Ivanhoe Energy completes acquisition of Athabasca oilsands assets from Talisman Energy

Ivanhoe Energy completes acquisition of Athabasca oilsands assets from Talisman Energy
16:15 EDT Friday, July 11, 2008


Athabasca to be home for first integrated HTL (heavy-to-light) oil
project
CALGARY, July 11 /CNW/ - Robert Friedland, Executive Chairman, President and Chief Executive Officer of Ivanhoe Energy Inc. (TSX: IE; NASDAQ: IVAN), announced today that the company has completed its previously announced acquisition of Talisman Energy Canada's 100% working interests in two leases (Leases 10 and 6) located in the heart of the Athabasca oilsands region in the Province of Alberta, Canada. Talisman Energy Canada is an affiliate of Talisman Energy Inc. (TSX:TLM; NYSE:TLM).

The total purchase price is C$90 million, of which an initial payment of C$22.5 million has been made from proceeds of an C$88 million private placement financing that closed on July 8th. The financing, consisting of C$3.00 special warrants and originally targeted at C$50 million, was increased to C$88 million due to significantly increased expressions of interest from institutional investors. The balance of the funds will be used for Ivanhoe Energy's planned development activities on the acquired oilsands leases and for general working capital purposes.

The acquisition of Lease 10 will provide the site for the first commercial application of Ivanhoe Energy's proprietary, HTL(TM) heavy-oil upgrading technology in a major, integrated heavy-oil project. Lease 10 has a relatively high level of delineation (four wells per section). It is believed to be a high-quality reservoir and an excellent candidate for thermal recovery production using the SAGD (steam-assisted gravity drainage) process.

The Lease 10 reservoir characteristics are believed by Ivanhoe to be similar to those at Petro-Canada's 30,000-barrel-per-day MacKay River project, located nearby, across the Athabasca River. MacKay River is acknowledged to be one of the most successful and longest-producing SAGD projects in the Athabasca oil sands.


Lease 10 would be capable of producing between 30,000 and 50,000 barrels of oil per day, based on estimates by independent reservoir engineers Sproule Associates Limited. Based on the most recent evaluations conducted by Sproule, Lease 10 is estimated to contain, on a best-estimate basis, approximately 244 million barrels of contingent bitumen resources (with low and high estimates of approximately 188 million and 313 million barrels, respectively). The evaluation of Lease 10 has an effective date of August 31, 2007. Using Sproule's interpretation of net pay, Ivanhoe expects to encounter an average of 30 metres of continuous bitumen saturated sand within the initial development area.

Based on these contingent resource estimates, Ivanhoe Energy's acquisition price of C$90 million represents a price of approximately C$0.37 per barrel of contingent bitumen resource measured on a best-estimate basis, with a range of approximately C$0.29 per barrel on a high-estimate basis to approximately C$0.48 per barrel on a low-estimate basis.

Since Ivanhoe Energy's oilsands announcement on May 29th, the holder of the 25% working interest in Lease 50 has exercised its right of first refusal to acquire Talisman's 75% working interest in Lease 50 - a third lease that Ivanhoe was to acquire from Talisman. Lease 50 is a less-delineated asset located approximately 19 km southeast of Fort McMurray. Contingent bitumen resources attributable to Talisman's 75% working interest in Lease 50 were estimated by Sproule as of July 31, 2006, to be, on a best-estimate basis, approximately 50 million barrels. As a consequence, Ivanhoe Energy has proceeded to purchase Lease 10 and Lease 6 - and the total purchase price has decreased from C$105 million to C$90 million.

Lease 50 was considered by Ivanhoe to represent possible expansion potential. The reduced cost to Ivanhoe of acquiring its principal target, Lease 10, leaves Ivanhoe with additional cash resources to initiate the development of Lease 10 and also allows Ivanhoe to apply its resources to alternative expansion targets as appropriate.

Lease 6 is a small, undelineated, 680-acre block 1.6 km south of Lease 10.
Talisman's Rights

Talisman will retain back-in rights of up to 20% in the acquired leases for a period of three years. During this period, Talisman also will have the right of first offer to acquire any participation interests in heavy-oil projects in Alberta that Ivanhoe wishes to sell, excluding the acquired leases, on mutually agreeable terms. In addition, Ivanhoe and Talisman have entered into an HTL Data Monitoring Agreement to allow Talisman to effectively monitor the commercial effectiveness of Ivanhoe's HTL technology.

