CALGARY, May 11 /CNW/ - Ivanhoe Energy Inc. (TSX: IE) (NASDAQ: IVAN) today reported financial results and operating highlights for the first quarter of 2011 and key highlights and activities to date. Ivanhoe Energy has filed its quarterly financial report on Form 10-Q with the Securities and Exchange Commission and its Interim Financial Statements with the Canadian Securities Administrators for the period ended March 31, 2011. All figures reported are in US dollars unless otherwise noted, and reflect the Company's move to the IFRS accounting standard.

Highlights

• Announced a second deep gas discovery on the Zitong Block in the Sichuan basin in China with the successful drilling of Zitong 1.
  
  
• Confirmed positive test results from Ivanhoe's two most recent wells drilled on the Zitong Block.  Both the Yixin 2 and Zitong 1 wells were flow tested during the quarter and prepared for vertical fracture stimulation tests scheduled subsequent to the end of the first quarter.
  
  
• Increased reserves and resources assigned to the Tamarack Project near Fort McMurray, Alberta by 18%.  GLJ Petroleum Consultants of Calgary (GLJ) assigned estimated probable plus possible bitumen (3P) reserves of 220 million barrels and probable bitumen (2P) reserves of 176 million barrels to Tamarack. Along with the reserves additions, the independent 2010 evaluation recognized 345 million barrels of best estimate contingent resource.
  
  
• Extended patent protection on the HTL heavy oil upgrading technology to 2028 with the receipt by Ensyn Corporation, Ivanhoe's technology partner, of additional patents which broadened the underlying core technology known as Rapid Thermal Processing (RTP^TM).
  
  
• Received CAD$27 million in additional capital resulting from the exercise of warrants priced at CAD$3.16 attached to the February 2010 Special Warrant financing.  These proceeds, together with existing cash on hand, will be used to fund project activities during 2011.
  
  
• Revenues were $8.2 million in the first quarter of 2011 compared to $5.3 million in the first quarter of 2010.  Revenues increased due to a combination of higher production volumes and stronger realized prices.
  
  
• In the first quarter of 2011, $6.5 million in cash flow was consumed in operations, compared to $5.4 million of cash flow consumed in operations during the first quarter of 2010.
  
  
• The net loss for the first quarter of 2011 was $11.1 million compared to a net loss of $6.8 million for the first quarter of 2010 due to higher operating, general and administrative expenses. The higher 2011 general and administrative expense was driven primarily by bonus payments for 2010 performance that were not accrued for in 2010, a quarterly accrual for 2011 bonus payments to potentially be paid in 2012 and an increase in salaries to support drilling operations.
  
  
• Cash and cash equivalents were $80.8 million at March 31, 2011 compared to $68.3 million at December 31, 2010. The Company's cash position at March 31, 2011 was supplemented by the exercise of CAD$27 million in warrants issued pursuant to the Special Warrant financing completed in the first quarter of 2010.

Tamarack Project - Canada

Ivanhoe Energy continued to advance through the early stages of the regulatory approval process with various governmental bodies in the first quarter.  Through its independent reserve evaluator, Ivanhoe recognized 220 million barrels of probable plus possible (3P) reserves and 345 million barrels of best contingent resources on the Tamarack Lease.  Since the initial acquisition of the lease from Talisman in 2008, Ivanhoe has advanced the delineation and characterization of the resource.  The combined reserves and resources represent over a two-fold increase from the initial resource estimates at the time of the acquisition.

The regulatory submission premise combines both a steam assisted gravity drainage (SAGD) thermal recovery upstream business and a downstream operation consisting of right-sized HTL facilities.  While current heavy to light price differentials do not justify the deployment of incremental capital to build HTL facilities, Ivanhoe will be able to react quickly should leading indicators suggest that the longer term heavy oil price differential will widen from current levels.  Ivanhoe will maintain the option to build an HTL facility in the future and in this sense HTL provides a downside hedge against deteriorating economics that heavy oil producers are typically exposed to. Heavy to light oil price differentials greater than 20% would be required to achieve Company specific economic hurdle rates of return on capital deployed for a HTL facility.

Pungarayacu Project - Ecuador

During the quarter, Ivanhoe finalized the terms of a 2D seismic program with a third party.  Early work, such as obtaining right of way permits, commenced at the end of the quarter.  The majority of the seismic program will ensue over the second quarter of 2011 with final results and processing during the third quarter.  The objective of this seismic program is to better identify sub-surface structures, assist in the selection of future drilling locations and possibly determine deeper geologic trapping systems which may contain lighter quality crude products.

Carlos Espinoza, Ivanhoe's General Manager for the Ecuador Project, was recently elected as the Principal Director of the Ecuadorian-Canadian Chamber of Commerce.  Mr. Espinoza is a key senior official for Ivanhoe's Ecuadorian Project and with this appointment, it is envisioned that both business and political ties between Ivanhoe Ecuador and the national government of Ecuador will be further solidified as both parties continue to support the development of a key strategic resource.

Subsequent to the end of the quarter, Ivanhoe announced positive results regarding testing of heavy crude volumes recovered from the IP-5B well in the Pungarayacu field through the Feedstock Test Facility ("FTF") in San Antonio, Texas.  Heavy crude from the IP-5B well has technical characteristics which on some accounts are quite different from that observed for heavy crude from the Athabasca region of northern Alberta.  The FTF successfully produced a 17^o API synthetic crude oil, meeting local pipeline specifications.  While in and of itself an important achievement, Ivanhoe anticipates that further improvements will be attained as the Project advances, principally in the level of upgrading or synthetic crude oil API. This improvement over initial results would be consistent with the experience upgrading Athabasca heavy crude oil.  These recent successful tests demonstrate the flexibility and robustness of the HTL upgrading process to convert diverse heavy crude feedstocks into more valuable and marketable, pipeline-ready synthetic crude oil. In addition, these tests help position Ivanhoe Energy for full-scale heavy oil operations in Ecuador and in other countries having similar heavy oil characteristics.

