Ivanhoe Energy second-quarter results
Ivanhoe Energy Inc IE
Shares issued 89,727,767 Aug 31 close $3.75
Wed 1 Sept 99 News Release
Mr. Peter Meredith reports
Ivanhoe Energy has identified more than 30 exploration leads on acreage
available for its participation in California's southern San Joaquin Valley
and it will begin drilling selected prospects later this year, the company
reports to shareholders in a review of its activities for the second
quarter that ended June 30, 1999.
One priority area for Ivanhoe Energy is Lost Hills, where the discovery by
Berkley Petroleum at East Lost Hills has stirred industrywide interest in
the potential of deep-gas prospects in the San Joaquin Valley. Ivanhoe
Energy has directly leased approximately 4,000 acres at Lost Hills, in
partnership with other operating companies. In preparation for a start to
drilling, Ivanhoe and its partners are commencing an additional seismic
program on this acreage to supplement currently available seismic
information. The planned well is directly on structural trend with
Berkley's three wells at East Lost Hills, including the Bellevue No. 1
blowout. Berkley's recently spudded third well is within three miles of
Ivanhoe's acreage. Ivanhoe Energy will release additional details in the
near future as developments occur and as its plans are finalized.
As recently announced, Ivanhoe Energy also has agreed to a 12-1/2-per-cent
working interest in Berkley's Lucky Dog No. 1 exploration well, which is
scheduled to be drilled either late this year or early next year. The Lucky
Dog prospect is 17 miles south of the Bellevue wells, near the Belridge
field.
The deep wells at Lost Hills and Lucky Dog will target sands below 17,000
feet in the Temblor formation -- a widely producing oil and gas formation
in the San Joaquin Valley.
Second-quarter highlights included:
the adoption of the new name, Ivanhoe Energy, by the former Black Sea
Energy, following Black Sea's acquisition of Sunwing Energy. The
acquisition secured two low-risk development/enhanced oil recovery projects
in some of the largest oil-producing regions in China. The benefits to
Ivanhoe Energy include an increase of 41 million barrels in the company's
proven and probable oil reserves;
the appointment of Leon Daniel, an oil executive with more than 30 years'
experience in major oil projects throughout the world, as president and
chief executive officer;
the reconstitution of the Ivanhoe board, with the addition of newly
appointed directors R. Edward Flood and Shun-ichi Shimizu. Mr. Flood was
formerly president of Ivanhoe Mines Ltd. (originally known as Indochina
Goldfields) and a member of the investment-fund management team at
Robertson Stephens & Co., San Francisco; Mr. Shimizu has more than 33
years' experience in the energy industry, including planning, financing and
managing international energy projects;
the decision by Nippon Oil Exploration Limited, of Japan, to participate in
the joint venture planning the development of Ivanhoe's Kongnan project in
the Dagang oil field in China. Nippon now holds a 20-per-cent interest in
Kongnan, where Ivanhoe Energy commenced workover operations in late July.
The pilot program provides for the drilling and testing of a total of five
new wells and the workover of up to five existing wells by the end of next
year, using western, enhanced-oil-recovery technology. Ivanhoe is preparing
a preliminary, long-term development plan which provides for the drilling
of a total of 100 wells and the reworking of 56 of the 82 existing
exploration and appraisal wells on the 22,400-acre Kongnan holding.
At June 30, 1999, Ivanhoe Energy had a cash position of $9-million (U.S.)
and had working capital of $5.6-million (U.S.). Oil sales during the six
months amounted to $5.5-million (U.S.), (compared with $6.8-million (U.S.)
for the six months ended June 30, 1998), augmented by operating revenue,
under an arrangement with Tyumen Oil, of $296,000 (U.S.) and interest
revenue of $261,000 (U.S.) (compared with $1.1-million for the six months
ended June 30, 1998).
The net loss for the six months ended June 30, 1999, was $2.5-million
(U.S.), or three U.S. cents per share, compared with a net loss of $845,000
(U.S.) or one U.S. cent per share for the same period in 1998. Oil
operating costs (including other relevant costs and taxes) have been
substantially reduced -- from $7.73 (U.S.0 per barrel for the first six
months of 1998, to $3.42 (U.S.) per barrel for the same period in 1999 --
through operating efficiencies and the impact of the weak Russian ruble.
