Ivanhoe Energy 2008 Second Quarter Results and Operations Update



    VANCOUVER, Aug. 11 /CNW/ - Ivanhoe Energy Inc. (NASDAQ:   IVAN and TSX: IE)
today will file its Quarterly Report on Form 10-Q for the quarter ended June
30, 2008.

    Highlights

    
    -   On May 29, 2008, Ivanhoe Energy announced that it had reached
        agreement with Talisman Energy Canada (Talisman) to purchase certain
        oilsands assets in the Athabasca region of Western Canada.

    -   The Talisman oilsands acquisition closed on July 11, 2008. The total
        consideration was C$90 million, of which C$22.5 million was paid at
        closing. The balance was financed by Talisman.

    -   On June 6th Ivanhoe Energy announced that it would be seeking to
        raise C$50 million through an issue of special warrants - which
        subsequently was increased to C$88 million due to significantly
        increased interest from institutional investors. This financing was
        completed on July 9, 2008, on the basis of C$3.00 per special
        warrant.

    -   Cash flow from operating activities during the second quarter of
        US$2.6 million was consistent with the operating cash flow of
        $3 million in the first quarter of 2008, driven by higher oil prices
        and supported by stable oil production.

    -   Operating cash flow was dedicated primarily to supporting our HTL
        heavy-oil development activities.
    

    Oilsands Acquisition from Talisman Energy Canada

    On May 29, 2008, Ivanhoe Energy announced that it had signed a
preliminary agreement with Talisman Energy Canada (Talisman), an affiliate of
Talisman Energy Inc. (TSX:TLM; NYSE:  TLM) to acquire all of Talisman's
interests in three leases located in the heart of the Athabasca oilsands
region in the Province of Alberta, Canada.
    The transaction was valued at C$105 million and included three oilsand
leases: Lease 10, Lease 6 and Lease 50. Lease 50 was subject to a right of
first refusal by a third party, and this right was exercised prior to the
closing. The net result was that Ivanhoe Energy purchased Leases 10 and 6 for
a total consideration of C$90 million. Completion of the acquisition was
announced on July 11, 2008.
    The acquisition of Lease 10 - the principal asset - will provide the site
for the first commercial application of Ivanhoe Energy's proprietary, HTL(TM)
heavy-oil upgrading technology in a major, integrated heavy-oil project. Lease
10 has a relatively high level of delineation (four wells per section). It is
believed to be a high-quality reservoir and an excellent candidate for thermal
recovery production using the SAGD (steam-assisted gravity drainage) process.
The Lease 10 reservoir characteristics are believed by Ivanhoe to be similar
to those at Petro-Canada's 30,000-barrel-per-day MacKay River project, located
nearby, across the Athabasca River. MacKay River is acknowledged to be one of
the most successful and longest-producing SAGD projects in the Athabasca
oilsands.
    Lease 10 would be capable of producing between 30,000 and 50,000 barrels
of oil per day, based on estimates by independent reservoir engineers. These
independent assessments showed that Lease 10 contains, on a best-estimate
basis, approximately 244 million barrels of contingent bitumen resources (with
low and high estimates of approximately 188 million and 313 million barrels,
respectively).
    Based on these contingent resource estimates, Ivanhoe Energy's
acquisition price of C$90 million represents a price of approximately C$0.37
per barrel of contingent bitumen resource measured on a best-estimate basis,
with a range of approximately C$0.29 per barrel on a high-estimate basis to
approximately C$0.48 per barrel on a low-estimate basis.

    Talisman Rights

    Talisman will retain back-in rights of up to 20% in the acquired leases
for a period of three years. During this period, Talisman also will have the
right of first offer to acquire any participation interests in heavy-oil
projects in Alberta that Ivanhoe wishes to sell, excluding the acquired
leases, on mutually agreeable terms. In addition, Ivanhoe and Talisman will
sign an HTL Data Monitoring Agreement to allow Talisman to effectively monitor
the commercial effectiveness of Ivanhoe's HTL technology.

