Ivanhoe Inks MOU for China Block Sale

Ivanhoe announced that its wholly owned subsidiary, Sunwing Zitong Energy (SZE), has signed a binding Memorandum of Understanding to sell 100% of its participating interest in the Production Sharing Contract for the Zitong block in China's Sichuan Basin to Shell China Exploration and Production Company Limited, a subsidiary of Royal Dutch Shell. The transaction is subject to government approvals and other prescribed conditions.

"Our strategy is very straight forward," said Robert Friedland, an Ivanhoe Energy Executive Co-Chairman." Ivanhoe Energy, through Sunwing, has been active in China for more than 10 years. We have made an important discovery of natural gas and we have an understanding of the potential of the block. However, this opportunity arose at an appropriate decision point and we have opted to focus our energy and resources on the commercialization of our Heavy-to-Light (HTL) heavy oil upgrading process and the development of our attractive oil projects. This means we will sell our Zitong asset to a company that has the financial and technical resources to fully develop the potential of the block for the benefit of the people of China."

Key Transaction Terms

In exchange for SZE's interest in the Zitong block, Ivanhoe will receive a payment of up to US $85 million as reimbursement for past qualified and recoverable costs incurred. In addition, Ivanhoe will receive a further payment upon closing of up to US $75 million, contingent on the timing of the receipt of full government approvals and third-party consents and waivers for the transaction.

Following completion of the transaction, Shell will assume the US $20 million performance bond that Ivanhoe Energy was required to recently post as part of the completion and signing of the Supplementary Agreement with the China National Petroleum Corporation (CNPC). The security underlying the performance bond is expected to be released back to Ivanhoe Energy subsequent to the close of the transaction.

UBS has been retained as financial advisor to Ivanhoe Energy and to provide the company with an opinion, from a financial point of view, on the consideration to be received.

Closing deadline of December 31, 2012

SZE and Shell expect to sign the definitive Purchase and Sale Agreement associated with the proposed transaction before the start of Chinese New Year celebrations on January 23, 2012, and after Shell completes its confirmatory due diligence. Both parties intend to work expeditiously to close the transaction by a deadline of December 31, 2012, following which the transaction will terminate unless both parties mutually agree to extend the date.

Maximizing return and building value

Carlos Cabrera, an Ivanhoe Energy Executive Co-Chairman, said the company's core business remains the international exploration, development and bringing to market of heavy and conventional oil, using Ivanhoe Energy's proprietary HTL oil upgrading process. "Our immediate objective is to maximize return on equity by actively pursuing a number of corporate development and financing initiatives, including strategic joint ventures, to de-risk our projects from technical and financial perspectives. Specifically, as it relates to the Zitong project, we have reviewed a number of alternatives to achieve this objective. In the end, a divestiture of the entire Zitong interest was the clear choice as this transaction will dramatically improve the balance sheet and provide greater financial flexibility for the company."

David Dyck, Ivanhoe Energy's President and Chief Operating Officer, said the company's many emerging assets will gain in value as they are developed. "We will focus our resources on our oil projects in Canada, Ecuador, Mongolia and the Dagang project in China, as well as the commercialization of our proprietary HTL upgrading process. This transaction is an important step in demonstrating our ability to finance our projects, realize the value inherent in our assets and build a substantial oil exploration and production company."


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