Ivanhoe Energy initiates major restructuring in preparation for multiple,commercial HTL Heavy-Oil Projects Robert Friedland will become Executive Chairman & CEO of Ivanhoe Energy Inc.
VANCOUVER, March 17 /CNW/ - Ivanhoe Energy Inc. (NASDAQ: IVAN and TSX: IE) announces summary financial results for the fourth quarter of 2007 and will file its Annual Report on Form 10-K for the year ended December 31, 2007, later today.
HTL Technology Development Activities and Corporate Restructuring
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)). Ivanhoe's patented HTL technology addresses the key challenges faced by heavy-oil asset owners with cost-effective, field-located, small minimum-scale upgrading facilities. Ivanhoe intends to use this technology advantage, together with the extensive experience base of its management team, to develop heavy-oil opportunities in Canada and worldwide through production-sharing agreements, joint ventures and/or acquisitions.
To facilitate the implementation of our business strategy, we plan to undertake a reorganization of our corporate, business and governance structures. We will create two new geographically focused business units that will pursue project opportunities in Latin America and the Middle East and North Africa (MENA), respectively. These new business units will operate through separate subsidiary companies in much the same way as our China business unit is operated through our Sunwing subsidiary. Like Sunwing, our new Latin America and MENA business units each will have its own board of directors and senior management team. Initially, the Latin America and MENA subsidiaries and Sunwing will remain wholly owned, and will be funded by Ivanhoe Energy. However it is intended that each of them eventually will become financially independent and as their respective, regional business strategies unfold, it is expected that each of them will seek and obtain external sources of funding from third parties and capital markets that will effectively reduce Ivanhoe Energy's ownership interest.
Ivanhoe Energy itself will retain ownership of the HTL technology and will concentrate its business development efforts on project opportunities in Canada, the US, and other areas not addressed by subsidiary companies. The Athabasca Oil Sands will be a primary focus. Our Latin America business unit will continue the pursuit of opportunities to apply the HTL technology to heavy-oil projects in Ecuador and elsewhere in Latin America. Our MENA business unit will focus on heavy-oil project opportunities in the Middle East and North Africa region, with a particular focus on Iraq, Egypt and Libya. It also will be responsible for advancing our Gas-to-Liquids project opportunity in Egypt. Sunwing will continue to operate our existing enhanced oil recovery (EOR) and exploration projects in China and to pursue business development initiatives in the East Asia region. Each of our Latin America, MENA and East Asia business units will have the exclusive right within its own defined geographical region to obtain from Ivanhoe Energy project-specific site licenses for the HTL technology as and when decisions are made to develop HTL projects.
To more effectively utilize the extensive geographically-specific experience and expertise of our existing senior management personnel and board of directors, certain Ivanhoe Energy executive officers will be re-assigned to senior management positions within the Latin America and MENA business units and a number of incumbent directors will leave the Ivanhoe Energy board of directors and become directors of one or more of our Latin America, MENA and Sunwing subsidiaries. Robert M. Friedland, Deputy Chairman of Ivanhoe Energy Inc., will become Executive Chairman and Chief Executive Officer.. These changes to the Ivanhoe Energy board of directors and senior management will take effect following the annual general meeting of shareholders, which is scheduled to be held on May 29, 2008.
In 2007, Ivanhoe completed the HTL equipment and process testing associated with the Commercial Demonstration Facility in California. Following this work, Ivanhoe's principal focus has shifted to full-scale commercial deployment of HTL facilities. This effort includes the pursuit of opportunities in Canada and elsewhere in business arrangements that may provide Ivanhoe with a share of reserves and production of heavy oil. In addition, in certain industrial and geographic markets, Ivanhoe is pursuing opportunities where shareholder value can be generated through commercial deployment of HTL in business arrangements that may not include the generation of reserves and production for Ivanhoe.
