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Ivanhoe Energy 2009 First-quarter Results and Operations Update

Posted on: Monday, 11 May 2009, 06:57 CDT

VANCOUVER, May 11 /PRNewswire-FirstCall/ - Ivanhoe Energy Inc. (NASDAQ: IVAN and TSX: IE) will file its Quarterly Report on Form 10-Q today for the quarter ended March 31, 2009.

First Quarter Highlights - A new, independent evaluation of the oil sands resource at the Tamarack project in Alberta increased best-estimate contingent resources to 441 million barrels of recoverable oil, representing an 81% increase over the comparable estimate announced when this asset was purchased in mid-2008. This new estimate would support a 50,000 barrel-per-day HTL Heavy-to-Light heavy oil project for a period of 30 years. - Ivanhoe Energy Ecuador accelerated the proposed timetable for drilling the initial appraisal wells for the Pungarayacu project, and has completed and submitted the required Environmental Impact Assessment study. - The new HTL Feedstock Test Facility (FTF) in San Antonio, Texas was commissioned. This was followed by a successful run of Athabasca bitumen, which confirmed earlier data and validated Ivanhoe Energy's operating assumptions and economic models for Tamarack in Canada and Pungarayacu in Ecuador. - Engineering work by London-based AMEC is on track to deliver a Basic Engineering and Design Package (BEDP) for a Phase I, 20,000-barrel- per-day HTL facility for the Tamarack project in Canada in the third quarter of 2009. - Discussions and due diligence with potential strategic partners were accelerated during the first quarter, with a focus on Asian national oil companies, as well as various investment groups. - Production of oil and gas during the first quarter increased 8% compared with the last quarter of 2008. Lower benchmark oil prices reduced oil and gas revenues to $7.7 million for the first quarter, down 41% from the fourth quarter of 2008. - Driven by lower oil prices, cash flow from operations during the first quarter was negative $4.1 million, compared with $9.7 million for the fourth quarter of 2008. - Capital spending in the first quarter was $5.4 million, down from $8.7 million in the fourth quarter of 2008. - Cash and cash equivalents at March 31, 2009, totalled $28.4 million.

Tamarack Project - Canada

During the first quarter of 2009, Ivanhoe Energy announced that a new evaluation by independent engineers has estimated that Ivanhoe Energy's Tamarack Project, in the Athabasca region of Western Canada, contains best-estimate contingent resources of 441 million barrels of bitumen. This represents an increase of 81% over the best estimate announced in conjunction with the purchase of this asset in mid-2008. The new estimate would support a project with an estimated capacity of approximately 50,000 barrels per day for 30 years.

At the time of the mid-2008 purchase of Lease 10 from Talisman Energy Canada, Ivanhoe Energy reported that independent reservoir engineers engaged by Talisman had estimated that Lease 10 contained best-estimate contingent resources of approximately 244 million barrels of bitumen, with low and high estimates of approximately 188 million and 313 million barrels, respectively.

The new Tamarack evaluation was carried out by GLJ Petroleum Consultants Ltd. (GLJ), independent reservoir engineers. This GLJ report follows significant analysis carried out by Ivanhoe Energy since the mid-2008 acquisition, including a) detailed core descriptions completed by Norwest Corporation; b) matching the petro-physical model to the core data; and c) developing a detailed facies characterization and establishing field performance based on analogue field data.

In addition to the geological and reservoir analysis carried out to support the new resource estimates, Ivanhoe Energy's Calgary-based heavy oil team, working with AMEC BDR, completed the upstream Design Basis Memorandum (DBM) during the first quarter and progressed a number of studies related to final delineation drilling, upgraded product marketing, infrastructure and transport logistics.

The Tamarack project is on track for final delineation drilling and the filing of regulatory approvals in mid-2010.

