Thursday, August 9, 2007 8:08:52 AM EDT
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Ivanhoe Energy Inc IVAN:NASDAQ
Ivanhoe Energy 2007 Second Quarter Results and Operations Update
PR Newswire
8:00 AM ET
Ivanhoe Energy Inc. (NASDAQ: IVAN and TSX: IE) will today file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.
HTL(TM) Highlights
The second quarter was marked by significant progress towards full commercial deployment of our proprietary, patented heavy oil upgrading technology.
- We successfully fulfilled the primary technical objectives for the HTL Commercial Demonstration Facility (CDF) in California and have generated sufficient data for the design of full-scale, commercial facilities. - We successfully completed a key Athabasca bitumen test run at the CDF pursuant to a long standing technology development agreement with ConocoPhillips Canada Resources Corp., confirming our value proposition for the application of HTL in the Western Canadian oilsands. - We strengthened our technical and commercial teams with the addition of Dr. Michael Silverman as Vice President, Technology, who joined us from KBR, Inc., and Edward Koshka as Vice President, Business Development, Western Canada, who joined us from Synenco Energy Inc. - We progressed discussions with AMEC, our Tier One engineering contractor, regarding the design of full-scale commercial facilities. - Business development discussions in Western Canada and Latin Amer ica intensified. Financial Highlights In the second quarter, US$9 million was received under the terms of our agreement with INPEX CORPORATION of Japan. In addition, cash flow from operating activities remained positive for the eleventh consecutive quarter, generating US$0.2 million of cash.
HTL(TM) Developments
Ivanhoe Energy made significant progress in the second quarter towards full-scale commercial HTL deployment. Progress took place across all key fronts, technical, staffing, and business initiatives.
Technical developments were led by two important test runs at the CDF: a High Quality configuration was demonstrated on California vacuum tower bottoms (VTBs) and a key test was successfully completed, processing Athabasca bitumen pursuant to a long standing technology development agreement with ConocoPhillips Canada. These two key tests are the capstones of the CDF test program and we have now fulfilled the primary technical objectives of the CDF. The goals of the test program were: (1) to confirm the key processing results generated in the over 90 pilot plant runs of heavy oil and bitumen from Athabasca and the U.S. in a large facility, and (2) to provide sufficient data for the design and construction of full-scale, commercial HTL plants.
The Athabasca bitumen test, in addition to providing important technical information related to the design of full-scale HTL facilities, confirmed operating parameters and processing results previously generated in the smaller pilot plant, and as such confirmed the value proposition of this technology for applications in the Athabasca oilsands. This provides additional support to Ivanhoe Energy as it intensifies business discussions with resource owners in Western Canada and other key markets.
In the second quarter we added significant strength to our technical team, with the addition of Dr. Michael Silverman as Vice President, Technology and Edward Koshka as Vice President, Business Development, W estern Canada. Dr. Silverman joined Ivanhoe Energy from KBR, Inc. and brings significant experience in technology implementation and management, in particular with respect to Fluid Catalytic Crackers, a close commercial analogue to Ivanhoe Energy's HTL technology. Mr. Koshka joined Ivanhoe Energy from Synenco Energy Inc. in Calgary, and brings a wealth of downstream experience including oilsands development, crude oil marketing, logistics and refinery operations and optimization. This experience is complimentary to Ivanhoe Energy's management skill sets and will be of increasing importance as Ivanhoe Energy moves into commercial operations.
Our strengthened technical team has also made significant progress in developing an execution plan with AMEC, our Tier One engineering cont ractor, for the design and construction of full-scale commercial HTL facilities. Ivanhoe Energy is proceeding with preliminary, non site-specific engineering related to the first fully commercial HTL facility, supported by the recent successful CDF runs.
Business development activities were intensified in the second quarter, with a focus on Western Canada and Latin America. Advancement of these discussions was supported by the significant progress made with HTL technical development, including CDF testing, the strengthening of the technology team, and progress with our engineering contractor. Ivanhoe Energy continues to believe that its HTL technology provides a unique competitive advantage in the development of heavy oil resources in Western Canada and around the world.
Ivanhoe Energy has selected a site and is in the final stages of negotiating an agreement to locate its HTL Feedstock Test Facility (FTF) in the U.S. The FTF is a small, highly flexible state-of-the-art HTL facility that will permit more cost-effective screening of feedstock crudes for current and potential partners in smaller volumes and at lower costs than required at the CDF.
The FTF will be built by Zeton Inc. With a focus on the innovation stage through early market development, Zeton designs and manufactures state-of-the-art lab-scale reactor systems, pilot plants, demonstration plants and sm all scale commercial plants for oil refining, petrochemicals, synfuels/GTL, polymers, fine/specialty chemicals, (bio-) pharmaceuticals and food additives, as well as nuclear, mineral upgrading and environmental applications.
U.S. Oil and Gas Operations (unaudited; thousands of U.S. dollars except production amounts) ----------------------------- ------------------- Three Months Ended Six Months Ended ----------------------------- ------------------- June 30 March 31 June 30 June 30 June 30 2007 2007 2006 2007 2006 --------- --------- --------- --------- --- ------ Financial --------- Revenue $ 2,522 $ 2,274 $ 3,120 $ 4,796 $ 6,125 Depletion and depreciation $ 1,482 $ 1,614 $ 1,273 $ 3,096 $ 2,461 Capital investments $ 981 $ 812 $ 788 $ 1,793 $ 2,065 Identifiable assets (at end of period) $ 40,308 $ 40,996 $ 43,920 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 50,014 56,845 51,931 106,859 109,601 BOE/day for the period 550 632 570 590 605 South Midway ------------ We have 67 wells in the 1,400-acre South Midway heavy oil field in California, with a working interest of 100%. Production from this field, which makes up the majority of our U.S. production, fell in the second quarter due to lack of steam generation at this cyclic steam heavy oil operation for part of the quarter. We did not renew a contract for one steam generator and a second generator was taken out of service for maintenance part way through the quarter. The latter generator was back in service in June and a second generator has been purchased and is currently forecast to be in service in the fall of 2007. Due to the backlog of wells awaiting steam at this field, we have decided to defer our 2007 drilling program until 2008, in order to maximize the value of the program. The field is currently producing approximately 460 barrels of oil per day.
