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Ivanhoe Energy Inc. - Xu-5 Zone At Zitong-1 Flows Gas At Significant Pressure

The testing programs on this well encountered unexpected third-party delays while waiting for the necessary equipment to complete the work; demand for well service equipment in the Sichuan Basin is steadily increasing along with the demand for natural gas.

It has been recently reported that major multi-national energy companies have high expectations for unconventional gas in China, including tight-gas and shale-gas, and they are ramping up their investment and activity in the region. This activity has put some pressure on the timely availability of equipment in the area. Potentially adding to this demand for equipment, China is reportedly in the process of drafting policies and incentives to encourage development of unconventional gas plays in support of its stated goal to increase the use of cleaner-burning fuels.

In January 2011, Ivanhoe Energy reported that Zitong-1's deeper Xu-4 formation had flowed gas at a restricted rate of approximately 750,000 cubic feet per day, through a three-millimetre choke, during limited testing. The Xu-4 zone was then isolated to allow perforating and testing the shallower Xu-5 formation. Additional Xu-4 evaluation in the Zitong-1 well will be scheduled after completing all testing and evaluation of the Xu-4 fracture stimulation at the Yixin-2 well.

"We continue to make excellent progress at our two new natural gas discoveries and look forward to the results of our upcoming fracture stimulation programs," said Mr. Dyck.

"The Zitong Block consists of deep, high-pressure reservoirs that are classified as "tight gas". The permeability and porosity of the sandstones encountered in the Zitong-1 and Yixin-2 gas discoveries fall within the parameters of current, highly productive, commercial tight-gas projects in North America. The key difference and positive indicator is that we are obtaining significant flow rates from these wells prior to fracture stimulation. The planned stimulation programs have the potential to significantly increase these early flow rates, providing critical information to better understand reservoir performance, including the scale of the reserves," added Mr. Dyck.

With successful pre-stimulation gas flows from tests on the Xu-4 and the Xu-5 formations, the company estimates that the four main structures on the Zitong block contain between 0.3 (P90) and 1.7 (P10) trillion cubic feet of total gas initially-in-place, with a best estimate (P50) of 0.75 trillion cubic feet. This resource estimate does not include potential from the Xu-2 formation or any of the additional, smaller structures on the block - or the potential for a regional tight-gas play, which the company believes is achievable, given the number of off-structure wells that have achieved gas flows. The company is currently conducting further evaluation to permit classification of these resources into more specific categories pursuant to National Instrument 51-101, to estimate the recoverable portion of these in-place volumes and to determine their commerciality. In the meantime, there is no certainty that it will be commercially viable to produce any portion of these resources.

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