HTL business development

The HTL process continues to be refined and enhanced by Ivanhoe.  A significant achievement during the quarter was the extension of patent protection to 2028.  This was indirectly achieved via the issuance of a new patent in the United States to Ensyn Corporation ("Ensyn") for its RTP^TM (Rapid Thermal Processing) system.  Ensyn is Ivanhoe's technology partner and shares certain common directors on the respective boards.  Efforts made by Ensyn directly benefit Ivanhoe in that Ivanhoe's HTL process uses the same core technology which has been commercialized seven times around the world over the last 20 years.

As previously stated in the Ecuador update, the FTF successfully processed heavy crude oil recovered from the Pungarayacu field.  Ivanhoe's business development efforts will continue to assess opportunities around the world where HTL provides a competitive advantage.  This competitive advantage may manifest itself in the form of reduced scale compared to traditional upgrading alternatives, heavy to light oil price differential capture, natural gas avoidance, diluent avoidance, geographic restrictions, environmental sensitivities, maintenance of posted benchmark prices, etc.  These are the many challenges facing heavy oil resource owners around the world today.  One of key advantages of HTL is its flexibility to be customized as required in a particular market thereby capitalizing on the economics associated with one or more of these advantages.

Sunwing Energy

Sunwing has a 15-year history of oil and gas exploration and production in China. Sunwing produces approximately 1,500 barrels (gross) of light oil per day in Dagang, in China's Hebei province, in a production sharing agreement with PetroChina in which Sunwing is the operator. Sunwing is also the operator in a gas exploration block in Zitong, in Sichuan province, with its 10 percent partner, Mitsubishi Gas Chemical Company. In November 2009, through a merger between a subsidiary of Ivanhoe Energy and PanAsian Petroleum Inc., the Company acquired a Production Sharing Contract for the Nyalga Block XVI in Mongolia. The block covers an area of approximately 12,608 square kilometres and provides the Company with the exclusive rights to explore, develop and produce oil or gas within the block.

Dagang - China    At the Dagang field, production was 90,599 net barrels of oil after royalties in the first quarter of 2011 compared to 72,396 net barrels of oil after royalties during the first quarter of 2010.  The exit rate at March 31, 2011 was 1,500 barrels per day from 44 producing wells compared to 1,270 barrels per day from 35 wells at March 31, 2010.

Zitong - China   Early in the quarter, Ivanhoe announced a second gas discovery on the Zitong Block with the successful drilling to target depth and associated flow rate testing of the Zitong 1 well.  Following the two gas discoveries on the Zitong Block, Sunwing continued to advance testing efforts on both the Yixin 2 and Zitong 1 wells to better assess the operational characteristics of the wells.  Fracture stimulations programs are required in both cases due to the deposition of the sub-surface geology.  Complete fracture stimulation program results will be reported in the near term.  Sunwing has also commenced the preparation of a Provisional Overall Development Program ("PODP") which has been requested by PetroChina to assess onward testing and longer term potential development plans, and will be submitted by end of June this year. On completion of this additional testing and appraisal work, an Overall Development Program (ODP) will be prepared and submitted as required under the Production Sharing Contract.  Upon review and approval of this ODP by the Central Government, PetroChina has the option to participate to a maximum 51% Working Interest in the go-forward capital requirements on the Block.

Block XVI - Mongolia   Sunwing has contracted an appropriate drilling rig for an initial two well program with an option for an additional three wells.  Targeted locations have been selected based on interpretation of over 900 kilometres of 2D seismic.  Drilling results will be reported upon completion of drilling and evaluation of the wells over the course of 2011.

Ivanhoe Energy - Consolidated Financial Highlights
(unaudited; thousands of U.S. dollars except per share amounts)

Summary of First Quarter

Oil production increased in the first quarter of 2011 compared to the first quarter of 2010 as Ivanhoe received additional volumes to offset capital expenditures incurred at Dagang. Additional production in combination with stronger realized prices, resulted in higher oil revenue for the Company in the current quarter. The net loss in the current quarter was $11.1 million, compared to a loss of $6.8 million in the first quarter of 2010, due to higher operating and general administrative expenses, which were partially offset by noncash foreign currency exchange and derivative instrument gains.

Capital expenditures totalled $14.3 million in the three months ended March 31, 2011 and primarily related to activities in China. At the Company's Zitong Block in China's Sichuan Province, testing operations were performed on the Xu-4 and Xu-5 formations of the Zitong-1 gas well. The Yixin-2 gas well was tested in the Xu-4 formation and the well was prepared for fracture stimulation. At Dagang, one well was drilled and completed and a well spudded in 2010 was completed. Fracture stimulation programs at Dagang also continued during the quarter.

Liquidity and Capital Resources

Ivanhoe Energy's cash and cash equivalents were $80.8 million at March 31, 2011 compared to $68.3 million at December 31, 2010, a net increase of $12.5 million. This increase was primarily due to the exercise of common share purchase warrants, offset by cash used for capital expenditures and operations.

This news release summarizes our 2011 first quarter results of operations and financial condition and should be read in conjunction with our Quarterly Report on Form 10-Q for the period ended March 31, 2011, which contains financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.  The Form 10-Q was filed on May 10, 2011.  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^TM).  Core operations are in Canada, Ecuador, China and Mongolia, 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.

For more information about Ivanhoe Energy Inc. please visit our web site at www.ivanhoeenergy.com.

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 2010 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on EDGAR and the Canadian Securities Commissions on SEDAR.