Ivanhoe Highlights 2Q10 Financial Results
Ivanhoe reported financial results and operating highlights for the second quarter of 2010. Ivanhoe Energy has filed its quarterly financial report on Form 10-Q with the Securities and Exchange Commission and its Interim Financial Statements with the Canadian Securities Administrators for the period ended June 30, 2010. All figures reported are in US dollars unless otherwise noted.
- In May 2010, David Dyck was promoted to President and Chief Operating Officer of Ivanhoe Energy. Robert Friedland continues to serve as Co-Chairman and Chief Executive Officer and will work together with Mr. Dyck in leading Ivanhoe's strategic and financing initiatives.
- Sunwing Energy Ltd., the Company's wholly-owned subsidiary for Asian operations, commenced drilling at Zitong-1, Sichuan Province, China's most prolific gas producing region.
- Ivanhoe successfully drilled, cored and logged its second well in Ecuador, IP-5b, located in the Pungarayacu field on Block 20. Steam injection operations are being initiated to test the Hollin Formation.
- Ivanhoe Energy has completed its Environmental Impact Assessment (EIA) for the Tamarack Project in Canada and the related engineering and design work is close to completion. The Company expects to file this application in the fall of 2010.
- Carlos A. Cabrera and Alex Molyneux were appointed to Ivanhoe Energy's Board of Directors. Mr. Cabrera's world-class experience in technology, global business development and project execution, together with Mr. Molyneux's broad experience in finance, resource development and Asia, adds strength and breadth to Ivanhoe's Board in critical areas as it moves forward with the execution of its business plan.
- Revenues from continuing operations were $6.0 million in the second quarter of 2010, virtually unchanged from the second quarter of 2009.
- In the second quarter of 2010, $4.3 million in cash flow was used in operations compared to $4.9 million of cash flow used in operations during the second quarter of 2009.
- The net loss from continuing operations for the second quarter of 2010 was $10.2 million compared to a net loss of $11.4 million for the second quarter of 2009. General and administrative expenses were $5.5 million in the second quarter of 2010 compared to $3.8 million in the second quarter of 2009. This year-over-year increase is primarily the result of higher staff and office expenses associated with the Company's growing commitments to its key projects.
- At June 30, 2010, Ivanhoe Energy had cash and cash equivalents of $113.8 million. These balances will be used to fund the Company's ongoing activities in Canada, Ecuador, China and Mongolia.
Tamarack Project - Canada
Detailed work continued on the preparation of the regulatory application for the Tamarack Project during the second quarter of 2010. The required EIA has been completed and the related engineering and design work, submitted with the EIA, is close to completion. Ivanhoe expects to submit this application in the fall of 2010.
Engineering for the upstream production, surface facilities, the HTL upgrading unit, and infrastructure (power and access) are proceeding as planned. Significant engineering has been performed by AMEC and AMEC-BDR on the Phase 1, 20,000 barrel per day Tamarack facility. Basic Engineering and Design (BED) for the upstream and HTL facilities as well as sufficient Front End Engineering and Design (FEED) to generate a Class III (+25/-20%) capital cost estimate is complete.
Advances to the HTL process were made at Ivanhoe Energy's Feedstock Test Facility (FTF) at the Southwest Research Institute in San Antonio, Texas at the end of 2009, and confirmed in early 2010. These technical advances were not captured in the original BED and FEED engineering for the HTL facility. Revisions are underway to incorporate the technology improvements into the BED and FEED packages. These engineering design revisions are expected to be completed in November 2010. Since the HTL unit design and construction are not critical path items for the overall project, these revisions have not impacted the start-up projection schedule.
Stakeholder consultation Ivanhoe is working diligently to ensure that public stakeholders and Aboriginal communities are fully engaged and consulted regarding the Tamarack Project. As the project is located on Crown land relatively far from any residents, other than government, the primary stakeholders are Aboriginal peoples. The Company has developed a Consultation Plan for First Nations & Métis Communities that meets or exceeds the provincial First Nations Consultation Guidelines and has been approved by Alberta Environment. Ivanhoe's consultation plan has, and will continue to provide various opportunities for First Nations and Métis communities to raise any concerns or issues with respect to the project, and to work together with Ivanhoe to share information and build long-term mutually beneficial relationships.
Pungarayacu Project - Ecuador
Ivanhoe Energy has a three-year evaluation phase for Block 20 and the Pungarayacu field which commenced in May 2009. To date, the Company's initial appraisal program has focused on two wells. The first well, IP-15, is located in the northwest corner of the block and the second well, IP-5b, is approximately 20 miles southeast of IP-15. The IP-15 well was drilled, cored, logged and tested, after which the drilling rig was moved to the IP-5b well. The IP-5b well has been drilled, cored and logged, and a testing program is underway. While the Company initially found certain reservoir and fluid characteristics at the IP-15 well that were encouraging, including thick, clean pay and good porosity and permeability, recent test results point to oil gravity and viscosity measurements that are less favourable. However, Ivanhoe sees significant variability between the two well locations, supporting the view that Block 20 consists of multiple fault blocks, or compartments, with varying reservoir and fluid properties.
