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Press release from CNW Group

Ivanhoe Energy reports third quarter 2010 financial results and operational highlights

Wednesday, November 10, 2010

Ivanhoe Energy reports third quarter 2010 financial results and operational highlights08:00 EST Wednesday, November 10, 2010CALGARY, Nov. 10 /CNW/ - Ivanhoe Energy Inc. (NASDAQ: IVAN; TSX IE) reported today its financial results and operating highlights for the third quarter of 2010. Ivanhoe Energy has filed its quarterly financial report on Form 10-Q with the Securities and Exchange Commission and its Interim Financial Statements with the Canadian Securities Administrators for the period ended September 30, 2010. All figures reported are in US dollars unless otherwise noted.Highlights << - Drilling operations at Sunwing's two gas wells in China, Zitong-1 and Yixin-2, proceeded successfully through the third quarter. Encouraging indicators during initial drilling included gas readings in the drilling mud and significant reservoir pressures. - Subsequent to quarter-end, Ivanhoe Energy announced better-than- expected reservoir characteristics at the Zitong-1 gas well, increasing Ivanhoe Energy's view of the upside natural gas potential in the 70-square-kilometre Guan structure to approximately 0.8 to 1.0 trillion cubic feet. - Ivanhoe successfully produced oil at its second appraisal well, IP- 5b, in the Pungarayacu field on Block 20 in Ecuador, following steam injection operations. - Subsequent to quarter-end, Ivanhoe Energy marked a major advance at its Tamarack Project in Canada with the submission of its regulatory application to the Government of Alberta. - During the quarter, advances to the HTL process were made at the Company's Feedstock Test Facility in San Antonio all of which serve to improve unit operational flexibility, reliability and product quality. Additional work has also been performed to improve HTL operational performance over a very wide spectrum of heavy oil feedstocks and geographical locations. - Oil revenues from continuing operations in the third quarter of 2010 were $4.2 million compared to $7.9 million in the third quarter of 2009. The decrease was due to the reduction in lower production volumes in the Dagang field in China as a result of production quotas. - In the third quarter of 2010, $5.4 million in cash flow was used in operations compared to $1.2 million of cash flow used in operations during the third quarter of 2009. - The net loss from continuing operations for the third quarter of 2010 was $7.2 million compared to a net loss of $2.8 million for the third quarter of 2009. General and administrative (G&A) expenses were $6.1 million in the third quarter of 2010 compared to $4.4 million in the third quarter of 2009. The increase in G&A was primarily the result of higher staff and office expenses associated with the Company's growing commitments to its core projects. - At September 30, 2010, Ivanhoe Energy had cash and cash equivalents of $90.2 million. These balances will be used to fund the Company's ongoing activities in Canada, Ecuador, China and Mongolia. >>Tamarack Project - CanadaDuring the third quarter, detailed work continued on the preparation of the regulatory application for the Tamarack Project. This work culminated in the submission of the regulatory application for the Tamarack Project to the Government of Alberta, as announced on November 4, 2010. The regulatory review process is expected to require approximately 18 to 24 months.The regulatory application contains a full description of the detailed project development plan and a comprehensive Environmental Impact Assessment. The application proposes developing an integrated in-situ heavy oil project to be built in two phases, each 20,000 barrels per day, with ultimate production capacity of approximately 40,000 barrels per day (bitumen basis). The integrated project consists of an upstream, steam assisted gravity drainage (SAGD) project using state-of-the-art-technology and a proprietary field-located HTL upgrader. The application envisages the engineering, design and supply of HTL upgrading capacity to match the field production.In support of the application, Basic Engineering and Design (BED) and Front End Engineering and Design (FEED) were completed to generate a Class III (+25/-20%) capital cost estimate. Ivanhoe Energy's top-tier contractors, AMEC in London, England and AMEC BDR in Calgary, Alberta worked closely with Ivanhoe Energy's technical team throughout this process.In addition, in order to maximize economic returns, Ivanhoe Energy retains flexibility regarding the timing for deployment of HTL upgrading capacity. Based on current market conditions in Western Canada, including historically narrow heavy-light price differentials and low natural gas prices, a