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File photo of Robert Friedland of Ivanhoe Energy.

Rafal Gerszak/Rafal Gerszak/Globe and Mail

Ivanhoe Energy Inc. subsidiary Sunwing Zitong Energy has agreed to sell its interest in production from the Zitong block gas discovery in China's Sichuan Basin to Royal Dutch Shell for up to $160-million (U.S.).

Ivanhoe said Wednesday it will use proceeds from the sale to support its core heavy oil business.

"We have made an important discovery of natural gas and we have an understanding of the potential of the block," co-chairman Robert Friedland said in a statement.

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"However, this opportunity arose at an appropriate decision point and we have opted to focus our energy and resources on the commercialization of our Heavy-to-Light heavy oil upgrading process and the development of our attractive oil projects."

Ivanhoe will receive up to $85-million in reimbursement for past costs as well as a up to $75-million on closing contingent on the timing of government approvals and third-party consents and waivers.

The deal is expected to close by Dec. 31, 2012.

Ivanhoe has operations in Canada, United States, Ecuador, Mongolia and China.

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