China Oil and Gas Operations (unaudited; thousands of U.S. dollars except production amounts) ----------------------------- ------------------- Thre e Months Ended Six Months Ended ----------------------------- ------------------- June 30 March 31 June 30 June 30 June 30 2007 2007 2006 2007 2006 --------- --------- --------- --------- --------- Financial --------- Revenue $ 6,998 $ 6,896 $ 9,759 $ 13,894 $ 16,596 Depletion and depreciation $ 4,328 $ 4,726 $ 6,239 $ 9,054 $ 11,663 Capital investments $ 6,516 $ 3,802 $ 1,934 $ 10,318 $ 4,651 Identifiable assets (at end of period) $ 72,213 $ 70,883 $ 87,577 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 115,937 126,316 155,588 242,253 279,083 BOE/day for the period 1,274 1,403 1,710 1,339 1,542 Dagang ------ The gross production rate at the end of the second quarter of 2007 at the Dagang project was 1,591 barrels of oil per day, from 40 wells, compared to 1,670 barrels per day at the end of the first quarter. Production for the quarter was lower due to both the natural decline rates of this project and unplanned downtime related to the failure of sub-surface equipment. On July 21, 2007 we spudded the fourth well in our five well drilling program. We are currently production testing the first well drilled under this program, with current test production of 160 barrels of oil per day. We will concentrate future activities in this field on our successful fracture stimulation and water flooding programs.
Zitong ------ Testing operatio ns on the Xu 4 formation at the 4,045 meter (13,270 foot) second exploratory well, Yixin # 1, on the Zitong natural gas exploration block commenced in the second quarter of 2007 and are continuing. Test results of the well were originally expected in the second quarter; however surface equipment requirements and testing procedures have delayed results until the third quarter. Following the Xu 4 zone test, the Xu 5, located just above the Xu 4, will be tested.
After completion of the testing of the Yixin # 1 well, we will evaluate the results and make an election, along with our partner Mitsubishi Gas Chemical Company Inc., whether to enter into the next three-year exploration phase. We have a 90% working interest in this project and are the operator.
Consolidated Financial Highlights (unaudited; thousands of U.S. dollars except per share and production amounts) ----------------------------- ------------------- Three Months Ended Six Months Ended ----------------------------- ------------------- June 30 March 31 June 30 June 30 June 30 2007 2007 2006 2007 2006 --------- --------- --------- --------- --------- Financial --------- Net loss $ (6,579) $ (6,547) $ (4,405) $(13,126) $ (9,781) Net loss per share - basic and diluted $ (0.03) $ (0.03) $ (0.02) $ (0.05) $ (0.04) Cash fl ow from operating activities $ 199 $ 2,594 $ 3,622 $ 2,800 $ 5,702 Revenue $ 9,589 $ 9,257 $ 13,084 $ 18,846 $ 22,948 Depletion and depreciation $ 6,024 $ 6,892 $ 9,189 $ 12,916 $ 17,036 Capital investments $ 8,123 $ 5,334 $ 3,710 $ 13,457 $ 8,602 Total assets (at end of period) $235,761 $241,474 $271,774 Cash and cash equivalents (at end of period) $ 11,076 $ 10,793 $ 25,808 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 165,951 183,161 207,519 349,112 388,684 BOE/day for the period 1,824 2,035 2,280 1,929 2,147 Summary of Second Quarter ------------------------- Cash flow from operating activities remained positive for the eleventh consecutive quarter, generating US$0.2 million. Our existing production in the U.S. and China continued to fund the business and technology development expenses associated with the planned deployment of our HTL technology. Revenue rose from the first quarter due to higher oil prices, but was largely offset by lower production volumes and increased expenses as we continue to ramp up in preparation for HTL commercial deployment.
Liquidity and Capital Resources
On June 30, 2007, our cash position was US$11.1 million. Capital investments of US$8.1 million for the second quarter of 2007 were $2.8 million higher than the first quarter, primarily as a result of exploration and drilling activities in China.
Conference Call
Ivanhoe Energy will host a conference call today, August 9, 2007, for investors and analysts at 4:30 p.m. EDT (1:30 p.m. PDT) to discuss 2007 second quarter results and provide an update on operations. The conference call may be accessed by dialing toll-free 1-866-540-8136 in Canada and the United States, or 1-416-340-8010 in the Toronto area and internationally. A simultaneous webcast of the conference call will be provided through www.ivanhoeenergy.com. If you are unable to participate in the call it will be archi ved for later playback by dialing 1-416-695-5800 and entering the pass code 3230566 followed by the number sign, or via www.ivanhoeenergy.com. The archived playback will be available until September 10, 2007.
This news release summarizes our 2007 second quarter results of operations and financial condition and should be read in conjunction with our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, which contains condensed financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. The Form 10-Q is expected to be filed today 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(TM)). Core operations are in the United States and China, 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.
