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Ivanhoe Energy 2009 Second-Quarter Results and Operations Update

Posted on: Monday, 10 August 2009, 07:30 CDT

VANCOUVER, Aug. 10 /PRNewswire-FirstCall/ - Ivanhoe Energy Inc. (NASDAQ: IVAN and TSX: IE) will file its Quarterly Report on Form 10-Q today for the quarter ended June 30, 2009.

Highlights of the Second Quarter - US oil and gas operations sold for approximately $40 million (closed in July, 2009). - Ivanhoe Energy Ecuador received authority to initiate operations on the Pungarayacu field in Ecuador. - Engineering work continued on a Phase I, 20,000-barrel-per-day Heavy- to-Light (HTL) upgrading facility for the Tamarack project in Canada. Front End Engineering & Design (FEED) is planned for completion in the fourth quarter of 2009. - Discussions and due diligence with potential strategic partners accelerated during the second quarter. - Cash flow used in operations during the second quarter was $2.9 million, reduced from the $4.1 million used in the first quarter of 2009, mainly due to higher oil prices. - Capital spending in the second quarter was $6.7 million, up from $5.2 million in the first quarter of 2009. Message from Robert Friedland, President and Chief Executive Officer of Ivanhoe Energy Inc.

"Management is very pleased with our progress and with our current position at this stage of the emerging global economic recovery. We have consolidated and focused our energies on our core heavy-oil business and the development of our two world-class heavy-oil assets: Tamarack in Canada and Pungarayacu in Ecuador. Our HTL upgrading technology is ready for commercial implementation. The initial engineering and design of a 20,000-barrel-per-day HTL facility, being carried out by AMEC of London, England, is scheduled to be completed by the end of this year. Recognition of the strategic value of HTL in unlocking the value of heavy oil is growing rapidly. We are evaluating various additional HTL opportunities around the world and we are actively engaged in partnership discussions with numerous leading oil groups. The proceeds from the recent sale of our US oil and gas operations has provided us with added financial flexibility, giving us the time to select the appropriate partners that will help us achieve our objectives."

Sale of US oil and gas operations

In July 2009, Ivanhoe Energy closed the sale of its US oil and gas operations to Seneca South Midway LLC, a subsidiary of Seneca Resources Corporation. Seneca Resources is the exploration and production segment of National Fuel Gas Company (NYSE: NFG). This sale is consistent with Ivanhoe Energy's goal of focusing its financial and human resources on its HTL heavy-oil projects.

The sale included all of Ivanhoe Energy's oil and gas exploration and production operations in the United States. As of June 2009, these assets produced approximately 645 gross (595 net) barrels per day of oil in California and Texas. The sale also included certain exploration acreage in California.

Key heavy-oil experts presently based in Ivanhoe Energy's US operations have been redeployed to work on the company's Tamarack project in Canada or the Pungarayacu project in Ecuador.

The sale price paid by Seneca was $39.2 million. This price was net of surplus working capital of approximately $1 million that was withdrawn by Ivanhoe before closing, indicating an enterprise value of approximately $40 million.

An amount of $37.2 million was paid in cash at closing and $2 million was placed in a contractual escrow for one year. From total cash proceeds, a loan owing to Bank of America of approximately $5 million was retired, and closing fees were paid. The net cash proceeds of the sale, net of the escrow, retirement of the bank loan and payment of closing expenses was approximately $32 million, with an additional $2 million due to Ivanhoe from the escrow one year from closing.

Projects Update

During the second quarter, Ivanhoe Energy Ecuador Inc. received authority to assume control of Block 20 and initiate operations on the Pungarayacu field. This followed the Ecuadorean government's issuance of a key environmental licence to Ivanhoe Energy Ecuador. Ivanhoe Energy Ecuador is finalizing the geotechnical work required for the initial drilling program and has retained drilling contractors to carry out this work.

Pungarayacu is considered by the Government of Ecuador to be the country's largest known, single accumulation of hydrocarbon resource. The Pungarayacu oil field, covering 250 square miles (647 square kilometres), was discovered and partly delineated approximately 30 years ago by Petroecuador. The field was found to include a substantial resource of heavy oil, but development was held back due to the challenges associated with heavy-oil production. Ivanhoe Energy's unique and patented HTL heavy-oil upgrading process provides a solution to these challenges, enabling the field to be developed and placed into production.

The permits received by Ivanhoe Energy Ecuador cover the drilling of a limited number of appraisal wells. These early wells, proposed to be drilled before the end of 2009, will 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.

Progress on the Tamarack project in Canada during the second quarter was focused on supporting the engineering related to the integrated Phase I, 20,000-barrel-per-day HTL facility being carried out by AMEC in London, in conjunction with the upstream engineering being carried out by AMEC-BDR in Calgary.

Ivanhoe Energy plans to have the Front End Engineering Design completed on the Tamarack Phase I HTL facility in the fourth quarter of 2009.

