Ivanhoe IDs Top-Tier Heavy-Oil Reservoir in Ecuador

Robert Friedland, Co-Chairman, President and Chief Executive Officer of Ivanhoe Energy, and David Martin, Chairman and Chief Executive Officer of Ivanhoe Energy Latin America, announced exceptional log and core results from Ivanhoe Energy's first well in the Pungarayacu oil field in Ecuador. These results suggest that the main target formation, the Hollin, is a top-tier heavy-oil reservoir and an excellent candidate for thermal recovery. Cyclic steam testing operations have started and will be applied to the key target formation over the coming weeks.

"We are excited by the initial information we have received from the IP-15 well," said Mr. Martin. "Results indicate that we have encountered a thick, clean, high-quality oil formation in the Hollin. This is an enormous, 426-square-mile block, and we have a great deal yet to confirm with additional drilling, but the data extracted from the logs and cores on IP-15 are better than we expected. This is the first of several wells we plan to drill on Block 20 and our understanding of the geology and reservoir characteristics of the Pungarayacu heavy-oil field continues to be expanded."

The IP-15 well, the first drilled by Quito-based Ivanhoe Energy Ecuador on the Pungarayacu oil field, reached a total depth of 1,343 feet and is located in the northwest corner of the field (see accompanying map). In the 1980s, Petroecuador drilled 26 core holes on Block 20, all of which encountered oil sands in the Hollin formation.

The Hollin formation -- primary heavy oil target

The Hollin is the primary heavy-oil formation in Pungarayacu and the rest of Block 20. It is a sandstone formation that was present in all of Petroecuador's 26 cores. ENI, the Italian national oil company, is producing approximately 30,000 barrels of oil per day from the Hollin formation approximately 40 miles southeast of Block 20. ENI's production is shipped through the pipeline that runs through the centre of Ivanhoe Energy's Block 20 and eventually to the Pacific coast.

As expected, the IP-15 well reached the top of the Hollin formation at a depth of 946 feet. The 300-foot-thick formation includes three separate sandstone bodies, each consisting of clean, high-quality, sands bearing oil. Cores and logs indicate high oil saturation and API gravities of between 13.5 degrees and 15.8 degrees. Average porosity was 28% and permeability, in the multi-Darcy range, was excellent. These results point to a top-tier reservoir and suggest the Hollin will be an excellent candidate for thermal development.

The Napo formation -- a secondary target

Ivanhoe's well also encountered oil shows in the limestone and sandstone of the Napo formation, which is the primary producing formation in the large oil fields in northeastern Ecuador. The Napo, present in various areas across Block 20, is shallower than the Hollin and thinner at the IP-15 well and not of significant interest at this location.

It is believed that the Napo sandstone (T-sand) becomes thicker in the southern part of Block 20, where Ivanhoe plans to drill its next well. The Napo will continue to be evaluated for its commercial potential at subsequent well locations in the Pungarayacu field.

Thermal testing of Hollin

Cyclic steam stimulation of the Hollin formation has commenced at the IP-15 well and Ivanhoe Energy Ecuador expects to test at least two of the three Hollin sand bodies. This process is expected to continue through the end of April. Each test involves a one-month process of steam injection for up to 10 days, followed by a period of soaking and then a period of production.

Second well preparations underway

Ivanhoe Energy Ecuador is preparing for its second appraisal well, IP-5b, to be drilled approximately 20 miles south of the first well. Land rights have been secured and infrastructure work has begun. The drilling rig is expected to be moved from the IP-15 well site to the second location toward the end of April. Ivanhoe Energy Ecuador currently has three wells permitted in Block 20 and is seeking approval for an additional 20 wells.

Pungarayacu and the environment

Ivanhoe Energy Ecuador's Pungarayacu project is based on the extraction of oil from the reservoir through oil wells -- known as 'in-situ' development. Ivanhoe Energy is not involved in oil projects that use open-pit mining techniques and will not use such techniques on Block 20 in Ecuador. In addition, the Pungarayacu project is based on the application of Ivanhoe Energy's proprietary HTL (Heavy-to-Light) upgrading technology, which provides clear environmental advantages. HTL allows for the development of Pungarayacu without the need for diluent, or light oil, for transport and eliminates, or virtually eliminates, the need for natural gas. In addition, HTL avoids the accumulation and disposal requirement of coke by-products associated with conventional upgrading technologies. Ivanhoe Energy Ecuador is working in close cooperation with local communities, local government and the Ecuadorian federal government to ensure that its development plan is approved and complies with all environmental regulations.