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 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. -- www.cnxmarketlink.com
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