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Ivanhoe Energy starts drilling at Yixin-2 in China

International heavy oil development and production company Ivanhoe Energy (TSX: IE, NASDAQ: IVAN) has announced that its subsidiary Sunwing Energy has started drilling Yixin-2, located in its Zitong gas exploration block in the Sichuan province of China. This well follows the commencement of drilling of the Zitong-1 well in mid-June 2010.

Yixin-2 is being drilled as a twin well of Yixin-1, a well drilled by Sunwing in 2007 that generated significant preliminary gas flow rates.

These rates, however, could not be confirmed before the well was shut-in due to a surface equipment failure during the initial hours of the testing program, it said.

Yixin-2 will be directionally drilled to allow the second wellbore to be located within 100 metres of the Yixin-1 at total depth. Yixin-2 is targeting gas in fractured reservoir formations similar to those that have led to enormous gas developments in various tight gas projects in North America.

Total depth of the Yixin-2 well, a project which is expected to cost approximately US$8.5 million, is planned to be approximately 4,200 metres and it is expected to take up to six months to drill and test the well.

Separately, at the Zitong-1 well, the rig has run and cemented the 9 5/8 inch intermediate casing to a depth of 3,018 metres. Following pressure testing of the casing and blow-out preventers, drilling will continue to move ahead to a planned total depth of approximately 4,500 metres.

The Zitong-1 and Yixin-2 wells are targeting structures with natural gas potential in the range of 0.3 to 0.5 trillion cubic feet.

"These two natural gas wells have the ability to be company makers in their own right," said president and COO David Dyck.

"There is tremendous potential on this large block of land which could add significant value to Ivanhoe with the addition of natural gas reserves, production and near term cash flow."

Sichuan is the oldest and one of the most prolific gas producing regions of China. Sinopec and Petrochina have made significant gas discoveries from the Xu2, Xu4 and Permian formations in blocks adjacent to Sunwing's Zitong Block.

Any gas produced in the Zitong block would be tied into an existing local and regional gathering and sales distribution system, the company said.

Sunwing is the operator of the 659,840-acre gas exploration block in Sichuan, and it holds a 90% contractor interest in a petroleum contract with PetroChina Company.

Ivanhoe Energy is focused on pursuing long-term growth in its reserves and production using advanced technologies, including its proprietary, patented heavy to light upgrading process. Core operations are in Canada, Ecuador, China and Mongolia, with business development opportunities worldwide.