Lease 10 to be the site for Ivanhoe's first HTL integrated heavy-oil
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project
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Lease 10 is a 6,880-acre contiguous block located approximately 10 miles (16 km) northeast of Fort McMurray, immediately south of Suncor's operating Steepbank and Millennium projects. The block also adjoins leases held by ExxonMobil, Laricina Energy and E-T Energy.
The Lease 10 resource target is considered to be of high-quality McMurray sands, with clean and continuous average net pay of approximately 20 metres and no significant top- or bottom-water or top-gas issues. The average porosity is 34%, average bitumen saturation is 79% and permeabilities are between one and 10 Darcies, all of which are considered excellent reservoir characteristics. The high quality of the asset is expected to provide for favorable projected operating costs, including attractive steam-oil ratios (SOR) using SAGD development techniques.
Ivanhoe's HTL plant on Lease 10 is projected ultimately to be capable of operating at production rates of at least 30,000 barrels per day for approximately 25 years. Ivanhoe intends to integrate established SAGD thermal recovery techniques with its patented HTL upgrading process, producing and marketing a light, synthetic sour crude.
Ivanhoe plans to continue the Lease 10 delineation program in preparation for the submission of permits for an integrated HTL project. In general, thermal oilsands projects, including SAGD projects, require a period of initial development, including delineation, permitting and field development, which is followed by relatively stable operations for many years. Ivanhoe will provide guidance on expectations regarding development timelines, as appropriate, at a future date.
Benefits of HTL Integration
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HTL is a field-located upgrading process that converts heavy oil to a transportable, partially upgraded synthetic crude oil and converts the upgrading by-products to onsite energy. The process frees the heavy-oil producer from the need to purchase diluent for transport, significantly eliminates the need to purchase natural gas to steam the reservoir, and allows the producer to capture the majority of the heavy-oil/light-oil value differential. The net result is enhanced rates of return and reduced earnings volatility. Furthermore, the HTL process is technically and economically scalable down to as low as 10,000-30,000 bopd, allowing for vertical integration of smaller, heavy-oil assets in Canada and internationally.
Purchase details
Ivanhoe has purchased all of Talisman's interests in Leases 10 and 6. The total purchase price for the two leases is C$90 million, allocated as follows:
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1. C$22.5 million cash that has been paid.
2. A C$12.5 million note, with interest at prime plus 2%, is to be
repaid on or before December 31, 2008.
3. A C$40 million, three-year convertible note, with interest at prime
plus 2% with principal convertible at C$3.13, which represents a 25%
premium to Ivanhoe Energy's share price based on the volume-adjusted,
weighted-average closing price for the 10 business days prior to the
signing of the preliminary agreement on May 29th. If the note were
fully converted, 12,779,552 common shares of Ivanhoe Energy would be
issued to Talisman, representing approximately 4.44% of the issued
and outstanding shares of Ivanhoe Energy as of July 11th, after
giving effect to the conversion, as well as the C$88 million
financing that just closed.
4. C$15 million cash upon Ivanhoe Energy receiving requisite government
and other approvals to develop the northern border of Lease 10, which
is subject to a Mineral Surface Lease (MSL) held by Suncor.
>>
Ivanhoe's obligations under the notes and the contingent payment are secured.
Ivanhoe intends to finance future payments with funds from a combination of strategic investors and/or traditional debt and equity markets, either at the Ivanhoe Energy Inc. level or project level.
Financial Advisor
Tristone Capital Inc. is acting as financial advisor to Ivanhoe for this transaction.
Ivanhoe Energy

Worse to come?

Worse to come?

Friday, July 11, 2008

If you have a nervous disposition, and you're already feeling shell-shocked, be warned: As rough as the stock market looked midway through Friday, the fact that this is the day before a summer weekend could make the closing minutes of activity particularly nerve-racking.
Note that the last hour of trading could be volatile today, particularly in the U.S., as it could give an indication of investor sentiment toward equities,” said Colin Cieszynski, market analyst at CMC Markets Canada, in a note.

“In particular, markets may show how much fear is out there depending on investors' willingness to hold long or short positions heading into a summer weekend.”

So far, there seems to be little willingness to hold onto anything at all, except cash. At midday, the Dow Jones industrial average was down 197 points, or 1.8 per cent, to 11,032. The broader S[amp]amp;P 500 was down 20 points, or 1.6 per cent, to 1233. Just one stock on the 30-member Dow was up, and only slightly: General Electric Co., up 0.8 per cent.

The swarm of losing stocks was led by financials, amid growing concerns that a foot is about to drop in the sector, in the form of a failure, leading to a cascade of losses elsewhere. The S[amp]amp;P 500 financials index was down 3.9 per cent. Particular names were clobbered: Bank of America Corp. was down 6.5 per cent and JPMorgan Chase [amp]amp; Co. was down 6 per cent. As for Fannie Mae, one of two mortgage finance companies at the centre of this particular storm, it was down 23 per cent.

All 10 subindexes within the S[amp]amp;P 500 were down, including energy and materials. That's surprising, given that crude oil rose to $145.87 (U.S.) a barrel, up $4.22, and gold rose to $958.45 an ounce, up $10.80.

In Canada, the S[amp]amp;P/TSX composite index, which had been up earlier in the day thanks to energy and gold producers, dipped into negative territory at noon. It fell 42 points, to 13,702. Materials were up 2.1 per cent and energy was up 0.7 per cent. But financials fell 2 per cent, with Royal Bank of Canada falling 4.1 per cent to its lowest level since 2005.

