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Tamarack Project Marks Advance Toward Production

Source: 11/4/2010, Location: North America

David Dyck, President and Chief Operating Officer of Ivanhoe Energy Inc. announced that the company has completed a major milestone towards commercial production at its Tamarack Project with the submission of its regulatory application to the Government of Alberta. The application is for the development of an integrated in-situ heavy oil project to be built in two phases, each 20,000 barrels per day, with ultimate production capacity of approximately 40,000 barrels per day (bitumen basis).

“Filing this application marks the culmination of over three years of detailed environmental, engineering and geological work as well as extensive socio-economic analysis,” Mr. Dyck said. “Our team has worked diligently to prepare and complete this application, and its submission to the regulatory authorities is the next critical step in our development schedule which targets first oil in 2013.”

The application contains a full description of the detailed project development plan and a comprehensive Environmental Impact Assessment. In support of the application, Basic Engineering and Design and Front End Engineering and Design were completed to generate a Class III (+25/-20%) capital cost estimate. Ivanhoe Energy’s top-tier contractors, AMEC in London, England and AMEC-BDR in Calgary, Alberta worked closely with Ivanhoe Energy’s technical team throughout this process.

As part of the application process, Ivanhoe Energy conducted extensive public consultation, including over 800 meetings and direct communications, to seek ideas and feedback from aboriginal groups, area residents, government and other key stakeholders.

An integrated SAGD/HTL project

Tamarack is a 6,880-acre contiguous block located approximately 10 miles (16 km) northeast of Fort McMurray. Ivanhoe Energy holds a 100 percent working interest in the Project, subject only to a 20% back-in right held by Talisman Energy, which expires in mid-2011.

Ivanhoe Energy’s independent reserve evaluator, GLJ Petroleum Consultants Ltd. (GLJ), has assigned best-estimate contingent resources of 441 million barrels of bitumen to the Tamarack Project. With the submission of this regulatory application, Ivanhoe Energy expects to update its resource estimates coincident with the company’s year-end reporting and transition a portion of its contingent resources to the probable and possible reserve category.

Upstream operations – SAGD

Ivanhoe Energy plans to develop the resources at Tamarack utilizing state-of-the-art steamassisted gravity drainage (SAGD). SAGD is a thermal production method for heavy oil that utilizes pairs of stacked horizontal wells. Steam is injected into the reservoir through the upper well. As the steam rises and expands, it heats up the heavy oil, reducing its viscosity. Gravity forces the oil and condensed steam to drain into the lower well where it is produced.

The company expects that 12 well pads and approximately 160 SAGD well pairs will be required to fully develop and produce the targeted resource base. The engineering for the upstream portion of the project has been carried out by AMEC-BDR, Calgary. AMEC-BDR is a leading SAGD facility engineering and construction management firm specializing in complete engineering, procurement, construction management project delivery.

Downstream operations – HTL

Ivanhoe Energy’s proprietary, HTL upgrading process converts heavy, viscous crude oil in the field to a lighter, transportable synthetic crude oil which commands a higher price in the marketplace, and does not require light oil as a blending agent for transport. In addition, natural gas for steam generation is not required because upgrading by-products are converted onsite into steam or power that can be used in field operations. HTL also allows Ivanhoe Energy to capture the majority of the value differential between light and heavy oil resulting in enhanced profitability and reduced earnings volatility.

Significant environmental benefits

The Tamarack Project has been designed to meet or exceed all applicable regulatory requirements including no freshwater use, a water recycle rate of over 95 percent and state-ofthe- art air emission controls. In addition, the integration of HTL (heavy-to-light) upgrading provides several environmental advantages over traditional upgraders, including a significantly smaller carbon footprint, the avoidance of large accumulations of coke by-products and virtually eliminating natural gas consumption.

Economic benefits generated for the province

Once fully operational, the Tamarack Project is expected to create approximately 13,500 person years of direct and indirect employment. The Project will also contribute several billion dollars of both direct and indirect economic benefit, largely to the Alberta and Canadian economies, through engineering and construction activities and the significant taxes and royalties payable to the Province of Alberta. The associated economic and employment benefits related to the integration of an HTL upgrading facility in the field will also be retained by the province.

First oil in 2013

Subject to the receipt of regulatory approvals from the Alberta Energy Resources Conservation Board and Alberta Environment construction of the Tamarack Project could commence in mid-2012, with first bitumen production expected towards the end of 2013. The regulatory process is expected to require approximately 18 to 24 months.

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