Ivanhoe Energy to Kick Off Drilling at Pungarayacu Field in Ecuador

Ivanhoe Energy Ecuador Inc. intends to initiate drilling operations in the coming days on its first appraisal well in the Pungarayacu field in Ecuador.

This follows completion of final infrastructure preparations, including construction of a three-kilometre access road to the well-site. These works were carried out under the supervision of Ecuador's Ministry of the Environment.

The drill site, known as well IP-15, is located towards the north end of Ivanhoe Energy's Block 20, near the town of Archidona. The well is expected to be drilled to approximately 1,300 feet (400 metres), followed by an extensive coring, logging and testing program, which is slated to continue into January 2010. This testing program may include thermal testing and artificial lift techniques. This well is expected to confirm the nature of the reservoir and the characteristics of the oil, as well as proposed production methodologies.

Ecuador considers Pungarayacu to be the country's largest known, single accumulation of hydrocarbon resource. The project is based on the exploration and development of the 426-square-mile Block 20, located approximately 125 miles southeast of Quito. Block 20 contains the Pungarayacu heavy oil field, covering approximately 250 square miles that was discovered and partially delineated in the 1980s by Petroecuador. A Specific Service Contract between Ivanhoe Energy Ecuador and Petroecuador and Petroproduccion was signed on October 8, 2008, in a ceremony in Quito. The 30-year contract allows Ivanhoe Energy to explore, develop and produce oil throughout Block 20.

An independent study completed by Gaffney, Cline & Associates concluded that within the 250-square-mile delineated portion of the block, and within the formation of primary interest, the Hollin, there are 4.3 billion barrels (Low Case), 6.4 billion barrels (Mid Case) and 12.1 billion barrels (High Case) of oil originally in place.

Drilling and testing of the IP-15 well will be followed by drilling and testing of additional wells in different areas of Block 20, four of which are already permitted. Permitting for an additional 20 wells will begin in January 2010. The information gathered from these drilling operations will build on the information generated from the 26-well delineation drilling program carried out by Petroecuador in the 1980s.

The primary reservoir in Block 20 is a relatively shallow accumulation of oil in the Hollin formation. The Hollin is believed to contain heavy oil with API gravities ranging from 10 degrees to 16 degrees. The Gaffney, Cline & Associates evaluation of oil-in-place was limited to this formation. In addition to the Hollin, there is a shallower formation, the Napo, which is a major producing formation in other fields in the region. There also are deeper formations that have yet to be explored. Ivanhoe Energy Ecuador's development rights cover all of these formations, and provide the right to explore, develop and produce heavy oil as well as light oil.