Pungarayacu Project - Ecuador

The first quarter of 2009 was the first full quarter of activity on the Pungarayacu project following the signing of the contract with Petroecuador and Petroproduccion in October, 2008. During the first quarter of 2009, Ivanhoe Energy Ecuador accelerated the detailed geological analysis of existing data on Block 20 to develop the near-term development plans. This analysis provided Ivanhoe Energy Ecuador with additional confidence in the potential for Block 20 and led to the formulation of a development plan that includes an accelerated schedule for the drilling of a limited number of appraisal wells. These early wells, proposed to be drilled before new seismic acquisition and before the end of 2009, would help to more fully characterize the oil and the reservoir in what Ivanhoe Energy Ecuador believes to be the more prospective regions of the massive 426-square-mile Block 20.

To carry out this early drilling campaign, Ivanhoe Energy Ecuador has completed an Environmental Impact Assessment (EIA) study and has submitted this study to the Ministry of the Environment for its review and approval. As part of this process, Ivanhoe Energy Ecuador also consulted with the indigenous and other local communities within Block 20 that will be affected by drilling activity. Ivanhoe Energy Ecuador expects to finalize the approval process for this early drilling program by mid-2009, with drilling and testing to follow during the second half of 2009.

HTL Technology Group

During the first quarter of 2009, Ivanhoe Energy's Houston-based technology group commissioned the company's new Feedstock Test Facility (FTF) and followed this with a successful run of Athabasca bitumen.

The FTF is located at Southwest Research Institute (SwRI) in San Antonio, Texas. SwRI is a world-class technology center that operates testing facilities for numerous leading oil companies, as well as other technology-intensive organizations, such as NASA, the US Department of Energy and the US Department of Defence. The FTF has supplanted the CDF in Bakersfield, California, as Ivanhoe Energy's principal testing ground for its proprietary HTL heavy-to-light-oil technology.

The FTF is a state-of-the-art, multi-purpose HTL testing facility that is being used for three primary purposes. Firstly, the FTF is supporting the engineering and design of commercial HTL facilities for the Tamarack Project in Canada and the Pungarayacu Project in Ecuador. Secondly, the FTF will test heavy oil from other target projects around the world that are under evaluation. Thirdly, the FTF will generate representative commercial-grade product for marketing discussions.

The data generated in the Athabasca bitumen FTF tests, which were run in operating modes closely aligned with target project operations, have very good correlation with the extensive data generated in Ivanhoe Energy's Commercial Demonstration Facility (CDF) in Bakersfield, California, as well as in previous test units. These correlations include liquid yields, coke yield, viscosity destruction and reduction of acidity, sulphur and metals.

The significance of the Athabasca bitumen test is that it provided additional validation of the Company's operating assumptions underlying the economic models for the Tamarack Project in Canada and the Pungarayacu Project in Ecuador. In addition, these tests provided significant, hard engineering data and support for our engineers and AMEC, our Tier-1 contractor, as we work toward completion of the basic engineering designs for commercial facilities.

AMEC is a major international engineering firm based in London, UK, with operations worldwide. It has revenues of more than (pnds stlg)2.6 billion (approximately US$4 billion) and employs more than 22,000 people. AMEC, which has extensive experience in refineries and oil and gas processing, is completing a basic engineering design package for Ivanhoe Energy's Tamarack integrated oil sands project in Alberta, Canada.

Another important event announced during the first quarter related to Ivanhoe Energy's technology partner, Ensyn Corporation (Ensyn). In March, Honeywell (NYSE:HON) announced the creation of a joint venture between Ensyn and UOP LLC (UOP), a Honeywell company and recognized leader in refining process technologies. The new joint venture, Envergent Technologies LLC, will offer Ensyn's commercially-proven Rapid Thermal Processing (RTP(TM)) technology to convert second-generation biomass, such as forest and agricultural residuals, into pyrolysis oil for use in power and heating applications. The joint venture also will accelerate research and development efforts to commercialize next-generation technology to refine the pyrolysis oil into transport fuels, such as green gasoline, green diesel and green jet fuel.

Ensyn's RTP(TM) technology was proven and commercialized in the 1980s in the biomass sector and adapted in the late 1990s for heavy-oil upgrading. The rights to the RTP technology for all applications except renewable resources were acquired by Ivanhoe Energy in April, 2005, and rebranded HTL(TM) for heavy-oil upgrading applications. Ensyn retained the rights to the RTP technology for the processing of renewable resources.

