Ivanhoe Energy reported financial results and operating highlights for the first quarter of 2010 and key highlights and activities to date. All figures reported are in US dollars unless otherwise noted.
Tamarack Project - Canada
Ivanhoe Energy completed its winter delineation drilling program at Tamarack in mid-March. The Company is on track to submit its regulatory application for the development of the Tamarack Project in mid-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.
Engineering tasks related to the Tamarack HTL facility, the upstream facilities (production and surface facilities), and infrastructure (power and access) are proceeding as planned. 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 generate a Class III (+25/-20%) capital cost estimate. It is expected that AMEC and AMEC-BDR will complete this work in the second quarter of 2010.
Pungarayacu Project - Ecuador
Ivanhoe Energy Ecuador's contract covering the Pungarayacu field, signed in October 2008, is a Specific Services Contract and provides for the Company to be paid a fixed fee for every barrel of oil produced and delivered to a local pipeline. This fee is indexed by a basket of three US producer price induces related to equipment used in the oil and gas industry. In addition, Ivanhoe Energy Ecuador has the right to be paid in oil, at market prices, at an Ecuadorian oil terminal on the Pacific Coast. Since signing this contract, Ivanhoe Energy Ecuador has been advised by senior Ecuador Government officials that they are pleased with the form and approach of the Block 20 Pungarayacu contract. In addition, Ecuadorian government officials have suggested that the Ivanhoe Energy contract could form the basis of a model contract for other companies wishing to participate in the development of Ecuador's oil and gas resources.
The Company's initial well in Block 20, IP-15, was drilled to a total depth of 1,343 feet. The top of the Hollin, the primary formation of interest in Block 20, 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.
Steaming and soaking operations have been completed at the IP-15 well and production testing, utilizing a jet pump, has commenced and will continue for approximately two to three weeks to determine the oil flow rate of the well.
Ivanhoe Energy Ecuador's second well, IP-5b, is located approximately 20 miles south of the first well. The IP-5b well will be drilled close to a well that was drilled by Petroecuador in the 1980s and flowed oil to the surface. Recent severe flooding in the Napo province delayed some civil engineering activities at the Company's second location. However, construction of the road and drilling pad now are underway, and the drilling rig currently at the IP-15 well will be moved to the IP-5b location to begin drilling in June.
At the end of April 2010, Ivanhoe Energy Ecuador signed an agreement that will help to fulfill the Company's corporate citizenship commitment to provide support and strengthen existing relationships during meetings with representatives of Block 20 communities. The agreement, signed with the Puerto Napo Parochial Committee, establishes the roles and responsibilities of all parties in connection with Ivanhoe Energy's activities within Block 20. The Company expects that the agreement will help to maximize opportunities for residents to participate in Ivanhoe's Pungarayacu Project through jobs and the supply of goods and services as work progresses.
Meetings also were held with local authorities, community members and several joint parish councils located in Block 20 to discuss Ivanhoe Energy's activities in the region and its roles and responsibilities in conformance with Ecuador's new constitution. Ecuador's President Correa and the Governor of Napo also attended the meetings.
Sunwing has a 15-year history of oil and gas exploration and production in China. Sunwing produces approximately 1,800 barrels of light oil per day in Dagang, in China's Hebei province, in a production sharing agreement with Petrochina in which Sunwing is the operator. Sunwing is also the operator in a gas exploration block in Zitong, in Sichuan province, with its 10 percent partner, Mitsubishi Gas Chemical Company. In November 2009, through a merger between a subsidiary of Ivanhoe Energy and PanAsian Petroleum Inc., the Company acquired a Production Sharing Contract for the Nyalga Block XVI in Mongolia. The block covers an area of approximately 16,839 square kilometres and provides the Company with the exclusive rights to explore, develop and produce oil or gas within the block.
The Company's 2010 activities in China and Mongolia offer significant growth potential for Sunwing Energy, whose Asian capabilities constitute a core competency. Ivanhoe Energy intends to build on this platform to develop a major, Asia-focused oil and gas business with the resources and support to secure a public-market listing on a major Asian stock exchange.
Dagang - China At the Dagang field, production was 72,396 net barrels of oil after royalties in the first quarter of 2010 compared to 131,078 net barrels of oil after royalties during the first quarter of 2009. The Dagang field reached cost recovery in September 2009, thereby reducing the Company's working interest revenue from 82 percent to 49 percent. The exit rate at March 31, 2010 was 1,270 barrels per day from 35 producing wells compared to 1,840 barrels per day from 37 wells at March 31, 2009.
Zitong - China Two rigs have been mobilized to the Zitong Block, and Zitong 1 and Yixin 2 are expected to spud in June and July 2010, respectively. These wells will be drilled to a depth of approximately 4,500 meters and 4,200 meters, with each prospect targeting 0.3 to 0.5 trillion cubic feet of gas. Drilling, completion and evaluation of both prospects is expected to be completed in late 2010.
Block XVI - Mongolia In late 2009 and the first quarter of 2010, the Company acquired 465 kilometers of 2-D seismic over Block XVI, resulting in a total of 925 kilometers of 2-D seismic data over the Kherulen sub-basin within the Nyalga basin. The Company is currently processing the seismic data, and following interpretation, locations for its exploratory wells will be selected, with the first well expected to spud in the last quarter of 2010.
Summary of First Quarter
Oil revenue totaled $5.3 million in the first quarter of 2010, unchanged from the fourth quarter of 2009. Cash flow used in operating activities was $4.0 million during the first quarter of 2010, compared to $4.1 million in the fourth quarter of 2009. In the first quarter of 2010, capital investments increased to $25.3 million compared to $8.7 million in the fourth quarter of 2009. This increase was due to higher capital spending in Ecuador on the Pungarayacu Project and in Canada on the Tamarack Project.
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