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Mitsubishi Gas Chemical Farms into Ivanhoe Energy's Sichuan Gas Project in China

Posted on: Tuesday, 3 January 2006, 09:00 CST

BEIJING, China, Jan. 3 /PRNewswire-FirstCall/ -- Ivanhoe Energy Inc. , indirectly through its wholly-owned subsidiary Sunwing Zitong Energy Ltd., has farmed out 10% of its exploration and development contract for the Zitong Block in China's Sichuan Basin to Mitsubishi Gas Chemical Company, Inc. of Japan.

Mitsubishi will pay Sunwing US$4 million for a 10% interest in the project, subject to approval of the farm-out by China National Petroleum Corporation (CNPC) and PetroChina Company Limited. Mitsubishi has the option to increase its participating interest to 20% by paying US$400,000 plus costs per percentage point prior to any discovery, or $8 million plus costs for an additional 10% interest after completion and testing of the first well drilled under the farmout agreement.

"The agreement with Mitsubishi provides additional funding to continue our exploration drilling activities in the Sichuan basin," said Leon Daniel, Ivanhoe Energy President and CEO. "The US$4 million that we will receive under the agreement will be used toward drilling our second exploratory well in the basin in 2006."

Sunwing has a 100% working interest in a 30-year production-sharing contract with CNPC, signed in September 2002, to commercially develop the Zitong Block. Sunwing and Mitsubishi will receive approximately 75% of any net project revenues before payout and approximately 45% after payout. PetroChina, a subsidiary of CNPC, may elect to participate, through a working interest of up to 51%, in any development of the project.

Ivanhoe Energy was obligated to conduct a minimum exploration program during the first three years of the Zitong Block contract ending December 1, 2005 (Phase 1). The Phase 1 work program included acquiring approximately 300 miles of new seismic lines, reprocessing approximately 1,250 miles of existing seismic and drilling 7,000 meters (22,966 feet). The first well, drilled earlier this year, reached a total depth of 9,022 feet. Based on log analysis, no commercial volumes of hydrocarbons were conclusively detected and the well was suspended.

Ivanhoe Energy has completed Phase 1, with the exception of drilling approximately 13,800 feet. Ivanhoe Energy has received approval from CNPC for an extension to May 31, 2006, and CNPC has advised they will grant an additional six-month extension if additional time is required, to fully evaluate and drill a second Phase 1 exploration well. Following the second Phase 1 exploration well, a decision will be made jointly with Mitsubishi on entering the next three-year exploration phase.

The Sichuan Basin, in Southwestern China approximately 930 miles southwest of Beijing, is the country's largest gas-producing region - with a natural gas resource potential estimated by Chinese officials to be 260 trillion cubic feet. There is a strong and growing market for natural gas in Sichuan, with approximately 120 million people living within the basin. An existing gas transportation grid is close to the project and a major natural gas trunk line, with initial capacity in excess of 200 million cubic feet per day, recently was completed to transport gas from the Sichuan Basin to Eastern China. Under existing delivery contracts, the wellhead price of gas destined for residential and commercial consumers is currently regulated in the range of US$2 to US$3.25 per thousand cubic feet; however recent announcements by the National Reform and Development Commission of the Chinese government indicate that natural gas prices in China will be deregulated in the near future.

Mitsubishi Gas Chemical Company, Inc. is a diversified Japanese natural gas, chemicals and advanced materials company with operations around the world. Mitsubishi's 2004 net sales were US$3.2 billion, its total assets were US$4.1 billion and it had over 4,400 employees worldwide.

Ivanhoe Energy is an independent international oil and gas exploration and development company building long-term growth in its reserve base and production. Ivanhoe Energy is a leader in technologically innovative methods designed to significantly improve reserves of oil and gas through the upgrading of heavy oil to light oil, state-of-the-art drilling techniques, enhanced oil recovery (EOR) and the conversion of natural gas to liquids (GTL). Core operations are in 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 (TSX) with the symbol IE. On the TSX, Ivanhoe Energy is listed and traded in both Canadian and U.S. dollars. The U.S. dollar trading symbol on the TSX is IE.U.

Information contacts: --------------------- All locations: Cindy Burnett 1-604-331-9830 (North America) In Asia: Patrick Chua 86-1370-121-2607 / 852-9193-4056 Website: http://www.ivanhoe-energy.com/

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 relating to the continued advancement of Ivanhoe Energy's projects, the success of ongoing exploration at Zitong, planned additional exploration, statements relating to anticipated capital expenditures 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, 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 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.

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.

Ivanhoe Energy Inc.

CONTACT: All locations: Cindy Burnett, (604) 331-9830 (North America);In Asia: Patrick Chua 86-1370-121-2607, 852-9193-4056, Website:http://www.ivanhoe-energy.com/;To request a free copy of this organization's annual report, please go tohttp://www.newswire.ca/ and click on Tools for Investors.

Source: PRNewswire-FirstCall

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