Ivanhoe Expects to Begin Production at Ecuador's Pungarayacu by 2015

QUITO, Ecuador--Canada's Ivanhoe Energy Inc. (IVAN) expects to begin production at the Pungarayacu heavy oil field in Ecuador by 2015, Carlos A. Cabrera, the company's chief executive, said Friday.

"We have done seismic [testing] in a large area. We are developing a production program, and we believe that within three years we can produce," Mr. Cabrera said during a meeting in Quito.

The Pungarayacu heavy oil field, discovered about 32 years ago, is located in Block 20, an area of approximately 650 kilometers about 125 miles southeast of Quito, in the Amazon Basin.

Mr. Cabrera added that Pungarayacu could reach a production of about 100,000 to 130,000 barrels a day, which would require an estimated investment of $1.0 billion to $2.0 billion.

"It's a complex oil field," Mr. Cabrera said.

Pungarayacu's crude is about 8 degrees gravity on the API scale.

Ivanhoe uses special heavy-to-light technology, or HTL, to transform the heavy crude into somewhat lighter grades. The company plans to transform the heavy crude by building a plant that will cost about $450 million to $500 million.

In 2008, Petroecuador and Ivanhoe signed a 30-year service contract to develop the Pungarayacu field in the concession, in Napo province.

The contract covers project appraisal and the development of Block 20, including production and upgrading the heavy oil.

To recover its investments, costs and expenses, and to provide for a profit, Ivanhoe will receive from Petroecuador a payment of $37 a barrel of oil produced and delivered to Petroecuador.

According to the contract, the payment will be indexed quarterly for inflation, starting from the contract date, using the weighted average of a basket of three U.S. government-published producer price indexes relating to steel products, refinery products and upstream oil and gas equipment.

A 2009 study from Gaffnet Cline & Associates set Pungarayacu reserves at a range of 4.3 billion to 12.1 billion barrels, while a study by Petroecuador put it in a range of 4.5 billion to 7.0 billion barrels.

So far, Ivanhoe has invested between $60 million and $70 million in Ecuador.


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