- Published: 16 March 2009
- Written by Editor
Ivanhoe Energy 2008 fourth-quarter results and update on operations
--HTL heavy oil focus established in 2008: Tamarack in Canada and Pungarayacu in Ecuador --
Discussions and due diligence under way with potential strategic partners
Ivanhoe Energy Inc. (NASDAQ: IVAN and TSX: IE) announces summary financial results for the fourth quarter of 2008 and will file its Annual Report on Form 10-K for the year ended December 31, 2008 later today.
Highlights - Revenues in 2008 of $69.2 million were up over 100% from 2007, and cash flow from operations in 2008 of $17.1 million increased over 200% from 2007 levels.
- Net operating revenue per barrel of oil equivalent (BOE) increased in
2008 to $57.38 compared with $38.56 for 2007.
- A CAN$88 million financing was successfully closed in mid 2008 to
support the acquisition of heavy oil assets from Talisman Energy
Canada and for working capital purposes.
- Cash and cash equivalents at year end 2008 were $39.3 million,
compared with $11.4 million at year end 2007.
- Revenue for the fourth quarter 2008 was $25.1 million compared to
$35.6 million in the third quarter of 2008 as a result of lower
average lower oil prices.
- Cash flow for the fourth quarter of 2008 increased to $9.6 million
from $1.7 million for the 2008 third quarter, driven primarily by a
realization of third quarter-end accounts receivable.
- In 2008 the Company significantly defined its mission as a heavy oil
development company with the acquisition of a high quality heavy oil
block in the Athabasca region of Western Canada from Talisman Energy
Canada ("Tamarack Project"), and with the signing of a contract with
Ecuador's state oil companies regarding the development of a very
large heavy oil block in Ecuador ("Pungarayacu Project").
- Detailed discussions are ongoing with numerous potential strategic
partners related to the development of Tamarack and Pungarayacu, and
other possible significant HTL projects that may emerge.
- Late stage discussions are under way with multiple international
groups currently operating in China who have expressed significant
interest in farming-in on the Zitong Gas exploration Block.
Tamarack Project - Canada
In July 2008 the Company announced the completion of the acquisition of Talisman Energy Canada's 100% working interest in two leases (Leases 10 and 6) located in the heart of the Athabasca oil sands region in the Province of Alberta, Canada. Lease 10, the Tamarack Project, is a 6,880-acre contiguous block located approximately ten miles (16 km) northeast of Fort McMurray. Lease 6 is a small, un-delineated, 680-acre block, one mile (1.6 km) south of Lease 10.
The Tamarack Project will provide the site for the application of Ivanhoe Energy's proprietary, HTL(TM) heavy oil upgrading technology in a major, integrated heavy oil project. Tamarack has a relatively high level of delineation (four wells per section). We believe that a high-quality reservoir is present and is an excellent candidate for thermal recovery utilizing the SAGD process. The high quality of the asset is expected to provide for favourable projected operating costs, including attractive steam-oil ratios ("SOR") using SAGD development techniques.
The Company's HTL(TM) plants at Tamarack are projected ultimately to be capable of operating at production rates of at least 30,000 barrels per day for approximately 25 years. The Company intends to integrate established SAGD thermal recovery techniques with its patented HTL upgrading process, producing and marketing light, synthetic sour crude.
The Company has assembled an experienced, Calgary-based thermal heavy oil team and is preparing the regulatory application for an integrated HTL(TM) project. The Company anticipates filing the regulatory application in mid 2010, after final delineation drilling in the winter of 2009-2010.
Pungarayacu Project - Ecuador
In October 2008, Ivanhoe Energy Ecuador Inc., an indirect wholly owned subsidiary of Ivanhoe Energy Inc., signed a contract with Ecuador state oil companies Petroecuador and Petroproduccion to explore and develop Ecuador's Pungarayacu heavy oil field which is part of Block 20. Block 20 is an area of approximately 426 square miles, approximately 125 miles southeast of Quito, Ecuador's capital.
Under this contract Ivanhoe Energy Ecuador will use the Company's unique and patented HTL(TM) Technology, as well as provide advanced oil-field technology, expertise and capital to develop, produce and upgrade heavy crude oil from the Pungarayacu field. In addition, Ivanhoe Energy Ecuador has the right to blend light oil with the heavy oil for delivery to Petroproduccion. If, in the course of conducting its exploration activities, Ivanhoe Energy Ecuador discovers commercially exploitable quantities of light oil, the exploitation of such light oil will be the subject of a separate agreement among the parties.
The contract has an initial term of 30 years and has three phases. The first two phases include environmental assessment and permitting, the evaluation of the field's production capability and the crude-oil characteristics, as well as construction of the first HTL(TM) plant. The third phase involves full field development and will include drilling additional exploration and development wells. Additional HTL(TM) capacity will be added once the ultimate productive capacity is determined during the first two phases.
To recover its investments, costs and expenses, and to provide for a profit, Ivanhoe Energy Ecuador will receive from Petroproduccion a payment of US$37.00 per barrel of oil produced and delivered to Petroproduccion. The payment will be indexed (adjusted) quarterly for inflation, starting from the contract date, using the weighted average of a basket of three U.S. Government-published producer price indices relating to steel products, refinery products and upstream oil and gas equipment.
