Ivanhoe Highlights '09 Financial, Operational Results
Ivanhoe Energy reported summary financial results and operating highlights for the fourth quarter of 2009 and year ended December 31, 2009. All figures reported are in US dollars unless otherwise noted. Ivanhoe Energy has filed its annual report on Form 10-K for the year ended December 31, 2009.
- Ivanhoe Energy transitioned to execution mode on two anchor HTL (Heavy-to-Light) heavy oil projects -- the Tamarack Project in Canada and the Pungarayacu Project in Ecuador.
- The Company sold small producing assets in the US for approximately $40 million and redeployed key staff to its Canadian and Ecuadorian projects.
- In November 2009, Ivanhoe Energy announced the merger of a subsidiary of the Company with PanAsian Petroleum Inc., an Alberta company holding oil and gas exploration and production rights to a 16,839-square-kilometer, highly-prospective block in central Mongolia. This asset will be incorporated into Sunwing Energy, Ivanhoe Energy's oil and gas subsidiary for Asia.
- In the fourth quarter of 2009, David Dyck was appointed President and Chief Executive Officer of Ivanhoe Energy Canada and Gerald Schiefelbein was appointed Chief Financial Officer of Ivanhoe Energy Inc.
- Jean Chretien, a former Prime Minister of Canada, and William Weld, a prominent US Attorney and former Governor of Massachusetts, were appointed as advisors to Ivanhoe Energy.
- A Special Warrant financing of Cdn$150 million was completed in the first quarter of 2010.
- Revenues from continuing operations were $25.0 million in 2009, down from $48.4 million in 2008 due to lower year-over-year crude oil prices.
- In 2009, $12.3 million in cash flow was consumed in operations, whereas cash flow of $17.1 million was provided in 2008. The decrease in cash flow was due to lower oil prices and an increase in general and administrative expenses as the Company moved into execution mode on its major projects.
- The net loss for 2009 from continuing operations was $37.7 million, down slightly from the net loss of $38.5 million recorded in 2008.
- Cash and cash equivalents were $21.5 million at December 31, 2009 compared to $38.5 million at December 31, 2008. The Company's cash position at December 31, 2009 was augmented by the proceeds from the Cdn$150 million Special Warrant financing completed in early 2010.
"We started 2009 facing one of the most challenging global economic downturns in the past century, and Ivanhoe Energy has emerged in 2010 as a strong, intensely-focused company," said Robert Friedland, Co-Chairman, President and Chief Executive Officer. "With the success of our recent Cdn$150 million financing, we will continue to advance our key projects-the Tamarack Project in Canada and the Pungarayacu Project in Ecuador. Beyond this, we are actively pursuing additional HTL opportunities in the Middle East and Latin America."
"We also took an important step in 2009 to build our Asian business through the merger of one of our subsidiary companies with PanAsian Petroleum Inc. We now will combine PanAsian's Mongolian operations into our 100 percent owned subsidiary, Sunwing Energy Ltd. Our objective is to capitalize on our extensive experience operating in China and to aggressively grow our Asian business through Sunwing."
Tamarack Project -- Canada
Ivanhoe Energy completed its winter delineation drilling program at Tamarack in mid-March as scheduled. All key program objectives were achieved and the Company is on track to submit its regulatory application for the development of the Tamarack Project in mid-2010.
The results from this drilling program will be evaluated and included in an updated resource report to be prepared by Ivanhoe Energy's independent reserves evaluator, GLJ Petroleum Consultants Ltd. (GLJ) and made available in the third quarter of 2010. Earlier in 2009, GLJ estimated that Tamarack contains approximately 1.1 billion barrels of discovered petroleum initially-in-place, with best estimate contingent resources of approximately 441 million barrels of bitumen (with a low and high estimate of approximately 320 million and 558 million barrels, respectively). Based on these parameters, Tamarack ultimately should be capable of supporting a production capacity of approximately 50,000 barrels per day for 30 years.
Engineering tasks related to the Tamarack HTL facility, the upstream facilities (production and surface facilities), and infrastructure (power and access) are on schedule. Significant engineering has already been completed by AMEC and AMEC-BDR for the HTL and upstream facilities and Phase 1 of the 20,000 barrel per day facility at Tamarack, including completion of Basic Engineering and Design (BED) for the HTL and upstream facilities as well as sufficient Front End Engineering and Design (FEED) for the HTL facility to be able to execute a Class III (+25/-20%) capital cost estimate.
The next engineering step for the integrated project is to generate a Class III cost estimate. It is expected that AMEC and AMEC-BDR will complete this work in the second quarter of 2010. Ongoing reservoir and geological modeling work incorporating the recent data gathered from the winter delineation program will be completed in the second quarter of 2010, in time for the submission of the Tamarack regulatory application.
Pungarayacu Project -- Ecuador
The Company began drilling its first well (IP-15) in the Pungarayacu field in Ecuador in December 2009. The primary heavy oil formation target in Pungarayacu and the rest of Block 20 is the Hollin. The IP-15 well was drilled to a total depth of 1,343 feet. As expected, the top of the Hollin formation was reached at a depth of 946 feet and it is approximately 300 feet thick. The Hollin Formation includes three separate sandstone bodies, each consisting of clean, high-quality sands bearing oil. Cores and logs indicate high oil saturation and API gravities between 13.5 degrees and 15.8 degrees. Average porosity was 28% and permeability, in the multi-Darcy range, was excellent. These results indicate a top-tier reservoir and suggest the Hollin would be an excellent candidate for thermal development.