General and administrative expenses have increased by $485,000 (U.S.), due
primarily to costs associated with the Sunwing merger and additional
administrative costs incurred in California in connection with Ivanhoe's
increased presence there.
A cash flow deficiency during the period amounted to $860,000 (U.S.), or
one U.S. cent per share, compared with a cash flow of $611,000 (U.S.), or
one U.S. cent per share, for the corresponding period in 1998.
Ivanhoe Energy's second-quarter report advises shareholders that there is
extensive third-party interest in its Radonezh project in Russia. Radonezh
is considered to be a critical field in the development of the Uvat Region
as a result of its inclusion in fields covered by the Russian government's
production-sharing legislation.
Updating the status of the Tura joint venture project, the second-quarter
report says that, as a result of their successes to date in the Russian
courts, Tura partner Tyumen Oil and its subsidiary, Tyumenneftegas (TNG),
have secured new licences for the Kalchinskoye field in place of Tura and,
as a consequence, Tura's direct production and oil sales rights have been
revoked. While Tura continues to seek a review of these decisions by the
Supreme Arbitration Court of the Russian Federation, TNG has taken steps to
replace Tura as operator of the field. TNG is also seeking, so far without
success, to deprive Tura of its oil field assets and equipment without
compensation and a reimbursement of revenues received by Tura from prior
oil field production.
TNG purported to take over operations at the Tura field effective June 12,
1999. Until that date, Tura had produced 806,679 barrels of oil in 1999
(4,980 barrels per day, compared with 4,617 barrels/day during the first
six months of 1998) and sold 1,167,289 barrels (all net to Ivanhoe Energy)
at an average price of $4.68 (U.S.) per barrel, primarily into Russian
domestic markets, compared with $10.02 (U.S.) per barrel realized in the
first six months of 1998. Ivanhoe's share of crude oil inventory remaining
unsold at June 30, 1999, amounted to 87,217 barrels.
Tura continues to own the principal operating assets at the Kalchinskoye
field, which assets currently produce approximately 80 per cent of the
field's production, and Tyumen cannot operate the field without them. As a
result, TNG has continued to permit Tura to operate the field and has
reimbursed Tura for its services through July 10 at the rate of
approximately $3 (U.S.) per barrel produced. Operating costs, including
costs associated with the oil produced for TNG, amounted to $2.24 (U.S.)
per barrel for the first six months of 1999. Since that date, TNG has
proposed entering into an asset and equipment leasing agreement whereby TNG
would operate the field using Tura's operating assets and equipment. There
can be no assurance that an agreement can, or will, be reached or that any
further funds will be forthcoming from TNG.
Ivanhoe Energy's subsidiary, Great Plains Petroleum, has started
international arbitration proceedings against TNG in Stockholm, claiming
more than $43-million (U.S.) in damages resulting from the willful breach
by TNG of its contractual obligations. Ivanhoe Energy is continuing to work
with the Canadian government in attempts to resolve the dispute and remains
open to a negotiated settlement. The company intends to continue to
vigorously defend its position and protect its Tura investment.
The company's interim financial statements assume that a negotiated
settlement of the dispute will be reached or, failing such a settlement,
that any awards granted in international arbitration proceedings -- in
which the company is seeking to recover its investment and lost profit
potential -- will be sufficient to recover the recorded carrying value of
Ivanhoe's share of the Tura joint venture's net assets. If these
assumptions prove to be wholly or partially incorrect, Ivanhoe Energy may
be required to reduce or eliminate the carrying value of the Tura joint
venture. At Dec. 31, 1998, the company substantially reduced the accounting
carrying value of its Tura joint venture as a result of applying a ceiling
test valuation, in accordance with generally accepted accounting
principles. As at June 30, 1999, the remaining recorded value of Ivanhoe's
share of the Tura joint venture's net assets was $6.4-million (U.S.). For
the six months ended June 30, 1999, the net loss attributed to Ivanhoe's
share of the Tura joint venture's operations was $24,000 (U.S.).
WARNING: The company relies on litigation protection for "forward-looking"
statements.
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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