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Ivanhoe Energy 2009 third-quarter results and Operations Update

Posted on: Monday, 9 November 2009, 07:04 CST

VANCOUVER, Nov. 9 /PRNewswire-FirstCall/ - Ivanhoe Energy Inc. (NASDAQ: IVAN and TSX: IE) will today file its Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.

Highlights of the Third Quarter

- Ivanhoe Energy achieved major technical improvements in its HTL (Heavy-to-Light) heavy-oil upgrading process, with favourable impact on capital costs, economics and scale of facilities. - David Dyck, formerly Chief Financial Officer of Western Oil Sands Inc., was appointed President and CEO of Ivanhoe Energy Canada Inc. - Ivanhoe Energy Ecuador initiated infrastructure preparations for drilling of the first well in Pungarayacu, scheduled for early December. - The Tamarack project advanced through a number of engineering and regulatory milestones, with delineation drilling to begin in January 2010. - Funding discussions advanced, with a focus on financings at project and subsidiary levels. - Cash flow used in operations during the third quarter was $1.2 million, reduced from $2.9 million used in the second quarter of 2009 due to higher oil prices. - Net loss from continuing operations for the third quarter was $2.8 million compared with a loss of $11.4 million for the quarter ended June 30, 2009. - Capital spending in the third quarter was $5.8 million, down from $6.7 million in the second quarter of 2009. - Cash and cash equivalents at September 30, 2009 were $39.5 million.

Message from Robert Friedland,

Co-Chairman, President and Chief Executive Officer of Ivanhoe Energy Inc.:

"We made tremendous progress in the third quarter. In our heavy-oil business, we announced very significant improvements in our HTL technology that strengthen the competitive advantage HTL provides in heavy-oil production. We are on track to begin drilling operations in our Tamarack and Pungarayacu projects in the next few months. Additional HTL opportunities in the Middle East and Latin America were advanced.

"We are particularly pleased that David Dyck has joined Ivanhoe Energy to head up our Canadian operations. David brings a wealth of experience in the heavy-oil business, as well as financial management and corporate development. He is a welcome addition to the team.

"We also are seeing excellent opportunities to develop our Asian business, carried out under our 100%-owned subsidiary, Sunwing Energy Inc. Operating in Asia is a core competency of our company and we intend to focus aggressively on growing our Asian business."

HTL Technology Update

During the third quarter, we achieved major technical improvements related to our proprietary HTL (Heavy-to-Light) technology.

The improvements were achieved through a new process configuration developed by Ivanhoe Energy's in-house technical team at the company's newly-commissioned Feedstock Test Facility in San Antonio, Texas. The improvements now enable the production of "bottomless" synthetic crude oil through a simplified operation that delivers lower per-barrel capital and operating costs, and allows for larger volumes of crude to be processed in a given size facility. The benefits of these improvements will be realized in all of Ivanhoe's HTL heavy-oil projects, including the Tamarack Project in Canada, the Pungarayacu Project in Ecuador and additional target opportunities that have been identified in the Middle East, Asia, Africa, Latin America and Canada.

David Dyck Appointed as President & CEO, Ivanhoe Energy Canada Inc.

In October, Ivanhoe Energy announced the appointment of North American petroleum industry executive David Dyck as President and CEO of Ivanhoe Energy Canada Inc., Ivanhoe Energy's subsidiary for operations in Canada. Mr. Dyck, who has taken up duties in the Calgary headquarters of Ivanhoe Energy Canada, will head the company's team that is developing the Tamarack heavy-oil project in Alberta's Athabasca oil sands, including the application of Ivanhoe's proprietary Heavy-to-Light (HTL) heavy-oil upgrading technology.

Mr. Dyck will be working closely with Ed Veith, Executive Vice President, Upstream.

From 2000 to 2007, Mr. Dyck was Senior Vice President, Finance, and Chief Financial Officer with Calgary-based Western Oil Sands. Western Oil Sands owned a 20% stake in the Athabasca Oil Sands Project and Mr. Dyck led a series of debt and equity financings that generated $3.5 billion for the company. He also led the company's team that concluded its sale to US refining giant Marathon Oil Corporation through a $7 billion plan of arrangement in 2007.