    Lease 10 to be the site for Ivanhoe's first HTL integrated heavy-oil
    project

    Lease 10 is a 6,880-acre contiguous block located approximately 16 km
(10 miles) northeast of Fort McMurray, immediately south of Suncor's operating
Steepbank and Millennium projects. The block also adjoins leases held by
ExxonMobil, Laricina Energy and E-T Energy.
    The Lease 10 resource target is considered to be of high-quality McMurray
sands, with clean and continuous average net pay of approximately 20 metres
and no significant top- or bottom-water, or top-gas issues. The average
porosity is 34%, average bitumen saturation is 79% and permeabilities are
between one and 10 Darcies, all of which are considered excellent reservoir
characteristics. The high quality of the asset is expected to provide for
favorable projected operating costs, including attractive steam-oil ratios
(SOR) using SAGD development techniques.
    Ivanhoe's HTL plant on Lease 10 is projected ultimately to be capable of
operating at production rates of at least 30,000 barrels per day for
approximately 25 years. Ivanhoe intends to integrate established SAGD thermal
recovery techniques with its patented HTL upgrading process, producing and
marketing a light, synthetic, sour crude.
    Ivanhoe plans to continue the Lease 10 delineation program in preparation
for the submission of permits for an integrated HTL project. In general,
thermal oilsands projects, including SAGD projects, require a period of
initial development, including delineation, permitting and field development,
which is followed by relatively stable operations for many years. Ivanhoe will
provide guidance on expectations regarding development timelines, as
appropriate, at a future date.

    Purchase details

    The total purchase price for Leases 10 and 6 was C$90 million, allocated
as follows:

    
    1.  C$22.5 million cash which has been paid.

    2.  A C$12.5 million note, with interest at prime plus 2%, which is to be
        repaid on or before December 31, 2008.

    3.  A C$40 million, three-year convertible note, with interest at prime
        plus 2% with principal convertible at C$3.13, which represents a 25%
        premium to Ivanhoe Energy's share price based on the volume-adjusted,
        weighted-average closing price for the 10 business days prior to the
        signing of the preliminary agreement on May 29th. If the note were
        fully converted, 12,779,552 common shares of Ivanhoe Energy would be
        issued to Talisman, representing approximately 4.44% of the issued
        and outstanding shares of Ivanhoe Energy as of July 11th, after
        giving effect to the conversion, as well as the C$88 million
        financing that just closed.

    4.  C$15 million cash upon Ivanhoe Energy receiving requisite government
        and other approvals to develop the northern border of Lease 10, which
        is subject to a Mineral Surface Lease (MSL) held by Suncor.
    

    Ivanhoe's obligations under the notes and the contingent payment are
secured.
    Ivanhoe intends to finance future payments with funds from a combination
of strategic investors and/or traditional debt and equity markets, either at
the Ivanhoe Energy Inc. level or project level.

    Building an execution team

    During recent months, Ivanhoe Energy has made significant progress in
building its execution teams in preparation for this acquisition. The upstream
team consists of a number of Calgary-based, experienced heavy-oil engineers
and geologists hired from firms such as Petro-Canada and Synenco, complemented
by a core team of petroleum engineers and geologists located in Ivanhoe's
offices in Bakersfield, California - a number of whom are expected to move to
Calgary, Alberta, in 2008.
    The Houston-based HTL technology team also has been strengthened. Ivanhoe
expects to continue filling key positions as it moves into execution mode.


    
    U.S. Oil and Gas Operations
    (unaudited; thousands of U.S. dollars except production amounts)

                            ----------------------------- -------------------
                                 Three Months Ended        Six Months Ended
                            ----------------------------- -------------------
                             June 30   March 31  June 30   June 30   June 30
                               2008      2008      2007      2008      2007
                            --------- --------- --------- --------- ---------
    Financial
    ---------
    Oil and gas revenue
     - gross                $  6,232   $  4,155 $  2,799  $ 10,387  $  5,510
    Total revenue - after
     derivative loss        $    476   $  2,935 $  2,522  $  3,411  $  4,796
    Depletion and
     depreciation           $  1,698   $  1,456 $  1,482  $  3,154  $  3,096
    Capital investments     $    713   $  2,483 $    981  $  3,196  $  1,793
    Identifiable assets
     (at end of period)     $ 41,001   $ 40,527 $ 40,308

    Operating
    ---------
    Net production
     (after royalties):
      Barrel of oil
       equivalent (BOE)       55,587     48,601   50,014   104,188   106,859
      BOE/day for the period     611        534      550       572       590
    


    South Midway
    ------------
    We have 72 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, is currently producing approximately
600 barrels-per-day. In the first quarter of 2008 we drilled and completed
eight development wells in South Midway. These wells are on production and are
performing as planned. Based on these wells, we have identified additional
development locations that will lead to continued expansion of the South
Midway project.

    Knights Landing
    ---------------
    We plan to drill three low-risk exploration wells at this natural gas
field in the second half of 2008.

