Ivanhoe Energy says that Sunwing Energy Ltd., the company's wholly-owned subsidiary, 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. 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 is planned to be approximately 4,200 metres and it is expected to take up to six months to drill and test the well. Yixin-2 is expected to cost approximately US$8.5 million. Design of any stimulation of the well using fracing technologies will be determined following evaluation of the test results.

Progress update on Zitong-1 well 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 David Dyck, President and Chief Operating Officer. '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.'

'Drilling success would also unlock the remaining structures on the block for further exploration, exploitation and development. This asset has the potential to dramatically change the growth profile of Ivanhoe and it is representative of the types of projects we are pursuing around the world.'

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.

Sunwing is the operator of the 659,840-acre (1,031 square miles) gas exploration block in Sichuan, and it holds a 90 percent Contractor Interest in a Petroleum Contract with PetroChina Company Limited. Mitsubishi Gas Chemical Company of Japan holds the remaining 10 percent Contractor Interest.

Tags: Ivanhoe Energy Inc.