The Company will be in the assessment period during the first half of 2009, including the securing of the required environmental licenses. Once these approvals are obtained, the Company will enter into the appraisal phase, which would include obtaining permits to drill, undertaking seismic activity and drilling selected locations.
Since finalising the contract with Petroproduccion and Petroecuador, Ivanhoe Energy Ecuador Inc. has made significant progress in planning its early development program. It has opened an office in Quito, is filling out its execution team, and has advanced its technical studies related to the proposed initial drilling program.
HTL Technology Group
The HTL technology group is working with AMEC, our tier one contractor, on the design and engineering of full scale HTL facilities for the Tamarack and Pungarayacu projects. In addition, in the 4th quarter of 2008 the HTL technology group completed construction of the Feedstock Test Facility ("FTF") in San Antonio, Texas and is currently in the process of final commissioning of this unit.
The FTF is a state-of-the-art facility that closely simulates proposed HTL commercial facilities, and was designed to run 10-15 bpd of heavy feedstocks such as Athabasca bitumen. The unit has fully integrated front and back-end distillation, continuous bottoms recycle and advanced data acquisition systems. The FTF will be used primarily to a) evaluate a wide variety of global crudes, b) provide key commercial design data, c) optimize and enhance HTL process, and d) generate new intellectual property and patents.
HTL Financing
Management's financing plans include alliances or other arrangements with entities with the resources to support the Company's major projects. These discussions are focused primarily on national oil companies and other sovereign or government entities from Asian and Middle Eastern countries that have approached the Company and expressed interest in participating in the Company's heavy oil activities in Ecuador, Canada and around the world.
These strategic partner initiatives would complement traditional financing such as project financing, debt and mezzanine financing or the sale of equity securities. The Company intends to utilize revenue from existing operations to fund the continuing transition of the Company to a heavy oil exploration, production and upgrading company and non-heavy oil related investments in our portfolio will be leveraged or monetized to capture value and provide maximum return for the Company.
U.S. Oil and Gas Operations
(unaudited; thousands of U.S. dollars except per share and
production amounts)
---------------------------------- -------------------
Three Months Ended Year Ended
---------------------------------- -------------------
Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
2008 2008 2007 2008 2007
---------- ---------- ---------- ---------- ----------
Financial
---------
Revenue $ 5,618 $ 9,467 $ 563 $ 18,496 $ 6,828
Depletion and
depreciation $ 1,329 $ 1,660 $ 1,482 $ 6,143 $ 5,884
Capital
investments $ 745 $ 596 $ 614 $ 4,542 $ 3,052
Identifiable
assets (at end
of period) $ 37,480 $ 39,252 $ 40,726
Operating
---------
Net production
(after royalties):
Barrel of oil
equivalent (BOE) 48,546 51,621 48,611 204,355 198,844
BOE/day for
the period 528 561 528 558 545
South Midway
------------
We have 66 producing wells in the 1,400-acre South Midway heavy-oil field in California, with a working interest of 100%. We started realizing the production results from our recent eight-well program in the first quarter of 2008. This field, which makes up the majority of our U.S. production, is currently producing approximately 600 gross barrels of oil per day.
China Oil and Gas Operations
(unaudited; thousands of U.S. dollars except per share and
production amounts)
-------------------------------- ---------------------
Three Months Ended Year Ended
-------------------------------- ---------------------
Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
2008 2008 2007 2008 2007
---------- ---------- ---------- ---------- ----------
Financial
---------
Revenue $ 19,318 $ 25,821 $ 5,250 $ 50,108 $ 26,430
Depletion and
depreciation $ 5,244 $ 5,891 $ 5,631 $ 23,135 $ 19,222
Capital
investments $ 2,812 $ 1,795 $ 5,435 $ 8,378 $ 23,488
Identifiable
assets (at end
of period) $ 64,901 $ 71,832 $ 73,298
Operating
---------
Net production
(after royalties):
Barrel of oil
equivalent (BOE) 125,710 122,725 125,148 489,913 483,585
BOE/day for
the period 1,366 1,334 1,360 1,339 1,325
-------------------------------------------------------------------------
Dagang
------
The gross production rate at the end of 2008 at the Dagang project was
1,700 gross barrels of oil per day from 43 wells.
Zitong
------
Ivanhoe Energy has completed the first phase under the Zitong Contract (Phase 1). This included reprocessing approximately 1,649 miles of existing 2D seismic data and acquiring approximately 705 miles of new 2D seismic data, and interpreting this data. This was followed by drilling two wells, totalling an aggregate of 22,293 feet. Both wells encountered expected reservoirs and gas was tested on the second well, but neither well demonstrated commercially viable flow rates and both have been suspended. The company may elect to re-enter these wells to stimulate or drill directionally in the future. In December 2007, the Company and Mitsubishi (the Zitong Partners) made a decision to enter into the next three-year exploration phase (Phase 2).