    
    China Oil and Gas Operations
    (unaudited; thousands of U.S. dollars except production amounts)

                            ----------------------------- -------------------
                                 Three Months Ended        Six Months Ended
                            ----------------------------- -------------------
                             June 30   March 31  June 30   June 30   June 30
                               2008      2008      2007      2008      2007
                            --------- --------- --------- --------- ---------
    Financial
    ---------
    Oil and gas revenue
     - gross                $ 11,747   $ 10,888 $  6,990  $ 22,635  $ 13,875
    Total revenue - after
     derivative loss        $ (3,251)  $  8,220 $  6,998  $  4,969  $ 13,894
    Depletion and
     depreciation           $  5,794   $  6,206 $  4,328  $ 12,000  $  9,054
    Capital investments     $  1,646   $  2,125 $  6,516  $  3,771  $ 10,318
    Identifiable assets
     (at end of period)     $ 72,530   $ 70,725 $ 72,213

    Operating
    ---------
    Net production
     (after royalties):
      Barrel of oil
       equivalent (BOE)      116,507    124,971  115,937   241,478   242,253
      BOE/day for the period   1,280      1,373    1,274     1,327     1,339
    

    Dagang
    ------
    The gross production rate at the end of the second quarter of 2008 at the
Dagang project was 1,671 barrels of oil per day, from an average of 42 wells
on production, compared to 1,735 barrels per day at the end of 2007. With
current high oil prices, the company is reviewing the potential for additional
development drilling.

    Zitong
    ------
    Effective January 1, 2008, the company entered into Phase II of the
Zitong Exploration Contract. Activities for the calendar year 2008 include a
comprehensive review of the potential of deep prospects on the block as well
as selection of the drilling location for the next exploration well.


    
    Consolidated Financial Highlights
    (unaudited; thousands of U.S. dollars except per share and production
    amounts)

                            ----------------------------- -------------------
                                 Three Months Ended        Six Months Ended
                            ----------------------------- -------------------
                             June 30   March 31  June 30   June 30   June 30
                               2008      2008      2007      2008      2007
                            --------- --------- --------- --------- ---------
    Financial
    ---------
    Net loss and
     comprehensive loss     $(21,731)  $ (8,544)$ (6,579) $ (30,275)$(13,126)
    Net loss per share
     - basic and diluted    $  (0.09)  $  (0.03)$  (0.03) $   (0.12)$  (0.05)
    Cash flow from
     operating activities   $  2,626   $  3,017 $    199  $   5,643 $  2,800
    Oil and gas revenue
     - gross                $ 17,979   $ 15,043 $  9,789  $  33,022 $ 19,385
    Total revenue - after
     derivative loss        $ (2,772)  $ 11,169 $  9,589  $   8,397 $ 18,846
    Depletion and
     depreciation           $  8,129   $  8,366 $  6,024  $  16,495 $ 12,916
    Capital investments     $  2,593   $  5,323 $  8,123  $   7,916 $ 13,457
    Total assets
     (at end of period)     $235,157   $231,076 $235,761
    Cash and cash
     equivalents
     (at end of period)     $ 10,214   $  6,691 $ 11,076

    Operating
    ---------
    Net production
     (after royalties):
      Barrel of oil
       equivalent (BOE)      172,094    173,572  165,951   345,666   349,112
      BOE/day for the period   1,891      1,907    1,824     1,899     1,929
    


    Summary of Second Quarter
    -------------------------
    Cash flow from operating activities remained positive for the 15th
consecutive quarter, generating US$2.6 million. Our existing production in the
U.S. and China continued to fund our business and technology development
expenses associated with the planned deployment of our HTL technology. Our net
loss for the three-month period ended June 30, 2008 was US$21.7 million
(US$0.09 per share) compared to our net loss for the same period in 2007 of
US$6.6 million (US$0.03 per share). The increase in our net loss from 2007 to
2008 of US$15.2 million was mainly due to a US$16.2 million increase in
unrealized loss on derivative instruments, a US$2.1 million increase for
depletion and depreciation and an increase in operating costs of
US$2.4 million. These increases were partially offset by an increase of
US$3.9 million in combined oil and gas revenues and realized losses on
derivative instruments.

    Liquidity and Capital Resources

    On June 30, 2008, our cash position was US$10.2 million. Our operating
activities provided US$5.6 million in cash for the first six months of 2008.
Capital investments for the first half of 2008 were US$7.9 million.
    In April 2008, the company obtained a loan from a third-party finance
company in the amount of C$5.0 million bearing interest at 8% per annum. The
principal and accrued and unpaid interest matures and is repayable in August
2008. The lender has the option to convert the outstanding balance, in whole
or in part, into the company's common shares at a conversion price of C$2.24
per share.
    The C$88 million special warrants financing that was announced during the
second quarter and closed July 9, 2008 significantly added to the Company's
liquidity. The estimated net proceeds from the Offering of the Special
Warrants were approximately C$83.4 million after deducting the agents'
commission of C$4.0 million and the expenses of the Offering estimated at
C$600,000. The Company used C$22.5 million of the net proceeds of the Offering
to complete the cash component of the Talisman lease acquisition described
earlier. The Company intends to use the remaining net proceeds from the
Offering for its planned 2008 winter drilling and geotechnical program, its
HTL Technology development program and for working capital purposes.