The Company's implementation strategy includes the following:
1. Build a portfolio of major HTL projects. We will continue to deploy our personnel and our financial resources in support of our goal to capture opportunities for development projects utilizing our HTL technology. 2. Advance the technology. Additional development work will continue as we advance the technology through the first commercial application, and beyond. 3. Enhance our financial position in anticipation of major projects. Implementation of large projects requires significant capital outlays. We are refining our financing plans and establishing the relationships required for the development activities that we see ahead. 4. Build internal capabilities in advance of major projects. The HTL technical team, which includes our own staff, specialized consultants - including the inventors of the technology - and our EOR team will be supplemented and expanded to add expertise in areas such as project management. 5. Build the relationships that we will need for the future. Commercialization of our technologies demands close alignment with partners, suppliers, host governments and financiers. 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 2007 2007 2006 2007 2006 --------- --------- --------- --------- --------- Financial --------- Revenue $ 563 $ 1,469 $ 2,213 $ 6,828 $ 11,780 Depletion and depreciation $ 1,482 $ 1,306 $ 1,472 $ 5,884 $ 5,378 Capital investments $ 614 $ 645 $ 568 $ 3,052 $ 5,550 Identifiable assets (at end of period) $ 40,726 $ 42,328 $ 42,158 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 48,611 43,374 53,274 198,844 219,930 BOE/day for the period 528 471 579 545 603 South Midway ------------ We have 60 producing wells in the 1,400-acre South Midway heavy-oil field in California, with a working interest of 100%. Production results from our recent eight-well program will begin to be realized in the first quarter of 2008. This field, which makes up the majority of our U.S. production, is currently producing approximately 497 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 2007 2007 2006 2007 2006 --------- --------- --------- --------- --------- Financial --------- Revenue $ 5,250 $ 7,286 $ 8,774 $ 26,430 $ 35,746 Depletion and depreciation $ 5,631 $ 4,537 $ 5,772 $ 19,222 $ 23,345 Capital investments $ 5,435 $ 7,735 $ 2,794 $ 23,488 $ 9,086 Identifiable assets (at end of period) $ 73,298 $ 82,384 $ 72,970 Operating Net production (after royalties): Barrel of oil equivalent (BOE) 125,148 116,184 143,282 483,585 575,131 BOE/day for the period 1,360 1,263 1,557 1,325 1,576
The gross production rate at the end of 2007 at the Dagang project was 1,900 gross barrels of oil per day from 44 wells, compared to 1,830 gross barrels per day at the end of the third quarter of 2007. We drilled and completed five new wells in 2007.
Ivanhoe Energy now 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, totaling 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 minimum expenditures for this program of $25 million. The Zitong Partners plan to acquire new seismic lines in 2008, commence drilling late in 2009 and complete drilling, completion and evaluation of this prospect in late 2010.
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 2007 2007 2006 2007 2006 --------- --------- --------- --------- --------- Financial --------- Net loss and comprehensive loss $(18,849) $ (7,232) $(11,323) $(39,207) $(25,492) Net loss per share - basic and diluted $ (0.07) $ (0.03) $ (0.05) $ (0.16) $ (0.11) Cash flow from operating activities $ 923 $ 1,766 $ 3,007 $ 5,489 $ 14,352 Revenue $ 5,848 $ 8,823 $ 11,137 $ 33,517 $ 48,100 Depletion and depreciation $ 7,564 $ 6,044 $ 7,742 $ 26,524 $ 32,550 Capital investments $ 9,081 $ 9,100 $ 4,220 $ 31,638 $ 17,842 Total assets (at end of period) $236,916 $243,214 $248,544 Cash and cash equivalents (at end of period) $ 11,356 $ 14,779 $ 13,879 Operating --------- Net production (after royalties): Barrel of oil equivalent (BOE) 173,759 159,558 196,556 682,429 795,061 BOE/day for the period 1,888 1,734 2,136 1,870 2,178
Summary of Fourth Quarter
Cash flow from operating activities remained positive for the 13th consecutive quarter, generating $0.9 million, with capital investments for the quarter at $9.1 million. Revenue fell 34% from the third quarter of 2007 as benchmark crude prices were at their high at the end of the fourth quarter, resulting in large losses on derivative instruments that were put in place as part of our banking facilities. In addition, our loss widened from the third quarter due to a non-cash impairment of our China oil and gas properties of $6.1 million and increased business and technology development expenses as we continue our focus on the deployment of our HTL Technology. Revenue was down 47% from the same quarter a year earlier due to the losses on derivative instruments.
Summary of Full Year 2007
Cash flow from operating activities decreased 62% in 2007, generating $5.5 million for the year. Capital investments for 2007 were $31.6 million. Revenue fell by 30%, or $14.6 million, mainly due to losses on derivative instruments, in addition to a decrease in production, resulting in a loss of $39.2 million for the year.
Liquidity and Capital Resources
On December 31, 2007, our cash position was $11.4 million. Our operating activities provided $0.9 million in cash for the fourth quarter of 2007 and $5.5 million for the full year 2007. Capital investments for the fourth quarter of 2007 were $9.1 million and for the full year 2007 were $31.6 million. Based on our current plans, we estimate that we will need approximately $15 to $20 million to fund our capital investment programs for 2008, a material portion of which is related to the HTL program.
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 report titled "Comments by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences," referring to conditions and events that cast 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.
Ivanhoe Energy will host a conference call on Monday, March 17 for investors and analysts at 4:30 p.m. EST (1:30 p.m. PST) to discuss 2007 fourth quarter and year-end 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. The call will be archived for later playback by dialing 1-416-695-5800 and entering the pass code 3252629 followed by the number sign, or via www.ivanhoeenergy.com. The archived playback will be available until April 18, 2008.
This news release summarizes our 2007 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, 2007, 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 17, 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 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.
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.