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Ivanhoe Energy May Invest $4.3 Billion in Ecuador Oil Projects

By Stephan Kueffner

Oct. 8 (Bloomberg) -- Ivanhoe Energy Inc., a Canadian oil and natural-gas producer, may spend $4.3 billion over 30 years to extract heavy crude from Ecuador's Amazon region, state-owned PetroEcuador said.

Under an accord with PetroEcuador signed today, Vancouver- based Ivanhoe will extract oil from the Pungarayacu field on the western fringe of the Amazon. PetroEcuador will pay Ivanhoe $37 a barrel for the production, according to a statement from PetroEcuador.

``Under normal circumstances, the field isn't profitable,'' Ecuadorean President Rafael Correa said during signing ceremonies at the presidential palace in Quito. ``The entire risk is on the company's side.''

The agreement with Ivanhoe is the first under which a producer is paid a per-barrel fee for production, an arrangement Correa wants other foreign oil companies to accept. The Pungarayacu field has proven oil reserves of 315 million barrels and estimated reserves of 4.51 billion barrels.

Ecuador, the smallest member of the Organization of Petroleum Exporting Countries, has fallen short of its 520,000- barrel daily output quota by about 20,000 barrels in recent months.

PetroEcuador currently accounts for about half of the country's daily oil output. Development of the field depends on Ivanhoe's ability to transform Pungurayacu's oil from tar-like very heavy crude to light crude.

`New Oil Era'

``This marks a new oil era for Ecuador,'' Carlos Espinoza, head of Ivanhoe's operations in Ecuador, said during the ceremony. ``Ivanhoe believes in Ecuador and its people.''

Ivanhoe plans to modify the oil to 21- to 23-degree API from 4- to 15-degree on-site. API is a gravity scale established by the American Petroleum Institute that measures the relative density of oil. PetroEcuador will pay the company for each barrel of light oil.

Should oil fall below $37 per barrel on international markets, the government would receive 20 percent of the oil revenue Ivanhoe generates in Ecuador, Correa said.

Initially, Ivanhoe expects to produce 30,000 barrels a day, rising to 120,000 barrels as the project expands. It will invest $100 million in the first year.

To contact the reporter on this story: Stephan Kueffner in Quito at [e-mail]

Last Updated: October 8, 2008 16:57 EDT
http://www.bloomberg.com/apps/news?pid=20601082&sid=a9Ilt2CxDQnQ&refer=canada