- The Company: Ivanhoe Energy, focusing on heavy oil upgrading technology.
- The Filing: FORM 10-Q filed with the SEC on August 11, 2008.
- The Finding: Ivanhoe Energy announced Wednesday a definitive agreement with Ecuador state oil companies Petroecuador and Petroproduccion to explore and develop Ecuador's Pungarayacu heavy-oil field, utilizing Ivanhoe's HTL upgrading technology. Although Ivanhoe's thermal cracking technology has the potential to substantially improve the economics and transportation of heavy oil, no commercial-scale HTL plant based on the proprietary technology has ever been constructed.
The contract type - anathema to big oil, such as ExxonMobil and BP - is a Specific Service Contract, under which Ivanhoe will receive a fixed payment of $37.00 per barrel of oil produced, indexed quarterly for inflation.
Of concern, Ivanhoe's Commercial Demonstration Facility in California has demonstrated overall processing capacity of no more than 1,000 barrels-per-day of raw, heavy oil. And, the company's primary field, the 1,400-acre South Midway heavy oil field in California, is currently processing capacity of only 600 barrels per day, according to the company's results for the second-quarter 2008 ended June 30.
Capital requirements are estimated to total approximately $110 million during the first three years of the contract, primarily for seismic work, assessment wells, initial production wells and thermal-recovery pilot tests. As the company generates limited cash flow from operations ($5.6 million for the first-half of 2008) and has other contractual obligations due in 2008 - 2010 of approximately $51 million, addintional fund raising is a given.
The Question: Can a small energy company with experimental technology meet expected production targets?