stand-alone upstream project provides a superior economic return to a project integrating upstream operations with an upgrading facility. Ivanhoe Energy will continue to monitor market conditions to capitalize on changing markets by adjusting project scope and timing.The Tamarack Project has been designed to meet or exceed all applicable regulatory requirements including no freshwater use, a water recycle rate of over 95 percent and state-of-the-art air emission controls.Ivanhoe Energy's independent reserve evaluator, GLJ Petroleum Consultants Ltd. (GLJ), has assigned best-estimate contingent resources of 441 million barrels of bitumen to the Tamarack Project. With the submission of the regulatory application, Ivanhoe Energy expects to update its resource estimates concurrent with the Company's year-end reporting and transition a portion of its contingent resources to the probable and possible reserve category.Pungarayacu Project - EcuadorDuring the third quarter, operations in Ecuador were focused on Ivanhoe Energy Ecuador's IP-5b well in the southern portion of Block 20.The IP-5b well was successfully drilled, cored and logged to a total depth of 1,080 feet. The well then was perforated in the Hollin oil sands and steam was successfully injected into the reservoir. This was followed by the production of heated heavy oil back to the well bore and to surface.Independent lab analysis of the oil produced from the IP-5b well indicates an API gravity of approximately 9 to 10 degrees. The oil demonstrated very favourable viscosity reduction at elevated steaming temperatures. The produced oil also contained dissolved gas, which further enhances its mobility in the reservoir and will positively impact thermal recovery potential. The Hollin formation has exhibited very favourable reservoir permeabilities, and this is the primary sandstone reservoir and principal producing formation in the Oriente Basin, one of the most productive of the South American Sub-Andean Basins.Production testing at the IP-5b well is continuing. The recently completed steam program was initiated in the Hollin formation at a depth of approximately 750 feet. During the drilling and coring of the well, oil shows also were encountered in the shallower, Napo T-Sand formation at a depth of approximately 540 feet. A specific program is underway to test this formation.Ivanhoe Energy has a three-year evaluation phase for Block 20 and the Pungarayacu field which commenced in May 2009. This phase includes the drilling of appraisal wells as well as a seismic acquisition program in order to increase understanding of the geological faulting that is known to be present on Block 20.Ivanhoe Energy Ecuador plans to commence a seismic program following testing operations at the IP-5b well.Sunwing EnergyChina - Zitong BlockSignificant progress was made during the third quarter in Sunwing Energy's gas exploration operations in south-western China, leading to an upwards revision of the Company's view of the upside potential for the Zitong block.Drilling operations at Zitong-1 and Yixin-2 were initiated in mid-June and mid-August 2010, respectively. Both wells are located on the Zitong block, a 2,669 square kilometre block in the Sichuan Province, China's most prolific gas producing region.The Zitong-1 well is being drilled on the Guan structure and, at 70-square-kilometres, it is the largest structure on the Zitong block. The Yixin-2 well is being drilled as a twin of Yixin-1, a well drilled by Sunwing in 2007 that generated significant preliminary gas flow rates but was shut-in due to surface equipment failure during the initial hours of the testing program.Drilling operations on both wells proceeded successfully during the third quarter. Early positive indicators include high reservoir pressures and gas observed in the drilling mud at surface. Operations have proceeded cautiously as increasing wellbore pressure has required significant increases in the drilling mud weight to ensure safe drilling operations.After the end of the quarter, Ivanhoe Energy announced that it had drilled through the upper targets at Zitong-1, the Xu-5 and Xu-4 formations, and had encountered better-than-expected reservoir characteristics. This information resulted from logging and wireline coring activities on the Xu-5 and Xu-4. Data from the open-hole logs indicate the Xu-5 and Xu-4 formations most likely share the same pressure regime, with a total sand shale sequence of 357 metres, from 3,445 metres to 3,802 metres. Within this sequence, up to 58 metres (190 feet) of primary sand package has been identified in four sand packages between 3,841 metres and 3,564 metres in the lower Xu-5 formation with porosity ranging up to 13%, and an additional 22 metres (72 feet) of secondary reservoir sand in three sand packages between 3,592 metres and 3,801 