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A valuable and unique quality of our California exploration program arises from the opportunity to prospect for new oil and natural gas potential beneath existing fields in the San Joaquin Basin.
This basin is one of the most prolific oil and natural gas producing regions in the lower 48 states. The growing demand in California for cleaner burning natural gas is spurring existing producers to evaluate the potential for natural gas beneath existing oil fields. In 1998, Ivanhoe was able to acquire drilling rights through an exploration agreement with Aera Energy, LLC - California's largest producer.
This agreement gave us access to a significant inventory of exploration, seismic and technical data for the purpose of identifying drillable prospects, primarily beneath existing fields. Ivanhoe has identified and gained a working interest in over 40 separate exploration leads covering approximately 73,000 acres within the basin. The top 25 drillable prospects from this portfolio will expose Ivanhoe to a very large reserve potential over the next several years of drilling and we regularily pursue opportunities to drill these prospects.
South Midway, California
Ivanhoe currently operates 67 wells in the South Midway field. These wells are shallow and produce a heavy crude oil. We own a 100% working interest and approximately a 93% net revenue interest. During 2002 we began a steam injection process to heat the reservoir and increase the amount of oil recovered. This program proved successful and increased the daily production rate from approximately 300 barrels per day when the program began to current production of approximately 600 barrels per day. Additional development is underway in areas which have shown the most favorable steam response.
Knights Landing Area, Sutter County California
In February, 2004, the company entered into an exploration and development agreement to farm into several natural gas discoveries at the Knights Landing Project in the Sacramento Gas Basin of northern California. In December, 2004, Ivanhoe purchased its parter's assets in this project and obtained a 100% working interest in eight wells and an 80% working interest in five additional wells.
The Knights Landing Project is on a 15,000-acre block in Sutter and Yolo counties. Natural gas was discovered in four new wells drilled on the project in 2003.
Ivanhoe participated in drilling of an initial 9 development and exploration wells offsetting the four producing wells that resulted in 3 new gas discoveries. These wells were put on production. A 3-D seismic program has been undertaken and additional drilling is planned. The primary objective of the drilling is the Starkey Sand formation, which is an established producing reservoir in the region that lies between depths of 2,000 and 3,500 feet.
The Sacramento Basin is a major gas producing area located in northern California. In 2002, the region produced 81 billion cubic feet of gas from 83 fields and more than 1,000 producing wells. The nearest field of significance to the Ivanhoe project area is the Knights Landing field which was discovered in 1981 and has produced over 20 billion cubic feet of natural gas.
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