All improvements to the core RTP technology that are owned by Ensyn flow through to Ivanhoe Energy for HTL heavy oil applications on a cost-free basis.

Strategic Discussions

Ivanhoe Energy is engaged in numerous discussions and due diligence efforts with potential strategic partners related to the financing and development of Ivanhoe Energy's two initial HTL projects, Tamarack in Canada and Pungarayacu in Ecuador. These activities were accelerated during the first quarter of 2009. Ivanhoe Energy's intention is to finalize one or more of these initiatives by the end of 2009, in conjunction with the expected acceleration in project development activities.

U.S. Oil and Gas Operations (unaudited; thousands of U.S. dollars except per share and production amounts) --------------------------------- Three Months Ended --------------------------------- Mar. 31 Dec. 31 Mar. 31 2009 2008 2008 ----------- ---------- ---------- Financial --------- Oil and gas revenue - gross $ 1,966 $ 2,208 $ 4,155 Total revenue - after derivative gain (loss) $ 2,154 $ 5,618 $ 2,935 Depletion and depreciation $ 1,713 $ 1,329 $ 1,456 Capital investments $ 298 $ 745 $ 2,483 Identifiable assets (at end of period) $ 36,141 $ 37,480 $ 40,527 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 57,499 48,546 48,601 BOE/day for the period 639 528 534 South Midway ------------ We have 66 producing wells in the 1,400-acre South Midway heavy-oil field in California, with a working interest of 100%. This field, which makes up the majority of our U.S. production, currently is producing approximately 650 gross barrels of oil per day. China Oil and Gas Operations (unaudited; thousands of U.S. dollars except per share and production amounts) --------------------------------- Three Months Ended --------------------------------- Mar. 31 Dec. 31 Mar. 31 2009 2008 2008 ----------- ---------- ---------- Financial --------- Oil and gas revenue - gross $ 5,733 $ 10,823 $ 10,888 Total revenue - after derivative gain (loss) $ 5,816 $ 19,318 $ 8,220 Depletion and depreciation $ 5,274 $ 5,244 $ 6,206 Capital investments $ 1,156 $ 2,812 $ 2,125 Identifiable assets (at end of period) $ 59,165 $ 64,901 $ 70,725 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 131,078 125,710 124,971 BOE/day for the period 1,456 1,366 1,373 Dagang ------ The gross production rate at the end of March 2009 at the Dagang project was 1,840 gross barrels of oil per day from 37 wells. Three well stimulations were performed during the quarter and we intend to continue with this fracture program during the remainder of 2009. Zitong ------

The Zitong Partners relinquished 25% of the Zitong block acreage as required by the contract to enter the Phase 2 exploration program. The Company reprocessed the existing seismic in 2008 and the results assisted in identifying several potential exploration targets during the first quarter. Locations for two exploration wells will be selected in the second quarter. Plans are to commence drilling late in 2009.

Consolidated Financial Highlights (unaudited; thousands of U.S. dollars except per share and production amounts) --------------------------------- Three Months Ended --------------------------------- Mar. 31 Dec. 31 Mar. 31 2009 2008 2008 ----------- ---------- ---------- Financial --------- Net loss and comprehensive loss $ (12,274) $ (13,980) $ (8,544) Net loss per share - basic and diluted $ (0.04) $ (0.05) $ (0.03) Cash flow provided (used) by operating activities $ (4,088) $ 9,654 $ 3,017 Oil and gas revenue - gross $ 7,699 $ 13,031 $ 15,043 Total revenue - after derivative gain (loss) $ 7,980 $ 25,143 $ 11,169 Depletion and depreciation $ 7,632 $ 7,226 $ 8,366 Capital investments $ 5,452 $ 8,734 $ 5,323 Total assets (at end of period) $ 304,460 $ 317,275 $ 231,076 Cash and cash equivalents (at end of period) $ 28,364 $ 39,265 $ 6,691 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 188,577 174,256 173,572 BOE/day for the period 2,095 1,894 1,907 Summary of First Quarter ------------------------

Oil and gas revenue in the first quarter of 2009 fell 41% compared to the previous quarter, reflecting lower benchmark crude prices. Cash flow from operating activities was negative $4.1 million during the first quarter, compared with positive $9.7 million in the previous quarter, while capital investments for the quarter declined to $5.5 million compared with $8.7 million in the fourth quarter of 2008.

