Ivanhoe to Develop Enhanced Oil Recovery Project in Wyoming

Ivanhoe Energy's Chairman David Martin revealed that the company has reached an agreement in principle with Derek Oil and Gas to jointly develop the LAK Ranch field, a steam-assisted gravity drainage (SAGD) project in Weston County, Wyoming. Ivanhoe will have the option to earn up to a 60% interest in the project by investing US$5 million toward the pilot phase and the initial development capital costs. Current estimates are that between 30% and 70% of the field's 100 million barrels of oil-in-place may be recoverable using the thermal recovery techniques planned for the project.

"This is a great example of Ivanhoe's thermal recovery and horizontal well expertise providing access to a technically innovative and potentially valuable project," said Leon Daniel, Ivanhoe's President and CEO.

The Boards of Directors of Ivanhoe and Derek have approved the transaction and the parties will enter into a farm-in agreement and a joint operating agreement covering the details of the transaction and operations. Under terms of this agreement, Ivanhoe will become the operator and earn a 30% working interest in the project by funding the US$1.1 million in capital cost of the pilot phase. Following the pilot phase, Ivanhoe has the option to increase its working interest to 60% by providing an additional US$3.9 million in capital costs toward the initial development phase. After the US$5 million threshold is reached, all future capital expenditures will be shared on a working-interest basis.

The LAK Ranch field, originally discovered in the 1920s, covers approximately 7500 acres in the Powder River Basin. To date, Derek has completed a SAGD test-well pair drilled to a depth of 1,000 feet and 1,800 feet horizontally into the Newcastle sand formation. Historically, oil production has been sporadic from a limited number of wells completed in the Newcastle Sand due to the abnormally low reservoir temperature in this part of the Basin. However, the oil contains high levels of naphtha and the viscosity should respond dramatically to the application of heat through steam injection.

The pilot phase, which is scheduled to commence in approximately 90 days and last approximately 18 months, will include temporarily injecting steam into the recently completed well. By next summer, five steam-injection wells will be drilled, providing continuous SAGD application to the reservoir and increasing production volumes from the well. Additionally, a high-resolution 3-D seismic data program is planned to further identify the limits of the field. The oil produced will be sold for approximately West Texas Intermediate market prices and processed by a local refinery in Newcastle, Wyoming.

Following a successful pilot phase, the development program will include additional horizontal producing wells, new steam injection wells and the expansion of surface facilities. Ivanhoe has estimated that at the low-end of the recovery range, the initial development program could grow to over 20 producing wells and oil production volumes in excess of 4,500 barrels per day. As more productive acreage is identified through further development, daily production rates could exceed 10,000 barrels per day. After the pilot phase should Ivanhoe decide not to fund initial development costs, Derek will become the operator and Ivanhoe's working interest will revert to 15%.

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