Ivanhoe Sees Strong Oil Shows in Ecuador

Ecuador, South America
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Ivanhoe reported that the company's second well, IP-5b, located in the Pungarayacu field on Block 20 in Ecuador has successfully reached total depth and logging activities have commenced.

The company's operations in Ecuador are being led by Santiago Pastor, an important new addition to the Ivanhoe Energy Ecuador team. Mr. Pastor, newly appointed Vice President, Operations, joined the company from a senior position at Petrobras Ecuador.

Strong oil shows encountered in T-Sand and Hollin Formations in IP-5b well

The IP-5b well was successfully drilled and cored to a total depth of 1,080 feet (329 metres) and logging activities have commenced. Ivanhoe Energy will begin an extensive testing program following analysis of the core and log data.

Strong oil shows were encountered in the shallower, T-Sand Formation at a depth of 538 feet as well as in the Hollin Formation starting at 750 feet.

"The oil and gas shows encountered in both formations were significantly stronger and the formation pressures higher than expected," Mr. Martin said.

"Our on-site geologists witnessed oil running out of the core barrel during examination of the first core. This second well is a major step forward in understanding the wide oil distribution in Block 20 and the Pungarayacu oil field. Data obtained from IP-5b will increase our understanding of the nature of the reservoir and the characteristics of the oil in the southern portion of this large block."

The Hollin is the primary oil producing formation in Ecuador and throughout Block 20, and the T-Sand is a secondary formation which produces widely in the Oriente Basin in Ecuador.

The IP-5b well is approximately 20 miles south of IP-15, Ivanhoe's first well drilled in the Pungarayacu field.

Update on the initial IP-15 well

Following a successful coring and logging program at the IP-15 well, cores were sent to Core Labs in Bogota, Colombia for independent analysis. As reported in a news release on March 16, 2010, the preliminary reports on the core analysis indicated that the main target at this location, the Hollin sandstone formation, has excellent porosity (average 28%) and permeability (multi-Darcy), and is thick, clean sandstone with little clay content. Some of this information confirmed data that was generated from cores drilled by Petroecuador in the 1980s and some was valuable new data. Additional tests are being carried out on the cores from the IP-15 well to confirm these results and to further characterize the reservoir and the oil in terms of its viscosity and API gravity.

Following the core analysis, Ivanhoe initiated steam tests to understand the production performance of the oil in the Hollin Formation using steam injection techniques. Test results were affected by unforeseen mechanical challenges encountered during the completion of the well. A leak in the well casing was discovered during steam tests impeding the ability to deliver the required amount of steam to the target in the Hollin Formation, and testing was suspended.

"Despite the unfortunate technical complication that impeded completion of steam testing, we learned a great deal from our first well," said Mr. Dyck. "We confirmed that the Hollin Formation in the northwest area of Block 20 has excellent reservoir characteristics, and we will use this data, and build on it, as we perform further appraisal drilling. We know this is a quality reservoir and that significant quantities of oil are present. Our key objective is to continue to characterize the reservoir and determine the best means to liberate the oil from the reservoir using a variety of well-established thermal techniques."

Variations in Block 20 reservoir characteristics

Block 20 consists of various large, segregated fault blocks. Ivanhoe Energy's first and second wells, one in the northeast and the other in the south, are in separate fault blocks. Ivanhoe Energy expects to encounter significant variations in reservoir characteristics between each block and, to date, the results of the second well, compared with the first well, confirm this expectation. The company believes this variation is a positive characteristic, providing the company with optionality as it carries out appraisal operations across the block, tailoring production methodologies to the requirements of each sub-block. A seismic program will be undertaken to delineate these important fault blocks.

Ivanhoe Energy's primary goal during its three-year evaluation phase is to increase its understanding of the reservoir and to develop an optimal development program with the drilling of additional appraisal wells.


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