By electing to participate in Phase 2, the Zitong Partners must relinquish 30%, plus or minus 5%, of the Zitong block acreage and complete a minimum work program involving approximately 23,700 feet of drilling (including a Phase 1 shortfall), with estimated expenditures for this program of $25 million. The Zitong Partners plan to reprocess and review existing seismic data, initiated in 2008 and continuing, into the first quarter of 2009, commence drilling late in 2009, and complete drilling, completion and evaluation of the prospect in late 2010. Most of the costs associated with Phase 2 would fall in 2010.
Ivanhoe Energy is currently in late stage discussions with multiple international groups currently operating in China who have expressed significant interest in farming-in on the Zitong Gas exploration Block. We anticipate finalizing discussions with one of these groups by approximately mid 2009.
Consolidated Financial Highlights
(unaudited; thousands of U.S. dollars except per share and
production amounts)
-------------------------------- ---------------------
Three Months Ended Year Ended
-------------------------------- ---------------------
Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
2008 2008 2007 2008 2007
---------- ---------- ---------- ---------- ----------
Financial
---------
Net loss and
comprehensive
loss $ (13,980) $ 10,062 $ (18,849) $ (34,193) $ (39,207)
Net loss per
share - basic
and diluted $ (0.05) $ 0.04 $ (0.07) $ (0.13) $ (0.16)
Cash flow from
operating
activities $ 9,654 $ 1,673 $ 923 $ 17,053 $ 5,489
Revenue $ 25,143 $ 35,626 $ 5,848 $ 69,166 $ 33,517
Depletion and
depreciation $ 7,226 $ 8,183 $ 7,564 $ 31,904 $ 26,524
Capital
investments $ 8,734 $ 8,956 $ 9,081 $ 25,606 $ 31,638
Total assets (at
end of period) $ 317,275 $ 363,004 $ 236,916
Cash and cash
equivalents (at
end of period) $ 39,265 $ 61,649 $ 11,356
Operating
---------
Net production
(after royalties):
Barrel of oil
equivalent (BOE) 174,256 174,346 173,759 694,268 682,429
BOE/day for
the period 1,894 1,895 1,888 1,897 1,870
Summary of Fourth Quarter
-------------------------
Cash flow from operating activities remained positive for the 17th consecutive quarter, generating $9.7 million, with capital investments for the quarter at $8.7 million. Revenue fell 31% from the third quarter of 2008 due to sharp declines in benchmark crude prices over the period. These revenue figures include gains and/or losses on hedging positions associated with our banking facilities.
Summary of Full Year 2008 -------------------------
Cash flow from operating activities increased 211% in 2008, generating $17.1 million for the year. Capital investments for 2008 were $25.6 million. Revenue increased by 109%, to $69.2 million, supported by higher average oil and gas prices during the year and steady average production volumes. The net loss for 2008 of US$34.2 million was down from the $39.2 million for 2007, aided by increased oil prices and gains from hedging positions. These gains were offset by increased operating costs associated with the transition to an HTL heavy oil development company, as well as an increase in charges related to the impairment of our gas-to-liquids (GTL) assets.
Liquidity and Capital Resources
On December 31, 2008, our cash and cash equivalent position was $39.2 million, increased from $11.4 million at year end 2007. Our operating activities provided $9.7 million in cash for the fourth quarter of 2008 and $17.1 million for the full year 2008. Capital investments for the fourth quarter of 2008 were $8.7 million and for the full year 2007 were $25.6 million.
Our core capital requirements for 2009, related to the HTL technology group and our producing assets in China and the US, are under approximately $10 million. This does not include capital requirements related to the development of our Tamarack and Pungarayacu Projects. Capital requirements related to both these projects are relatively low for the majority of 2009, ramping up in 2010. It is anticipated that funding of these capital requirements will be sourced through strategic partnerships and/or funding at the project or subsidiary levels.
Our Annual Report on Form 10-K includes an audit report on our consolidated financial statements from our Independent Registered Chartered Accountants, Deloitte & Touche LLP, which expresses an unqualified opinion and, in addition, includes a separate paragraph referring to conditions and events that raise substantial doubt on the Company's ability to continue as a going concern.
We will require additional funding and management's plans to fund its activities include alliances or other arrangements with entities with the resources to support our projects as well as project financing, debt and mezzanine financing or the sale of equity securities to generate sufficient resources to assure continuation of our operations and achieve our capital investment objectives. We intend to utilize revenue from existing operations to fund our transition to a heavy-oil exploration, production and upgrading company and non-heavy-oil-related investments in our portfolio will be leveraged or monetized to capture value and provide maximum return.
This news release summarizes our 2008 fourth quarter results of operations and financial condition and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008, which contains financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. The Form 10-K is expected to be filed on March 16, 2008 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). Core operations are in Canada, Ecuador, China and the United States, 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 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 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: Ivanhoe Energy's disclosure of reserves data and other oil and gas information in the Annual Report on Form 10-K 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 rather than in accordance with the requirements of Form 51-101F1. Reports on Form 51-101F2 and Form 51-101F3 will be filed in Canada concurrently with the Annual Report on Form 10-K and copies may be obtained at www.sedar.com.
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.
SOURCE Ivanhoe Energy Inc.