China Oil and Gas Operations (unaudited; thousands of U.S. dollars except per share and production amounts) -------------------------------- --------------------- Three Months Ended Six Months Ended -------------------------------- --------------------- Jun. 30 Mar. 31 Jun. 30 Jun. 30 Jun. 30 2009 2009 2008 2009 2008 ---------- ---------- ---------- ---------- ---------- Financial --------- Oil revenue - gross $ 6,009 $ 5,733 $ 11,746 $ 11,742 $ 22,635 Total revenue - after derivative gain (loss) $ 4,838 $ 5,816 $ (3,252) $ 10,654 $ 4,969 Depletion and depreciation $ 5,242 $ 5,274 $ 5,794 $ 10,516 $ 12,000 Capital investments $ 1,368 $ 1,156 $ 1,646 $ 2,524 $ 3,771 Identifiable assets (at end of period) $ 54,417 $ 59,165 $ 72,530 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 127,881 131,078 116,507 258,959 241,478 BOE/day for the period 1,405 1,456 1,280 1,431 1,327 Dagang ------

The gross production rate at the Dagang Project in China at the end of June 2009 was 1,681 gross barrels of oil per day from 39 wells, compared to 1,840 gross barrels of oil per day from 37 wells at the end of March 2009. Two well stimulations were performed during the second quarter; the company intends to continue this fracture program during the remainder of 2009 to offset normal field decline.

Zitong ------

Two exploration-well locations were selected on the Zitong block acreage in China during the second quarter and drilling is planned to commence in late 2009. Drilling, completion and evaluation of this prospect is expected to be finalized in 2010.

Consolidated Financial Highlights (unaudited; thousands of U.S. dollars except per share and production amounts) -------------------------------- --------------------- Three Months Ended Six Months Ended -------------------------------- --------------------- Jun. 30 Mar. 31 Jun. 30 Jun. 30 Jun. 30 2009 2009 2008 2009 2008 ---------- ---------- ---------- ---------- ---------- Financial --------- Net loss from continuing operations $ (11,444) $ (11,577) $ (18,547) $ (23,021) $ (26,977) Net income (loss) from discontinued operations $ 66 $ (697) $ (3,184) $ (631) $ (3,298) ---------- ---------- ---------- ---------- ---------- Net loss and comprehensive loss $ (11,378) $ (12,274) $ (21,731) $ (23,652) $ (30,275) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per share Loss from continuing operations, basic and diluted $ (0.04) $ (0.04) $ (0.08) $ (0.08) $ (0.11) Income (loss) from discontinued operations, basic and diluted $ 0.00 $ (0.00) $ (0.01) $ (0.00) $ (0.01) ---------- ---------- ---------- ---------- ---------- Net loss per share, basic and diluted $ (0.04) $ (0.04) $ (0.09) $ (0.08) $ (0.12) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net cash provided (used) by operating activities from continuing operations $ (4,917) $ (4,880) $ 726 $ (9,797) $ 2,396 Net cash provided (used) by operating activities from discontinued operations $ 2,031 $ 792 $ 1,900 $ 2,823 $ 3,247 ---------- ---------- ---------- ---------- ---------- Net cash used in operating activities $ (2,886) $ (4,088) $ 2,626 $ (6,974) $ 5,643 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Oil revenue - gross $ 6,009 $ 5,733 $ 11,746 $ 11,742 $ 22,635 Total revenue - after derivative gain (loss) $ 4,844 $ 5,824 $ (3,249) $ 10,668 $ 4,986 Depletion and depreciation $ 6,045 $ 5,955 $ 6,431 $ 12,000 $ 13,340 Capital investments $ 6,692 $ 5,208 $ 1,880 $ 11,900 $ 4,720 Total assets (at end of period) $ 323,063 $ 304,460 $ 235,157 Cash and cash equivalents (at end of period) $ 16,135 $ 27,709 $ 8,732 Summary of Second Quarter -------------------------

Oil revenue in the second quarter of 2009 increased by 5% compared to the previous quarter, reflecting higher benchmark crude oil prices.

The company utilises costless collar derivatives in conjunction with its banking arrangements in order to reduce cash flow volatility. During the second quarter these derivatives provided realised gains of approximately $76,000. Due to higher oil prices at the end of the second quarter compared with the end of the first quarter, valuation of open positions on these derivatives at the end of the second quarter declined and led to an unrealised loss of approximately $1.2 million during the quarter. As a result total revenue after derivative gains and losses declined approximately 17%.

Cash flow used in operating activities was $2.9 million during the second quarter, compared to $4.1 million in the previous quarter; capital investments for the second quarter increased to $6.7 million, compared to $5.2 million in the first quarter of 2009.

Liquidity and Capital Resources

Our operating activities used $2.9 million in cash for the first quarter of 2009 and capital investments during the quarter were $6.7 million.

Our cash and cash equivalents as at June 30, 2009, were $16.1 million. However, in July, after the end of the quarter, we closed the sale of our US operations, providing an additional $32 million in cash after repayment of a bank loan, fees and a contractual escrow.

Our two initial HTL heavy-oil projects will require significant capital for full development. 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. The pace of development of our projects will be determined by the progress we make with our strategic partnership discussions.

This news release summarizes our 2009 second 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 June 30, 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 August 10, 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 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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