Ivanhoe Makes Headway in Heavy Oil, Conventional O&G Projects

Ivanhoe reported financial results and operating highlights for the second quarter of 2011. Ivanhoe Energy has filed its quarterly financial report on Form 10-Q with the United States Securities and Exchange Commission and its Interim Financial Statements with the Canadian Securities Administrators for the period ended June 30, 2011.


  • In June the Company obtained broader and more extensive patent protection for its HTLTM intellectual property in Canada. This patent builds on and complements other issued and/or filed patents related to the core HTLTM technology and its petroleum applications. The portfolio includes the core patent, issued in the first quarter of 2011 related to the underlying HTLTM technology, which expires in 2028.
  • The Company announced that heavy crude oil extracted from its IP-5B well in the Pungarayacu field in Block 20 in Ecuador was successfully upgraded to local pipeline specifications using the Company's proprietary HTL upgrading process.
  • The Company issued Cdn$73.3 million of convertible unsecured subordinated debentures, maturing on June 30, 2016. A portion of the proceeds were used to repay a promissory note due to Talisman Energy Canada. The remaining balance of the funds raised will be used for ongoing capital and operating expenditures.
  • Revenues were $9.5 million in the second quarter of 2011 compared to $6.1 million in the second quarter of 2010 due to a combination of stronger realized commodity prices and increased production. Higher volumes were allocated to Ivanhoe Energy for reimbursement of capital expenditures incurred at Dagang.
  • In the second quarter of 2011, $6.5 million in cash flow was used in operations, consistent with $6.3 million of cash flow used in operations during the second quarter of 2010.
  • The net loss for the second quarter of 2011 was $4.1 million compared to net income of $9.3 million for the second quarter of 2010, as a result of higher operating and general administrative expenses as well as lower non-cash foreign currency exchange and derivative instrument gains.
  • General and administrative expenses were $11.7 million in the second quarter of 2011 compared with $9.1 million in the second quarter of 2010. The year-over-year increase stemmed from higher staff numbers associated with the Quito office build-out and our drilling operations in Sunwing, contract engineering work related to Ivanhoe's HTL technology and financing fees incurred in the recent Convertible Debentures issuance.
  • The Company's cash and cash equivalents balance at June 30, 2011 was $133.3 million, which will be used to continue advancing Ivanhoe's ongoing projects in Canada, Ecuador, China and Mongolia.

"During the quarter we continued to prudently position Ivanhoe Energy to advance our heavy oil and conventional oil and gas projects," said President and Chief Operating Officer, David Dyck.

"In particular, the Company enhanced the intrinsic value of our heavy-to-light (HTL) upgrading technology by successfully testing it on Ecuadorian heavy crude and by securing patent protection to 2028 in key jurisdictions. We also put in place attractive new convertible debt financing to underwrite our operations and business development efforts."

Subsequent events

Zitong Block

Ivanhoe's wholly-owned subsidiary, Sunwing Energy, submitted the Provisional Overall Development Plan to the Joint Management Committee and PetroChina on June 30, 2011. As communicated in Ivanhoe's press release on June 15, 2011, this plan includes the acquisition of 3D seismic and the drilling of horizontal wells on the Block that will include multistage fracture stimulation. The Company is currently in discussions with PetroChina on final details of the Plan. This plan is to be conducted over the next 24 months.

Both the Yixin 2 and Zitong 1 wells have completed their respective long term built up tests and the down hole recorders have been recovered and the wells shut-in and secured. Data collected from these recorders has been delivered to contracted third-party tight gas experts to conduct detailed analysis and modeling of reservoir parameters and potential completion and stimulation techniques to assist the Company in developing exploitation programs on the Zitong Block.

Mongolia Block XVI

Sunwing is currently mobilizing the drilling equipment and supplies to N16-1E, its first exploratory drill site on Nyalga block XVI, which will be drilled on a structure approximately 32 sq km in size and to an approximate depth of 2500m. As of this date, the drilling rig is more than 75 percent assembled. Remaining minor drilling preparations will continue over the next few weeks, followed by the spud of Sunwing's first exploration well in Mongolia. Drilling of the well will take approximately 30 days, with completion and testing to be carried out as required. The Company intends to drill two wells initially, with the option to drill up to three additional wells, and remains optimistic of the potential to find oil resources in Mongolia.

Ecuador Seismic Program

As communicated in Ivanhoe's June 15, 2011 news release, Ivanhoe's wholly-owned Ecuadorian subsidiary commissioned a seismic program over the southern part of the Pungarayacu Block. The first phase of this program is now complete and analysis is still underway. Early interpretation is encouraging as it indicates deeper faulting, with the potential to trap lighter oil resources which could prove beneficial for blending purposes and overall project economics. Additionally, initial internal interpretations may also suggest an extension of the field beyond what was originally estimated.