Ivanhoe Updates Drilling Ops in China

Ivanhoe and Sunwing announced an update on Ivanhoe's drilling operations in the Sichuan Province of China. Sunwing Energy is currently drilling two wells at its Zitong gas exploration block. These wells are targeting gas in fractured reservoir formations similar to those that have led to the significant gas developments in various tight gas projects in North America.

The Zitong-1 well is targeting the Xu2 formation in the Guan structure, a large 70-square-kilometer structure in the center of the Zitong block. Beyond the Guan structure, the Zitong block contains multiple additional structures, with each target estimated to have potential of 0.3 to 0.5 trillion cubic feet of natural gas.

The Yixin-2 well is being drilled as a twin of Yixin-1, drilled by Sunwing in 2007 that generated significant, but unverified gas flow rates, before being shut-in due to a surface equipment failure during the initial hours of the testing program. The Xu4 formation is the primary target at Yixin-2.

Encouraging indications at Zitong-1 well

The Zitong-1 well has reached a depth of 4,006 meters (13,143 feet), with drilling progressing through the Xu5 and Xu4 formations and into the Xu3 formation. During drilling operations, considerable gas has been observed in the mud at surface while drilling through the Xu5 and Xu4 formations. Operations have proceeded cautiously as increasing wellbore pressure has required significant increases in the drilling mud weight to ensure safe drilling operations.

The portion of the Guan structure being drilled is uplifted as a result of faulting and folding and the reservoir sands are tightly sealed from the surrounding shale dominated formations. It appears these events have resulted in a higher pressure gradient in the Guan structure, and that the structure is potentially higher than in any of the wells in the surrounding area. The uplifting of the Guan structure and higher pressure should have a positive impact on the ultimate resources available.

"We know this is a very prolific gas producing area," said David Dyck. "We are very encouraged by our activities to date and our focus is on safe operations. While several wells have been drilled in this area, we have used seismic to identify structural highs which should increase our ability to deliver significant volumes and reserves of natural gas."

Plans to core and open hole test the Xu4 formation were modified due to the high formation pressures, and the well casing and drilling program was amended to allow for casing to be set and cemented in the shales of the Xu3 formation. This will allow Sunwing Energy to isolate the higher pressured Xu4 formation, a secondary target, from the lower Xu2 formation.

Logging and wireline coring activities will be performed in the Xu4 formation prior to running casing and drilling ahead into the Xu2 formation.

Drilling at Zitong-1 will continue to a planned total depth of approximately 4,500 metres (14,764 feet). Horizontal drilling options will be determined after testing of the vertical wellbore is completed.

Progress update on the Yixin-2 well

The Yixin-2 well has reached a depth of 2,860 meters (9,383 feet). Wellhead and blowout preventers are being installed after running and cementing intermediate casing. Following testing of the equipment, the well will be drilled to an approximate depth of 4,200 meters (13,780 feet) to target the Xu4 formation.

Sichuan is the oldest and one of the most prolific gas producing regions of China. Sinopec and PetroChina have made significant gas discoveries from the Xu2, Xu4 and Permian formations in blocks adjacent to Sunwing's Zitong Block. Any gas produced in Zitong would be tied into an existing local and regional gathering and sales distribution system.

Sunwing is the operator of the 659,840-acre (1,031 square miles) gas exploration block in Sichuan, and it holds a 90 percent Contractor Interest in a Petroleum Contract with PetroChina Company Limited. Mitsubishi Gas Chemical Company of Japan holds the remaining 10 percent Contractor Interest.