Since 2007, as Executive Director and CEO of LeaRidge Capital, Mr. Dyck has provided financial advisory services to a number of North American companies in the energy and service sectors, guiding the successful completion of a series of financing transactions and restructurings that totalled more than $1.0 billion.

Tamarack Update

Tamarack activities in the third quarter were focused on engineering, fulfilling regulatory application requirement and surveying and procuring key services and vendors for the winter 2009-2010 drilling and testing program. Tamarack plans to initiate field operations in January 2010.

Significant progress was achieved during the quarter on engineering the integrated SAGD/HTL facility, as well as infrastructure planning -- principally bridge, road and power. We successfully submitted the Oil Sand Evaluation and Mineral Surface Lease applications for the winter activities and we expect to receive approvals for both submissions in the fourth quarter. In addition, surveying and road-use agreements for the 31 proposed drilling locations were completed.

Key field and analytical service providers have been notified and contracts for the work will be awarded in the fourth quarter. We are on schedule with baseline field studies and stakeholder engagement activities supporting the Environmental Impact Assessment (EIA), which is the key permit required to proceed with the project. We intend to submit the EIA and other regulatory applications in mid-2010.

Pungarayacu Update

Activities at Pungarayacu in the third quarter were focused on preparations for the drilling and testing of our first appraisal well, IP-15-1. A 2.5-kilometre road was completed from the town of Contundo to the well location and a one hectare drill pad is being constructed to support the drilling operations, now 64% complete. It is anticipated that the drilling rig will begin moving onto the location on November 15 to begin rigging up, with the actual drilling to begin on or about December 1. All arrangements have been completed for the provision of materials, equipment and services related to drilling and testing.

During the third quarter, an independent study to confirm the company's estimate of the original oil in place (OOIP) for the Pungarayacu Field was completed by the firm of Gaffney, Cline & Associates. The study concluded that in the formation of interest, the Hollin, there are 4.3 billion barrels (Low Case), 6.4 billion barrels (Best Case) and 12.1 billion barrels (High Case) of oil originally in place in the 250-square-mile delineated portion of the 426-square-mile Block 20.

Community relations with the indigenous peoples in the block continue to be good. Through our contractors, we are engaging local workers and contracting local equipment and service providers. Continuous communications are maintained through workshops and radio and television coverage of our activities.

We have commenced preparations for the planned subsequent appraisal wells.

Financing Discussions

Discussions regarding financing Ivanhoe's principal projects continued in the third quarter. These discussions, which are ongoing, are focused on financing the company's major projects at the project or subsidiary level, although Ivanhoe has received expressions of interest in equity participations at various levels of the company. Ivanhoe Energy intends to finalize one or more of these initiatives in the coming quarter.

China Oil and Gas Operations (unaudited; thousands of U.S. dollars except per share and production amounts) ----------------------------- ------------------- Three Months Ended Nine Months Ended ----------------------------- ------------------- Sept. 30 Jun. 30 Sept. 30 Sept. 30 Sept. 30 2009 2009 2008 2009 2008 --------- --------- --------- --------- --------- Financial --------- Oil revenue - gross $ 7,917 $ 6,009 $ 14,912 $ 19,659 $ 37,547 Total revenue - after derivative gain (loss) $ 7,989 $ 4,838 $ 25,821 $ 18,643 $ 30,790 Depletion and depreciation $ 5,130 $ 5,242 $ 5,892 $ 15,646 $ 17,892 Capital investments $ 1,179 $ 1,368 $ 1,793 $ 3,702 $ 5,566 Identifiable assets (at end of period) $ 53,989 $ 54,417 $ 71,832 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 129,074 127,881 122,725 388,033 364,203 BOE/day for the period 1,403 1,405 1,334 1,421 1,329 Dagang ------

The gross production rate at the end of September 2009 at the Dagang project was 1,988 gross barrels of oil per day from 41 wells, compared to 1,681 gross barrels of oil per day from 39 wells at the end of June 2009. One fracture stimulation was performed during the third quarter and the fracture program will continue during the remainder of 2009 to offset normal field decline.

