Tamarack Project – Canada
During the first quarter of 2009, Ivanhoe Energy announced that a new evaluation by independent engineers has estimated that Ivanhoe Energy’s Tamarack project, in the Athabasca region of Western Canada, contains best-estimate contingent resources of 441 million barrels of bitumen. This represents an increase of 81% over the best estimate announced in conjunction with the purchase of this asset in mid-2008. The new estimate would support a project with an estimated capacity of about 50,000 barrels per day for 30 years.
At the time of the mid-2008 purchase of lease 10 from Talisman Energy Canada (Talisman), Ivanhoe Energy reported that independent reservoir engineers engaged by Talisman had estimated that lease 10 contained best-estimate contingent resources of about 244 million barrels of bitumen, with low and high estimates of about 188 million and 313 million barrels, respectively.
The new Tamarack evaluation was carried out by GLJ Petroleum Consultants Ltd. (GLJ), independent reservoir engineers. This GLJ report follows significant analysis carried out by Ivanhoe Energy since the mid-2008 acquisition, including a) detailed core descriptions completed by Norwest Corporation; b) matching the petro-physical model to the core data; and c) developing a detailed faces characterization and establishing field performance based on analogue field data.
In addition to the geological and reservoir analysis carried out to support the new resource estimates, Ivanhoe Energy’s Calgary-based heavy oil team, working with AMEC BDR, completed the upstream design basis memorandum (DBM) during the first quarter and progressed a number of studies related to final delineation drilling, upgraded product marketing, infrastructure and transport logistics. The Tamarack project is on track for final delineation drilling and the filing of regulatory approvals in mid-2010.
Pungarayacu Project – Ecuador
The first quarter of 2009 was the first full quarter of activity on the Pungarayacu project following the signing of the contract with Petroecuador and Petroproduccion in October, 2008. During the first quarter of 2009, Ivanhoe Energy Ecuador accelerated the detailed geological analysis of existing dataon block 20 to develop the near-term development plans. This analysis provided Ivanhoe Energy Ecuador with additional confidence in the potential for block 20 and led to the formulation of a development plan that includes an accelerated schedule for the drilling of a limited number of appraisal wells. These early wells, proposed to be drilled before new seismic acquisition and before the end of 2009, would help to more fully characterize the oil and the reservoir in what Ivanhoe Energy Ecuador believes to be the more prospective regions of the massive 426-square-mile Block 20.
To carry out this early drilling campaign, Ivanhoe Energy Ecuador has completed an Environmental Impact Assessment (EIA) study and has submitted this study to the Ministry of the Environment for its review and approval. As part of this process, Ivanhoe Energy Ecuador also consulted with the indigenous and other local communities within block 20 that will be affected by drilling activity.
Ivanhoe Energy Ecuador expects to finalize the approval process for this early drilling program by mid-2009, with drilling and testing to follow during the second half of 2009.
HTL Technology Group
During the first quarter of 2009, Ivanhoe Energy’s Houston-based technology group commissioned the company’s new feedstock test facility (FTF) and followed this with a successful run of Athabasca bitumen.
The FTF is located at Southwest Research Institute (SwRI) in San Antonio, Texas. It has supplanted the CDF in Bakersfield, California, as Ivanhoe Energy’s principal testing ground for its proprietary HTL heavy-to-light-oil technology.
The FTF is a state-of-the-art, multi-purpose HTL testing facility that is being used for three primary purposes. Firstly, the FTF is supporting the engineering and design of commercial HTL facilities for the Tamarack project in Canada and the Pungarayacu Project in Ecuador. Secondly, the FTF will test heavy oil from other target projects around the world that are under evaluation. Thirdly, the FTF will generate representative commercial-grade product for marketing discussions.
The data generated in the Athabasca bitumen FTF tests, which were run in operating modes closely aligned with target project operations, have very good correlation with the extensive data generated in Ivanhoe Energy’s commercial demonstration facility (CDF) in Bakersfield, California, as well as in previous test units. These correlations include liquid yields, coke yield, viscosity destruction and reduction of acidity, sulphur and metals.
The significance of the Athabasca bitumen test is that it provided additional validation of the company’s operating assumptions underlying the economic models for the Tamarack project in Canada and the Pungarayacu project in Ecuador. In addition, these tests provided significant, hard engineering data and support for our engineers and AMEC, the company’s Tier-1 contractor, as we work toward completion of the basic engineering designs for commercial facilities.
Another important event announced during the first quarter related to Ivanhoe Energy’s technology partner, Ensyn Corporation (Ensyn). In March 2009, Honeywell announced the creation of a joint venture between Ensyn and UOP LLC (UOP), a Honeywell company and recognized leader in refining process technologies. The new joint venture, Envergent Technologies LLC, will offer Ensyn’s commercially-proven Rapid Thermal Processing (RTP(TM)) technology to convert second-generation biomass, such as forest and agricultural residuals, into pyrolysis oil for use in power and heating applications. The joint venture also will accelerate research and development efforts to commercialize next-generation technology to refine the pyrolysis oil into transport fuels, such as green gasoline, green diesel and green jet fuel.
Ensyn’s RTP technology was proven and commercialized in the 1980s in the biomass sector and adapted in the late 1990s for heavy-oil upgrading. The rights to the RTP technology for all applications except renewable resources were acquired by Ivanhoe Energy in April, 2005, and rebranded HTL for heavy-oil upgrading applications. Ensyn retained the rights to the RTP technology for the processing of renewable resources.
All improvements to the core RTP technology that are owned by Ensyn flow through to Ivanhoe Energy for HTL heavy oil applications on a cost-free basis.
Strategic Discussions
Ivanhoe Energy is engaged in numerous discussions and due diligence efforts with potential strategic partners related to the financing and development of Ivanhoe Energy’s two initial HTL projects, Tamarack in Canada and Pungarayacu in Ecuador. These activities were accelerated during the first quarter of 2009. Ivanhoe Energy’s intention is to finalize one or more of these initiatives by the end of 2009, in conjunction with the expected acceleration in project development activities.