Liquidity and Capital Resources

Our operating activities generated negative $4.1 million in cash for the first quarter of 2009 and capital investments during the quarter were $5.5 million.

Our cash and cash equivalents at March 31, 2009 totalled $28.4 million.

Our two initial HTL projects will require significant capital for full development. These capital requirements will be relatively low during the second quarter, but will increase during the third and fourth quarters of 2009 and into 2010. Our strategy is to finance the development of these two projects primarily with funding from strategic partners. As discussed elsewhere in this release, we are engaged in various discussions and due diligence efforts related to the establishment of strategic and financing arrangements.

In the interim, we intend to utilize revenue from our US and China operations to fund our transition to a heavy-oil exploration, development and production company and non-heavy-oil-related investments in our portfolio will be leveraged and/or monetized as required.

This news release summarizes our 2009 first quarter results of operations and financial condition and should be read in conjunction with our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, which contains financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. The Form 10-Q is expected to be filed on May 11, 2009 and copies may be obtained from the Ivanhoe Energy website at www.ivanhoeenergy.com, on EDGAR at www.sec.gov or SEDAR at www.sedar.com.

Ivanhoe Energy is an independent international heavy oil development and production company focused on pursuing long-term growth in its reserves and production using advanced technologies, including its proprietary heavy-oil upgrading process (HTL). Core operations are in Canada, Ecuador, the United States and China, with business development opportunities worldwide. Ivanhoe Energy trades on the NASDAQ Capital Market, with the ticker symbol IVAN, and on the Toronto Stock Exchange with the symbol IE.

FORWARD-LOOKING STATEMENTS: This document includes forward-looking statements, including forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements concerning the potential benefits of Ivanhoe Energy's heavy oil upgrading technology, the potential for commercialization and future application of the heavy oil upgrading technology and other technologies, statements relating to the continued advancement of Ivanhoe Energy's projects, the potential for successful exploration and development drilling, dependence on new product development and associated costs, statements relating to anticipated capital expenditures, the necessity to seek additional funding, statements relating to increases in production and other statements which are not historical facts. When used in this document, the words such as "could," "plan," "estimate," "expect," "intend," "may," "potential," "should," and similar expressions relating to matters that are not historical facts are forward-looking statements. Although Ivanhoe Energy believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements include the potential that the company's projects will experience technological and mechanical problems, new product development will not proceed as planned, the HTL technology to upgrade bitumen and heavy oil may not be commercially viable, geological conditions in reservoirs may not result in commercial levels of oil and gas production, the availability of drilling rigs and other support services, uncertainties about the estimates of reserves, the risk associated with doing business in foreign countries, environmental risks, changes in product prices, our ability to raise capital as and when required, competition and other risks disclosed in Ivanhoe Energy's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on EDGAR and the Canadian Securities Commissions on SEDAR.

RESERVES DATA AND OTHER OIL AND GAS INFORMATION: Ivanhoe Energy's disclosure of reserves data and other oil and gas information in the Annual Report on Form 10-K is made in reliance on an exemption granted to Ivanhoe Energy by Canadian securities regulatory authorities, which permits Ivanhoe Energy to provide disclosure in accordance with U.S. disclosure requirements rather than in accordance with the requirements of Form 51-101F1. Reports on Form 51-101F2 and Form 51-101F3 will be filed in Canada concurrently with the Annual Report on Form 10-K and copies may be obtained at www.sedar.com.

The information provided by Ivanhoe Energy may differ from the corresponding information prepared in accordance with Canadian disclosure standards under National Instrument 51-101 (NI 51-101). Further information about the differences between the U.S. requirements and the NI 51-101 requirements is set forth under the heading "Reserves, Production and Related Information" in Ivanhoe Energy's Annual Report on Form 10-K.

SOURCE Ivanhoe Energy Inc.

Source: PR Newswire

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