Ivanhoe Energy has announced that it, through its wholly owned subsidiary Sunwing Zitong Energy, will proceed with Phase II of its gas exploration and development contract for the Zitong Block in Sichuan Basin, China.  

Mitsubishi Gas Chemical Company, which owns a 10% working interest in the project, also indicated its interest in proceeding with Phase II.

Sunwing holds a 90% contractor working interest in the Zitong PSC (production sharing contract) and is the operator. MGC owns the remaining 10% contractor interest and has an option to acquire a further 10%. Sunwing and MGC will receive approximately 75% of any net project revenues before payout and approximately 45% after payout. PetroChina, a subsidiary of CNPC, may elect to participate in any development of the project through a working interest of up to 51%.

Sunwing now has completed Phase I under the Zitong PSC. This included reprocessing approximately 1,649 miles of existing 2D seismic data and acquiring approximately 705 miles of new 2D seismic data, and interpreting this data. This was followed by drilling two wells, totaling an aggregate of 22,293 feet. Phase II entails additional drilling of a total of approximately 22,965 feet, to take place over a three-year period ending in December, 2010.

Gerry Moench, executive vice president of Ivanhoe Energy, said: "Our work to date has confirmed the presence of gas and has taught us a great deal. Our partnership with Mitsubishi Gas Chemical Company (MGC) and our contract with PetroChina associate us with two of Asia's energy leaders. We look forward to executing Phase II and proving out the potential of this important block."