As previously reported, initial observations of the preliminary IP-15 well results suggested a number of positive reservoir characteristics including porosity, permeability and promising oil quality indications. While these are important features to understanding the reservoir, final test results related to the oil quality from the IP-15 well received from two independent labs were disappointing and inconsistent with earlier, more encouraging indications.
Preliminary oil quality tests were carried out by independent labs on the cores and by logging techniques. The Company's plan was to obtain oil samples from production tests after completing a steam injection program and run confirmatory laboratory analysis on these oil samples. Unfortunately, as reported in a news release dated July 7, 2010, certain cementing and completion problems were encountered during steam injection operations and, as a result, testing at this well was suspended without recovery of oil. Without access to produced oil samples to analyze, confirmatory tests were once again based on crude oil extracted from cores and by logging methods, procedures which tend to yield less consistent results than tests on produced oil samples. Although initial test results offered encouragement on the oil gravity in this location, subsequent test results and analysis indicate that the oil is likely much heavier and more viscous than previously believed. Ivanhoe does not anticipate performing additional work on this well, although the information gathered has been useful in advancing the Company's understanding of the block and its appraisal program is continuing as planned.
The IP-5b well was successfully drilled, cored and logged to a total depth of 1,080 feet (329 meters). The shallower, T-sand Formation was encountered at a depth of 538 feet and the Hollin Formation at 750 feet. The Hollin is the primary oil formation in Ecuador and throughout Block 20, and the T-Sand is a secondary formation which produces widely in the Oriente Basin in Ecuador.
The logging analysis of the Hollin Formation indicates a thick gross sand interval, although at this location, as expected, there is a high water table, reducing the thickness of net pay. In early steam operations, small amounts of crude oil were recovered, and preliminary independent lab tests suggest the oil quality in the Hollin Formation at the IP-5b well is viscous and heavy, with API gravities in a range that is similar to typical commercial bitumen projects in Canada and other parts of the world.
Porosity, permeability and oil saturation data is being generated by independent labs and steam injection operations continue to be performed to test the Hollin Formation. Ivanhoe will provide an update upon completion of these activities.
Following the evaluation of the steam injection and production testing operations at the IP-5b well, Ivanhoe will review its forward plan which includes drilling appraisal wells and carrying out a seismic program.
Block 20 compartmentalization
Geologic faulting is prevalent in Block 20 due to the close proximity of the Andes, directly to the west of the block. Fault blocks result when a number of faults intersect to form discreet "blocks" on a geologic structure. Depending on the degree of offset and communication between individual fault blocks, separate isolated reservoirs or compartments may exist. Ivanhoe's initial two wells are in separate fault blocks, and the Company believes there are numerous additional fault blocks between the two locations. Ivanhoe believes these fault blocks potentially represent compartmentalization, with each block exhibiting different reservoir and fluid characteristics. A seismic program will be essential to defining the location of faults and the orientation of fault blocks that exist in Block 20.
The reservoir and oil characteristics at the IP-5b well in the south demonstrate marked differences compared to the IP-15 well in the northwest. Key differences relate primarily to the crude oil quality and reservoir pressure in the two areas.
Ivanhoe views such potential compartmentalization as a favorable characteristic of Block 20. Confirmation of fault block compartmentalization will take place in the process of carrying out the appraisal program.
China - Zitong Block
During the second quarter of 2010, the Company commenced drilling at Zitong-1 located in Sichuan Province, China's most prolific gas producing region. Zitong-1 is being drilled on the Guan structure, a large 70-square-kilometer structure in the center of Sunwing's block in Sichuan.
Total depth of the Zitong-1 well is planned to be approximately 4,500 meters. The well is currently at a depth of 2,800 meters and intermediate casing will be set at approximately 3,000 meters.
At Sunwing's second well location, Yixin-2, heavy rainfall in the Central Sichuan Province has resulted in a delay in drilling operations. It is expected that drilling will commence in mid August.
China - Dagang
At the Dagang field, production was 75,210 net barrels of oil after royalties in the second quarter of 2010 compared to 123,894 net barrels of oil after royalties during the second quarter of 2009. The Dagang field reached cost recovery in September 2009, thereby reducing the Company's working interest revenue from 82 percent to 49 percent. The exit rate at June 30, 2010 was 1,416 gross barrels per day from 35 producing wells compared to 1,681 gross barrels per day from 39 wells at June 30, 2009.
The Company's activities on its exploration block in Mongolia, Nyalga Block XVI, are proceeding as planned. Processing of the 2-D seismic the Company acquired in early 2010 is complete and initial exploratory drilling locations are being selected. The Company is currently evaluating tenders for drilling and ancillary services to commence drilling operations in the fourth quarter of 2010 or first quarter of 2011.
The Company's 2010 activities in China and Mongolia offer significant growth potential for Sunwing Energy, whose Asian capabilities constitute a core competency.
- Ivanhoe, SBM Team Up in Alliance for Offshore Heavy Oil Development (Mar 20)
- Ivanhoe Finalizes Transfer of Zitong Block to Shell China (Dec 27)
- Ivanhoe Inks MOU for China Block Sale (Jan 11)