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Capitulation, here we come

At the open: Capitulation, here we come

Friday, July 11, 2008
Well, at least there's gold. That's the sort of day Friday is shaping up to be, as financial stocks were whacked in the United States in the morning and dragged down just about everything in their wake.

At the start of trading, the Dow Jones industrial average fell 114 points, or 1 per cent, 11,115 – with all 30 stocks in the index down, including the big energy producers. The broader S[amp]amp;P 500 fell[amp]nbsp;18 points, or 1.4 per cent, to 1236.

Financials were particularly hard-hit, following concerns that Fannie Mae and Freddie Mac are in mortal danger, with the U.S. government considering stepping in to take over one or both of the mortgage finance companies and wiping out the equity. Bank of America and JPMorgan Chase [amp]amp; Co. each fell 3.5 per cent. Meanwhile Fannie Mae tumbled 48 per cent, to $6.92, and Freddie Mac fell 50 per cent, to $4.02.

Even General Electric Co., which had been looking like a bright spot in the market after it met earnings expectations with its second-quarter results, fell 0.7 per cent.

In Canada, the S[amp]amp;P/TSX composite index rose 9 points, to 13,753 – a small victory given that crude oil prices surged to a record high. Oil traded at $146.36 a barrel, up $4.71, giving a modest boost to most energy stocks. EnCana Corp. rose 1.1 per cent and Suncor Energy Inc. rose 1.2 per cent.

The Big Banks were weak, following the lead in the United States. Royal Bank of Canada fell 2.5 per cent and Bank of Montreal fell 1.2 per cent.

However, gold was one of the few bright spots, as investors turned to a reliable safe haven amid the volatility. Gold surged $20 an ounce, to $967.66, lifting the stocks of gold producers. Barrick Gold Corp. rose 5.8 per cent and Goldcorp Inc. surged 6.8 per cent.

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Oil hits new record, surges past $147

Oil hits new record, surges past $147

PABLO GORONDI
Friday, July 11, 2008

KUALA LUMPUR — Oil prices spiked Friday as continued tensions in the Middle East and concerns of renewed violence in Nigeria pushed the price for a barrel of oil to a record near $147 (U.S.).

By midday in Europe, light, sweet crude for August delivery jumped $5.25 to $146.90 on the New York Mercantile Exchange.

Oil prices had fallen $10 over two days to start the week and as oil rebounded Friday, Dow Jones industrial average futures fell more than 120 points.

In London, August Brent crude soared $4.92 to $146.95 a barrel on the ICE Futures exchange after hitting a record $147.25.

“There's always a fear premium in pricing. The tensions in Iran and the threat of supply disruption will help support oil prices,” said Jeff Brown, managing director of FACTS Global Energy in Singapore.

JBC Energy in Vienna, Austria, said the news about Iran, Nigeria, as well as a reported threat of a strike by oil workers in Brazil were “enough to wake the market from its two-day slumber.”
A day after Iran tested a missile capable of reaching Israel, Secretary of State Condoleezza Rice warned the oil-producing nation that the United States will defend its allies. Iran then responded with another missile launch, drawing buyers back to jittery energy markets.

Both the U.S. and Israel have not ruled out a military strike on Iran.
Domestically, there was another disappointing report on U.S. stocks.
Heating oil futures on Friday rose to a record $4.15 in other Nymex trading, adding more than 11 cents a gallon.

The Organization of Petroleum Exporting Countries has warned that it cannot replace the shortfall if Iran is attacked and takes its crude supplies off the market. The fear is that Iran, OPEC's second-largest producer, could block the Strait of Hormuz, a passageway that handles about 40 per cent of the world's tanker traffic.

Meanwhile, attacks on Nigerian oil facilities could again disrupt supplies in the oil-rich region.
Nigeria's main militant group vowed Thursday to resume attacks because of Britain's recent pledge to back the government in the conflict there. Unrest during the past two years have already slashed the country's normal daily oil output by a quarter.

Still, while supply worries abound and the U.S. dollar remains weak compared with levels a year ago, many investors are seeing reasons to believe that oil might be peaking because of resistance to the record-level prices.

“Here in the United States, airplanes are being grounded. Travel has definitely changed. People are looking at hybrids,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

“It's been about a three- or four-year bull market, and anyone who has called a peak in this market has ended up with a red face,” he said. However, “it appears that demand destruction is at a level where we might have seen the high in oil prices.”

The U.S. Energy Department reported Wednesday that American demand for gasoline during the four weeks that ended July 4 was 2.1 per cent lower than a year earlier, at about 9.3 million barrels a day.

“I don't think we're going to imminently fall out of bed here,” said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos. Inc., referring to crude-oil prices. “But I'm finding it difficult to justify prices at much higher levels.”
Natural gas futures rose 28 cents to $12.59 per 1,000 cubic feet.
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