Zitong ------

The Zitong Partners relinquished 25% of the Zitong Block acreage as required by the contract to enter the Phase 2 exploration program in December 2007. The company reprocessed the existing seismic in 2008 and the results assisted in identifying several potential exploration targets during the first quarter of 2009. Two exploration-well locations were selected and final approval of these sites was obtained from the Chinese authorities in the third quarter. The company is obtaining approvals to acquire the surface lease and to commence site construction. Drilling, completion and evaluation of this prospect is expected to be finalized in 2010.

----------------------------- ------------------- Three Months Ended Nine Months Ended ----------------------------- ------------------- Sept. 30 Jun. 30 Sept. 30 Sept. 30 Sept. 30 2009 2009 2008 2009 2008 --------- --------- --------- --------- --------- Financial --------- Net income (loss) from continuing operations $ (2,795) $(11,444) $ 4,822 $(25,816) $(22,155) Net income (loss) from discontinued operations (net of tax of $29.6 million) (23,290) 66 5,240 (23,921) 1,942 --------- --------- --------- --------- --------- Net income (loss) and comprehensive income (loss) $(26,085) $(11,378) $ 10,062 $(49,737) $(20,213) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) per share Income (loss) from continuing operations, basic and diluted $ (0.01) $ (0.04) $ 0.02 $ (0.09) $ (0.09) Income (loss) from discontinued operations, basic and diluted (0.08) 0.00 0.02 (0.09) 0.01 --------- --------- --------- --------- --------- Net income (loss) per share, basic and diluted $ (0.09) $ (0.04) $ 0.04 $ (0.18) $ (0.08) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net cash provided (used) by operating activities from continuing operations $ (1,066) $ (4,917) $ 67 $(10,863) $ 2,358 Net cash provided (used) by operating activities from discontinued operations (135) $ 2,031 1,606 2,703 5,041 --------- --------- --------- --------- --------- Net cash provided (used) by operating activities $ (1,201) $ (2,886) $ 1,673 $ (8,160) $ 7,399 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Highlights - Continuing Operations ---------------------- Oil revenue - gross $ 7,917 $ 6,009 $ 14,912 $ 19,659 $ 37,547 Total revenue - after derivative gain (loss) $ 7,991 $ 4,844 $ 26,159 $ 18,659 $ 31,145 Depletion and depreciation $ 5,308 $ 6,045 $ 6,524 $ 17,308 $ 19,864 Capital investments $ 5,823 $ 6,692 $ 8,355 $ 17,723 $ 13,075 Total assets (at end of period) $285,030 $323,063 $363,004 Cash and cash equivalents (at end of period) $ 39,466 $ 16,135 $ 61,649 Summary of Third Quarter ------------------------

Oil revenue in the third quarter of 2009 increased 32% compared with the previous quarter, reflecting higher benchmark crude prices. Cash flow used in operating activities was $1.2 million during the third quarter, compared with $2.9 million in the previous quarter, and capital investments for the quarter decreased to $5.8 million compared with $6.7 million in the second quarter of 2009.

In July, the company completed the sale of its wholly-owned subsidiary Ivanhoe Energy (USA) Inc., including that company's accumulated tax-loss carry-forwards. The company had future tax assets arising from these carried-forward losses that partially offset certain future income tax liabilities in its remaining U.S. operations. As a result of the sale of the business segment, the company was no longer able to offset these tax assets and liabilities but was required to provide for this future income tax liability in the amount of $29.6 million. The increase in this future income tax liability has been included in the $23.4 million loss on disposition of the subsidiary.

Liquidity and Capital Resources

Our operating activities used $1.2 million in cash for the third quarter of 2009, and capital investments during the quarter were $5.8 million.

Our cash and cash equivalents as at September 30, 2009 were $39.5 million compared with $16.1 million as at June 30, 2009. The increase was due to closing the sale of our US operations for approximately US$40 million in July 2009. This sale provided an additional $32 million in cash to our treasury, after repayment of bank loans, fees and net of a contractual hold-back.

Our two initial HTL 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 news release, we currently 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 third 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 September 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 November 9, 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, the United States, 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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