Ivanhoe Energy Inc -
Ivanhoe begins Kongnan pilot project
Ivanhoe Energy Inc IE
Shares issued 89,727,767 1999-07-20 close $2.4
Wednesday Jul 21 1999
Mr. David Martin reports
Work has begun on the installation of new production equipment at the first of three existing wells slated for workovers this summer as the company launches the pilot development program for its Kongnan project on the Dagang oil field in China.
Dagang is Ivanhoe Energy's second pilot development program in China. The three wells to be worked over this summer are among 26 wells that currently produce oil intermittently from Ivanhoe's six development blocks, containing 22,400 acres.
The pilot program provides for the drilling and testing of a total of five new wells, and workovers of five existing wells, by the end of next year.
Dagang, about 200 kilometres southeast of Beijing in the province of Hebei, produces a total of approximately 85,000 barrels of oil a day, making it the sixth-largest onshore field in China.
"Our Dagang development program is part of a pioneering, foreign joint venture which plans to establish the first continuous production from reservoirs of light crude oil that have been identified within the boundaries of the Kongnan project," said David Martin, chairman of Ivanhoe Energy.
"China's consumption of oil has doubled this decade and the government is counting on foreign investment to help increase domestic production and reduce its dependence on imported crude oil."
Leon Daniel, president and chief executive officer of Ivanhoe Energy, said his recent inspection of oil fields in China convinced him of the potential for major production improvements that could be achieved through the application of Western, enhanced oil recovery technology.
"Ivanhoe Energy was the first foreign company to hold two contracts in China authorizing the application of enhanced recovery procedures on discovered, but largely unproduced, reservoirs," Mr. Daniel said. "Our Kongnan project will be introducing advanced drilling and well stimulation technology, water flooding and new production equipment to our Dagang blocks, which we expect will lead to a full water-flood development and commercial production."
Recently appointed to Ivanhoe's top corporate posts, Mr. Daniel is a specialist in enhanced oil recovery techniques and formerly directed several global projects as Occidental Petroleum Corp.'s executive vice-president for engineering, drilling and production.
Following are some key activities under the Kongnan pilot program:
Drilling of the first new well, Nan 103, will begin in September. The first of five pilot wells to be drilled, completed and tested by the end of the year 2000, Nan 103, will be drilled to 3,500 metres, fracture stimulated and placed on test production for up to three months. The well then will be converted to water injection for the water-flood pilot program.
Drilling of the second new well, Nan 102, will begin before the end of December.
Chinese drilling equipment and crews will be used and, for the first time in China, advanced synthetic drilling and completion fluids -- proven in Western oil fields -- will be used to improve well productivity and to minimize reservoir damage.
A project camp, built in China to North American specifications, is now being moved to the site of the Kongnan pilot test project.
The Kongnan pilot program is based partly on data gathered from earlier work by the Dagang Oilfield Group of China, which is Ivanhoe Energy's operating partner in the venture. The Dagang Oilfield Group has drilled a total of 82 exploration wells over the past 10 years on the Kongnan project blocks.
Ivanhoe Energy is preparing a preliminary, long-term development plan, which provides for the drilling and reworking of 100 wells, including 56 of the 82 existing exploration wells. The plan envisions production of approximately 36,000 barrels a day by the end of 2003. Based on Chinese exploration data, Gilbert Laustsen Jung Associates Ltd., a leading Canadian independent petroleum consultantcy, has estimated that the Kongnan project area contains proven and probable oil-in-place of approximately 394 million barrels of 30-degree API oil.
The original 1997 production-sharing contract between Ivanhoe's wholly owned subsidiary, Pan-China Resources Ltd., and the state-owned China National Petroleum Corporation, gives Pan-China 82 per cent of the operating cash flows from the Kongnan project during the cost-recovery phase, and 49 per cent after payout.
Ivanhoe Energy announced in May that Nippon Oil Exploration Ltd. -- owned by Nippon Mitsubishi Oil Corporation of Tokyo -- had agreed to acquire a participating interest of 10 per cent in the exclusive contract to develop the Kongnan project, with the balance being held by Ivanhoe.
Ivanhoe Energy's other pilot program in China -- its Zhou Block 13 project at Daqing, China's biggest oil field -- is already well advanced. The company has met its contract commitment to drill five wells, which each had initial tested rates of 125 to 150 barrels of oil a day. The company is monitoring the production and water-injection performance. Data being gathered will be used to evaluate the project's development plan.
In the United States, Ivanhoe Energy recently completed the acquisition of Diatom Petroleum Inc. of Bakersfield, Calif. As a result of the acquisition, Ivanhoe now holds an exploration contract directly with Aera Energy LLC covering an area of mutual interest in California's oil-rich San Joaquin Valley. Aera, the largest oil producer in California, has a land portfolio of more than 80,000 acres within the area of interest.
WARNING: The company relies on litigation protection for "forward-looking" statements.
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