OilVoice - Ivanhoe Energy Update on Tamarack HTL Heavy Oil Project in Western Canada

Ivanhoe Energy Update on Tamarack HTL Heavy Oil Project in Western Canada

Wednesday, March 25, 2009

Ed Veith, Executive Vice President, Upstream, of Ivanhoe Energy Inc. provided an update today on recently completed initiatives to advance the development of the Tamarack HTL Project in the Athabasca region of Western Canada. This update provides additional background to the announcement on March 18, 2009, that a recently completed evaluation by independent engineers had estimated that Ivanhoe Energy’s Tamarack Project contains best estimate contingent resources of 441 million barrels of bitumen. This represents an increase of 81% over the previous best estimate provided in mid- 2008.

The new best estimate would support a project based on Ivanhoe’s proprietary technology for field upgrading of heavy oil to light oil (HTL) that would have an estimated capacity of approximately 50,000 barrels per day for a period of 30 years. The new evaluation incorporated significant analytical work carried out by Ivanhoe Energy’s technical staff since Tamarack, formerly Lease 10, was acquired in mid-2008.

In addition to the work related to the resource evaluation during this period, Ivanhoe Energy initiated work on the development of Phase 1 of the Tamarack project, with a primary focus on the preparation of the regulatory application and environmental impact assessment. It is anticipated that this application will be filed in mid-2010.

This work included:
1) Completion of reservoir assessment studies.
2) Completion of upstream engineering design basis.
3) Progress on the HTL basic engineering design package.
4) Progress on SAGD/HTL integration and value improvement.
5) Progress on infrastructure and marketing initiatives.
6) Progress on regulatory and environmental applications.

Summary of Tamarack Project activity

Reservoir assessment
Improved reservoir characterization was achieved through a) detailed core analysis, b) petrophysical modeling to match core data, c) facies analysis and d) determination of the appropriate analog field performance. These studies have led to a significantly improved understanding of the reservoir recovery potential and anticipated well performance. The planned winter 2009-2010 drilling program will provide sufficient well density for the project’s regulatory application.

Upstream design basis
The upstream engineering design basis incorporates a state-of-the-art design provided by AMEC BDR, a Calgary-based engineering company wholly-owned by AMEC, of London, England, a leading international engineering group. AMEC BDR has significant expertise in design and construction of SAGD facilities and a reputation for on-time and on-budget delivery.
Ivanhoe believes AMEC BDR’s experience with third-generation design will help to lower project execution cost risks and improve reliability.

HTL basic engineering design package
The HTL basic engineering design package (BEDP) is expected to be completed in July 2009. This stage gate provides sufficient detail for an accelerated continuation through front-end engineering design (FEED). Completion of the BEDP will allow for a more accurate capital cost estimate, reducing uncertainty and reflecting recent declines in capital costs. In addition, this phase of HTL design work can be readily leveraged for Ivanhoe Energy’s Pungarayacu Project
in Ecuador, as well as additional potential HTL projects globally.

SAGD/HTL integration and value improvement
SAGD/HTL integration and value improvement is a key focus area that is expected to further enhance HTL project economics. Assessment of integration opportunities continues and several value improvement workshops with experts have led to a number of SAGD/HTL integration initiatives. The resulting design improvements are expected to yield operating and capital cost reductions that will be incorporated into an HTL Class III capital cost estimate (+20%/-15%) scheduled for the fourth quarter of 2009.

Infrastructure and marketing assessment
The company is continuing to work on a number of infrastructure fronts, including preparing an application for power and site access, as well as engaging with third parties to provide connections for gas and product pipelines.

The base assumption is that Tamarack’s upgraded product would be marketed in the US Midwest market (PADD II) – a strategy developed with the aid of independent marketing consultants. However, access to alternative markets, such as China, Japan and Korea, is being explored as a means of potentially improving project netbacks.

Regulatory and environmental requirements
Work is continuing toward the goal of a submitting a regulatory application for the Tamarack Project in mid-2010. Work on baseline studies is underway. Key stakeholders are engaged in the process and Ivanhoe is continuing to keep them informed of the project’s status.

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