2009.
Highlights of the Second Quarter
Robert Friedland, President and Chief Executive Officer of Ivanhoe Energy, said, "Management is very pleased with our progress and with our current position at this stage of the emerging global economic recovery. We have consolidated and focused our energies on our core heavy-oil business and the development of our two world-class heavy-oil assets: Tamarack in Canada and Pungarayacu in Ecuador. Our HTL upgrading technology is ready for commercial implementation. The initial engineering and design of a 20,000-barrel-per-day HTL facility, being carried out by AMEC of London, England, is scheduled to be completed by the end of this year. Recognition of the strategic value of HTL in unlocking the value of heavy oil is growing rapidly. We are evaluating various additional HTL opportunities around the world and we are actively engaged in partnership discussions with numerous leading oil groups. The proceeds from the recent sale of our US oil and gas operations has provided us with added financial flexibility, giving us the time to select the appropriate partners that will help us achieve our objectives."
Sale of US oil and gas operations
In July 2009, Ivanhoe Energy closed the sale of its US oil and gas operations to Seneca South Midway LLC, a subsidiary of Seneca Resources Corporation. Seneca Resources is the exploration and production segment of National Fuel Gas Company. This sale is consistent with Ivanhoe Energy's goal of focusing its financial and human resources on its HTL heavy-oil projects.
The sale included all of Ivanhoe Energy's oil and gas exploration and production operations in the United States. As of June 2009, these assets produced approximately 645 gross (595 net) barrels per day of oil in California and Texas. The sale also included certain exploration acreage in California.
Key heavy-oil experts presently based in Ivanhoe Energy's US operations have been redeployed to work on the company's Tamarack project in Canada or the Pungarayacu project in Ecuador.
The sale price paid by Seneca was $39.2 million. This price was net of surplus working capital of approximately $1 million that was withdrawn by Ivanhoe before closing, indicating an enterprise value of approximately $40 million.
An amount of $37.2 million was paid in cash at closing and $2 million was placed in a contractual escrow for one year. From total cash proceeds, a loan owing to Bank of America of approximately $5 million was retired, and closing fees were paid. The net cash proceeds of the sale, net of the escrow, retirement of the bank loan and payment of closing expenses was approximately $32 million, with an additional $2 million due to Ivanhoe from the escrow one year from closing.
During the second quarter, Ivanhoe Energy Ecuador Inc. received authority to assume control of Block 20 and initiate operations on the Pungarayacu field. This followed the Ecuadorean government's issuance of a key environmental licence to Ivanhoe Energy Ecuador. Ivanhoe Energy Ecuador is finalizing the geotechnical work required for the initial drilling program and has retained drilling contractors to carry out this work.
Pungarayacu is considered by the Government of 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-oil upgrading process provides a solution to these challenges, enabling the field to be developed and placed into production.
The permits received by Ivanhoe Energy Ecuador cover the drilling of a limited number of appraisal wells. These early wells, proposed to be drilled before the end of 2009, will 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.
Progress on the Tamarack project in Canada during the second quarter was focused on supporting the engineering related to the integrated Phase I, 20,000-barrel-per-day HTL facility being carried out by AMEC in London, in conjunction with the upstream engineering being carried out by AMEC-BDR in Calgary.
Ivanhoe Energy plans to have the Front End Engineering Design completed on the Tamarack Phase I HTL facility in the fourth quarter of 2009.
The gross production rate at the Dagang Project in China at the end of June 2009 was 1,681 gross barrels of oil per day from 39 wells, compared to 1,840 gross barrels of oil per day from 37 wells at the end of March 2009. Two well stimulations were performed during the second quarter; the company intends to continue this fracture program during the remainder of 2009 to offset normal field decline.
Two exploration-well locations were selected on the Zitong block acreage in China during the second quarter and drilling is planned to commence in late 2009. Drilling, completion and evaluation of this prospect is expected to be finalized in 2010.
Oil revenue in the second quarter of 2009 increased by 5% compared to the previous quarter, reflecting higher benchmark crude oil prices.
Cash flow used in operating activities was $2.9 million during the second quarter, compared to $4.1 million in the previous quarter; capital investments for the second quarter increased to $6.7 million, compared to $5.2 million in the first quarter of 2009.
Our operating activities used $2.9 million in cash for the first quarter of 2009 and capital investments during the quarter were $6.7 million.
Our cash and cash equivalents as at June 30, 2009, were $16.1 million. However, in July, after the end of the quarter, we closed the sale of our US operations, providing an additional $32 million in cash after repayment of a bank loan, fees and a contractual escrow.
Our two initial HTL heavy-oil projects will require significant capital for full development. 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. The pace of development of our projects will be determined by the progress we make with our strategic partnership discussions.
Most Popular Articles
From the Career Center
Jobs that may interest you