Cyclic steam stimulation of the Hollin Formation has commenced at the IP-15 well and the Company expects to test at least two of the three Hollin sand bodies. This process is expected to continue to the end of April. Each test involves a one-month process of steam injection for up to 10 days, followed by a period of soaking and then a period of production.
Completion of the IP-15 well will be followed by drilling and testing of additional wells in different areas of Block 20. Ivanhoe Energy currently has three wells permitted in Block 20 and is seeking approval for an additional 20 wells.
The Company has initiated preparations for its second appraisal well, IP-5b. Land rights have been secured and infrastructure work has begun. The drilling rig at the IP-15 well site is expected to be moved to the second location, 20 miles to the south, toward the end of April.
Ivanhoe Energy is firmly committed to open and transparent consultation with all its key stakeholders. At the Tamarack Project in Canada, Ivanhoe Energy has consulted with a variety of provincial and municipal governments, special interest groups, industry neighbors, landowners and aboriginals. Ivanhoe Energy is establishing meaningful working relationships with several First Nations, Métis and Aboriginal communities that will be maintained over the life of the Tamarack Project. In Ecuador, Ivanhoe Energy continues to build and maintain strong relationships with the local indigenous people, community leaders, government officials and other key stakeholder groups to foster a clear understanding of the Company's activities in Block 20. Ivanhoe Energy strives to develop positive relationships based on integrity, trust, transparency and open communication to continuously earn its social license to operate.
In early 2009, Ivanhoe Energy successfully commissioned the Feedstock Test Facility (FTF) in San Antonio, Texas, for its proprietary technology for field upgrading of heavy oil to light oil (HTL). The state-of-the-art HTL testing facility will be used to support detailed engineering and design of commercial-scale HTL plants for the Tamarack Project and Pungarayacu Project, and to test crudes associated with additional potential HTL projects.
During 2009, Ivanhoe Energy made significant technical improvements related to its proprietary HTL technology. The improvements were achieved through a new process configuration developed by an in-house technical team at the FTF. These improvements enable the production of "bottomless" synthetic crude oil through a simplified operation that delivers lower per-barrel capital and operating costs, and allows for larger volumes of crude to be processed in any given sized facility.
Ivanhoe Energy is decommissioning its Commercial Demonstration Facility in California and completion is planned for the second quarter of 2010. All future testing activities will be carried out at the FTF.
Ivanhoe Energy continues to pursue HTL business development opportunities globally, with an emphasis on creating value from stranded resources or resource accumulations considered too small to be economically viable using other technologies.
Summary of Fourth Quarter
Oil revenue totaled $5.3 million in the fourth quarter of 2009 compared to $7.9 million in the third quarter of 2009, reflecting lower benchmark crude oil prices. Cash flow used in operating activities was $4.1 million during the fourth quarter of 2009, compared to $1.2 million in the third quarter of 2009. Capital investments for during the fourth quarter increased to $8.7 million compared to $5.8 million in the third quarter of 2009.
In July 2009, Ivanhoe Energy completed the sale of its wholly-owned subsidiary Ivanhoe Energy (USA) Inc. including the subsidiary's accumulated tax loss carry-forwards. Ivanhoe Energy had future tax assets arising from these loss carry-forwards that had offset certain future income tax liabilities from its remaining US subsidiaries. The $23.9 million loss from discontinued operations was primarily the result of a $29.6 million loss from the disposition of Ivanhoe Energy (USA) Inc.'s future income tax assets associated with its accumulated tax loss carry-forwards.
Liquidity and Capital Resources
The Company's operating activities used $4.1 million in cash for the fourth quarter of 2009 and capital investments during the quarter were $8.7 million.
Ivanhoe Energy's cash and cash equivalents were $21.5 million at December 31, 2009, compared to $39.5 million at September 30, 2009, representing a decrease in cash and cash equivalents of $18.0 million. This decrease in cash position was primarily due to cash used in operating activities of $4.1 million, payment of $7.0 million in debt obligations related to Sunwing Energy, and net cash used for capital investments of $7.6 million, partially offset by $0.8 million in proceeds from the exercise of stock options during the fourth quarter of 2009.
Ivanhoe Energy's two initial HTL projects will require significant capital for full development. The Company's strategy is to finance the development of these two projects primarily with funding from strategic partners. Ivanhoe Energy is engaged in various discussions and due diligence efforts to establish key strategic and financing arrangements. The pace of the development of the Company's projects will be determined in conjunction with these strategic partnership discussions.
During the first quarter of 2010, Ivanhoe Energy raised gross proceeds of Cdn$150 million through the private placement of Special Warrants. Each Special Warrant was issued at a price of Cdn$3.00 and entitles the holder to receive, upon exercise, one Common Share and one quarter (0.25) of one Common Share Purchase Warrant. Each whole Purchase Warrant entitles the holder to acquire one Common Share of Ivanhoe Energy at an exercise price of Cdn$3.16 on or before the first anniversary of the closing date. Ivanhoe Energy plans to use the proceeds from this offering for the Tamarack Project in the Athabasca region in Western Canada, drilling operations in the Pungarayacu Project in Ecuador and general corporate purposes.
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