Ivanhoe Energy (NASDAQ:IVAN)

On March 14, 2012, Ivanhoe Energy Inc. (“Ivanhoe” or “the Company”) entered into a U.S. $50 million short-term secured credit agreement (the “Short-term Loan”) among Ivanhoe as borrower, the Subsidiary Guarantors, as defined below, UBS Securities LLC (“UBS”) as arranger bookmanager, documentation agent and syndication agent, UBS AG, Stamford Branch, as administrative agent and UBS AG Canada Branch as collateral agent. Amounts outstanding under the Short-term Loan will initially bear interest, depending on the form of borrowing, at a rate of 9-10% above a floating short-term prime lending rate. The Short-term Loan is secured by a first charge on the oil sands leases comprising the Company’s Tamarack Project (the “Tamarack Leases”) and a pledge of the shares of certain of the Company’s subsidiaries (the “Guarantor Subsidiaries”).

On January 11, 2012, Sunwing Zitong Energy Ltd. (“Sunwing”), a subsidiary of Ivanhoe Energy Inc. (the “Company”), entered into a binding Memorandum of Understanding (the “MOU”) with Shell China Exploration and Production Company Limited (“Shell China”), a subsidiary of Royal Dutch Shell. According to the MOU, subject to government approvals and other prescribed conditions, Sunwing agreed to sell to Shell China 100% of Sunwing’s participating interest in and under the Production Sharing Contract for the Zitong block in China’s Sichuan Basin, dated September 19, 2002, as supplemented and amended by a Supplementary Agreement dated December 30, 2011 (the “Supplementary Agreement”), among Sunwing, China National Petroleum Corporation (“CNPC”) and Mitsubishi Gas Chemical Company, Inc. Shell China agreed to pay as consideration (i) a payment of up to US$85 million as reimbursement for past qualified and recoverable costs incurred, and (ii) a further payment upon closing of up to US$75 million, contingent on the timing of the receipt of full government approvals and third-party consents and waivers for the transaction.

In addition, the MOU sets forth that following completion of the transaction, Shell China will assume the US$20 million performance bond that the Company deposited in December 2011 for the benefit of CNPC pursuant to the Supplementary Agreement. Sunwing and Shell China expect to sign the definitive Purchase and Sale Agreement associated with the proposed transaction by January 23, 2012 and to close the transaction by a deadline of December 31, 2012.

GeoTeam Note: This potential transaction works out to about $0.50 per share.

Management’s plans for financing future expenditures include traditional project financing, debt and mezzanine financing or the sale of equity securities as well as the potential for alliances or other arrangements with strategic partners. Discussions with potential strategic partners are focused primarily on national oil companies and other sovereign or government entities that have approached Ivanhoe and expressed interest in participating in the Company’s heavy oil activities in Ecuador, Canada and around the world. However, no assurances can be given that Ivanhoe will be able to enter into one or more strategic business alliances with third parties or that the Company will be able to raise sufficient additional capital. If the Company is unable to enter into such business alliances or obtain adequate additional financing, the Company may be required to curtail its operations, which may include the sale of assets.

Outlook

In China, upon acceptance by CNPC, Ivanhoe will proceed with a 150-square-kilometre 3-D seismic program covering certain areas of the Zitong Block. The seismic program will assist in planning and designing a horizontal well-path for three wells in the Guan and Wen structures. It is anticipated that this program will be executed in the next 24 to 30 months and will provide the groundwork for the eventual development of the Zitong Block.

Following the drilling and abandonment of the Company’s first exploration well in Mongolia, the Company mobilized the rig to a second location in east-central Mongolia. Drilling of the second well began in mid-September and is targeting a total depth of approximately 2,500 metres.

In Canada, Alberta Environment (AENV) and the Energy Resources Conservation Board (ERCB) have completed their initial review of Ivanhoe Energy’s Application for the Tamarack integrated oil sands project, which is comprised of a two-phased 40,000 bbl/d steam-assisted gravity drainage thermal recovery (SAGD) and Heavy-to-Light (HTL) facility. The first round of Supplementary Information Requests (SIRS) was received from the regulators in the third quarter of 2011 and the Company will submit responses to these SIRs in the fourth quarter of 2011. It is anticipated that the regulatory approval process will be complete later in 2012. Project advancement, as currently envisaged, is subject to regulatory approval and financing.

Ivanhoe completed its 190-kilometre 2-D seismic survey over the southern portion of Block 20 in Ecuador and processing is ongoing. Internal interpretation suggests the heavy oil field may extend further southward than previously expected and geologic evidence suggests that a deeper, lighter oil play may also exist on the block. This internal analysis will be followed by expert external interpretation in the fourth quarter of 2011. The Company anticipates securing the necessary drilling licenses and environmental permits by the end of 2011 for wells to be drilled as part of the appraisal phase of the project.

Minor expenditures may be necessary for development costs relating to the enhancement of the Company’s HTLTM upgrading process. The Company is continuing to pursue ongoing discussions related to other HTLTM heavy oil and selected conventional oil opportunities in North and South America, the Middle East and North Africa.

On May 25, 2011, Ivanhoe Energy Inc. (the “Company”) entered into an underwriting agreement to sell, on a bought deal basis to a syndicate of underwriters, $50,000,000 aggregate principal amount of 5.75% convertible unsecured subordinated debentures.