Ivanhoe Acquires Stake in Ensyn Petroleum International

David Martin, Chairman of Ivanhoe Energy Inc., said that the company has signed a Heads of Agreement with Ensyn Petroleum International Limited to acquire a 10% equity interest in Ensyn and exclusive rights to use Ensyn's proprietary crude-oil upgrading process in several key international markets. Ivanhoe will pay Ensyn US$2 million and grant Ensyn rights to equity interests in Ivanhoe's international oil development projects that use the process.

Ensyn Petroleum International Limited is a Boston-based private company that has developed the Rapid Thermal Processing (RTP(TM)) technology that upgrades the quality of heavy oil by producing lighter, more valuable crude oil.

"Ensyn's technology offers excellent potential for commercializing heavy- oil fields. It provides an environmentally sound and cost-effective method of enhancing the quality of heavy crude oil," said Mr. Martin. "Our alliance with Ensyn is a unique opportunity for Ivanhoe to generate sustainable, high- quality production from a variety of heavy-oil reservoirs around the world. We have several initiatives underway in the U.S. and internationally that provide for the use of the technology."

The Ensyn process yields a three-fold economic improvement in heavy-oil projects. The heaviest hydrocarbon fraction is consumed as fuel to generate the steam used to enhance recovery of heavy crude. This lowers costs by reducing or eliminating the need to purchase high-priced natural gas for steam generation and improves revenue since the higher quality light-crude fraction can be sold at higher prices. The lighter crude has improved viscosity that permits more efficient pumping through pipeline networks and significantly reduces transportation costs to marketing points.

Completion of the transaction is subject to the signing of a definitive agreement and to the attainment of various milestones. In consideration for the payment of US$2 million to Ensyn, Ivanhoe will acquire 10% of the issued and outstanding capital stock of Ensyn. Payment is to be made in installments which are related to the various milestones being achieved.

Ivanhoe will have exclusive rights to use the Ensyn Process in China, Mongolia, Iraq, Oman and all countries in South America except for Venezuela. In these countries, rights shall be exclusive to Ivanhoe for an initial term of five years and can be extended as commercial applications develop. Ivanhoe will have non-exclusive rights to the process in other areas.

For each RTP(TM) project developed by Ivanhoe, Ensyn may elect to receive a royalty or an equity participation in the project of no more than 10%, except for each RTP(TM) project that Ivanhoe develops in South America, other than in Venezuela and Peru, where Ensyn may elect to receive an equity interest equal to 25% of Ivanhoe's interest.

In June, 2003, Ivanhoe and Ensyn entered into a contract to evaluate the process on heavy crude oil produced from Ivanhoe's South Midway Field at Bakersfield, California, in a 250-barrel-per-day demonstration plant now being built by Ensyn in the San Joaquin Valley.

Ensyn's RTP(TM) technology uses readily available plant and process components. The technology already has been successfully applied to continuous wood/biomass processing, with several commercial plants in operation. An Ensyn pilot plant in Ontario, Canada, has completed more than 90 test runs on heavy oil.