metres in the Xu-4 formation with porosity up to 8.5%.Drilling at Zitong-1 is continuing towards the lower target, the Xu-2 formation, to a planned total depth of approximately 4,500 metres (14,764 feet). Horizontal drilling options will be determined after testing of the vertical wellbore is completed. Sunwing expects to reach total depth at Zitong-1 by the end of November and then testing operations will proceed.Drilling at Yixin-2 well is nearing total depth and the well will be logged, cored and tested in the fourth quarter of 2010.China - DagangAt the Dagang field, production was 610 net barrels of oil per day after royalties in the third quarter of 2010 compared to 1,403 net barrels of oil per day after royalties during the third quarter of 2009. The Dagang field reached cost recovery in September 2009, reducing the Company's working interest revenue from 82 percent to 49 percent. In addition, the Company is under a 2010 production quota of 70,000 gross tonnes (approximately 1,400 barrels of oil per day) and, consequently, volumes for the third quarter were reduced. Volumes for the fourth quarter 2010 will also be reduced in order to adjust production to meet the quota. The exit rate at September 30, 2010 was 1,058 gross barrels per day from 25 producing wells compared to 1,988 gross barrels per day from 38 wells at September 30, 2009.MongoliaDuring the third quarter, the Company continued work to obtain immigration permits for the drilling crew and logistics related to the transport of a rig from China to Mongolia. Due to delays associated with these activities, the Company expects to initiate drilling operations in Mongolia in the first quarter of 2011. Construction of the initial well location and transport of the rig will continue to proceed in anticipation of the commencement of drilling, and pending appropriate weather conditions.Financial Review << Ivanhoe Energy - Consolidated Financial Highlights (unaudited: thousands of U.S. dollars except per share amounts) Three Months Ended Nine Months Ended Sept. 30 Sept. 30 2010 2009 2010 2009 ---------- ----------- ----------- ----------- Financial Net loss from continuing operations $ (7,228) $ (2,795) $ (19,947) $ (25,816) Net loss per share from continuing operations, basic and diluted $ (0.02) $ (0.01) $ (0.06) $ (0.09) Net cash used in operating activities from continuing operations $ (5,421) $ (1,066) $ (13,762) $ (10,863) Continuing Operations Oil revenue - gross $ 4,177 $ 7,917 $ 15,554 $ 19,659 Depletion and depreciation $ 2,079 $ 5,308 $ 6,744 $ 17,308 Capital investments $ 20,428 $ 5,823 $ 60,991 $ 17,723 Total assets (at end of period) $ 406,983 $ 285,030 $ 406,983 $ 285,030 Cash and cash equivalents (at end of period) $ 90,248 $ 39,466 $ 90,248 $ 39,466 >>Summary of Third QuarterOil revenue totalled $4.2 million in the third quarter of 2010 compared to $6.0 million in the second quarter of 2010. Cash flow used in operating activities was $5.4 million during the third quarter of 2010 compared to $4.4 million in the second quarter of 2010. In the third quarter of 2010, capital investments increased to $20.4 million compared to $15.2 million in the second quarter of 2010. This increase was due to higher expenditures related to the Company's activities in China.Liquidity and Capital ResourcesIvanhoe Energy's cash and cash equivalents were $90.2 million at September 30, 2010. It is anticipated that these funds will be used for the continued advancement of the Company's core projects and selected engineering and development costs related to the enhancement of its proprietary HTL(TM) upgrading process.The Company's plans for financing future funding requirements include the potential for alliances or other arrangements with strategic partners as well as traditional project financing, debt and mezzanine financing or the sale of equity securities.This news release summarizes the Company's 2010 third quarter results of operations and financial condition and should be read in conjunction with its Quarterly Report on Form 10-Q for the period ended September 30, 2010, which contains unaudited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. The Form 10-Q was filed on November 9, 2010. 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 Inc.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, China and Mongolia, 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.For more information about Ivanhoe Energy Inc. please visit www.ivanhoeenergy.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 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 2009 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on EDGAR and the Canadian Securities Commissions on SEDAR.For further information: David Dyck: 1 (403) 817-1138; Ian Barnett: 1 (647) 203-6588; Dorreen Miller: 1 (403) 817-1108; info@ivanhoeenergy.com