    This news release summarizes our 2008 second quarter results of
operations and financial condition and should be read in conjunction with the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008,
which contains condensed financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations. The Form 10-Q is
expected to be filed today 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(TM)). Core operations are in Canada, 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 Ivanhoe Energy's
agreement with Talisman to acquire all of Talisman's working interest in two
oil sand leases (leases 10 and 6), Ivanhoe Energy's ability to obtain the
financing to pay the principal and interest on the notes delivered by Ivanhoe
Energy at the acquisition closing, Ivanhoe Energy's plan to establish its
first integrated HTL heavy-oil project on Lease 10, the anticipated production
capacity of the proposed HTL plant, the anticipated quantities of recoverable
barrels of bitumen from leases 10 and 50, and other statements which are not
historical facts. When used in this document, the words such as "could",
"plan", "estimate", "anticipate", "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 result to differ from these
forward-looking statements include the possibility that the company will be
unable to raise financing in the future, 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, samples from the Athabasca
bitumen test may not have the product qualities anticipated, market acceptance
of the HTL technology may not be as anticipated, Ivanhoe Energy's lack of
history in developing commercial HTL opportunities, 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 the reserves, the risk associates with doing business in
foreign countries, environmental risks, changes in product prices, our
availability to generate cash flow and 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: The determination of oil
and gas resources involves the preparation of estimates that have an inherent
degree of associated risk and uncertainty. The estimation and classification
of resources requires the application of professional judgment combined with
geological and engineering knowledge to assess whether specific classification
criteria have been satisfied. Statements in this press release concerning
"resources" are deemed to be forward-looking statements, as they involve the
implied assessment, based on certain estimates and assumptions, of the ability
to produce in the future the resources described. Actual resources and, if
commenced, future production will differ from the estimates provided herein,
and the difference may be significant.
    All bitumen resource volumes referred to in this press release have been
classified as "contingent resources" within the meaning of the Canadian Oil &
Gas Evaluation Handbook (COGE Handbook). The term "contingent resources" is
defined in the COGE Handbook as those quantities of petroleum estimated, as of
a given date, to be potentially recoverable from known accumulations using
established technology or technology under development, but which are not
currently considered to be commercially recoverable due to one or more
contingencies. Contingencies may include factors such as economic, legal,
environmental, political, and regulatory matters, or a lack of markets. It is
appropriate to classify as contingent resources the estimated discovered
recoverable quantities associated with a project in the early evaluation
stage. Contingent resources are further classified in accordance with the
level of uncertainty associated with the estimates and may be subclassified
based on project maturity and/or characterized by their economic status.
    Estimates of resources, which always involve uncertainty, are quoted
herein as a range according to the level of confidence associated with the
estimates. The "best estimate" is considered to be the best estimate of the
quantity of bitumen resources that will actually be recovered. It is equally
likely that the actual remaining quantities recovered will be greater or less
than the best estimate. The "low estimate" is considered to be a conservative
estimate of the quantity that will actually be recovered. It is likely that
the actual remaining quantities recovered will exceed the low estimate. The
"high estimate" is considered to be an optimistic estimate of the quantity
that will be actually recovered. It is unlikely that the actual remaining
quantities recovered will exceed the high estimate.
    The contingencies that currently prevent the contingent resources
referred to herein from being classified as reserves are a lack of regulatory
approval, the absence of a firm development plan, and the uncertainty of
funding approval for development. There is no certainty that it will be
commercially viable to produce any portion of the contingent resources
referred to in this press release.
    Cautionary Note to U.S. Investors -- The Securities and Exchange
Commission (SEC) permits oil and gas companies, in their filings with the SEC,
to disclose only proved reserves that a company has demonstrated by actual
production or conclusive formation tests to be economically and legally
producible under existing economic and operating conditions. We use certain
terms in this press release, such as contingent bitumen resources that the
SEC's guidelines strictly prohibit us from including in filings with the SEC.
Investors are urged to also consider closely the disclosure in our Form 10-K
for the fiscal year ended December 31, 2007, available from our website. You
can also obtain this form from the SEC website at www.sec.gov.
    The reference herein to production levels at Petro-Canada's MacKay River
project is based on publicly available information. The reference herein to
the similarity between the Lease 10 reservoir characteristics and those of the
MacKay River project is based on Ivanhoe's internal assessment.
    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.





For further information:

For further information: Investors Contact: Ian Barnett, (647) 203-6588,
Bill Trenaman, (604) 688-8323; Media Contact: Bob Williamson, (604) 608-8323;
Website: www.ivanhoeenergy.com

Organization Profile

Ivanhoe Energy Inc.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890