Sunwing Zitong Energy, a subsidiary of Ivanhoe Energy, has signed a binding memorandum of understanding to sell its stake in the Zitong natural gas block in China to a unit of Royal Dutch Shell.
In exchange for its stake, Canada-based Ivanhoe will receive up to $85m as reimbursement for past qualified and recoverable costs incurred, and up to $75m on closing of the transaction. Shell will also assume the $20m performance bond that Ivanhoe was required to post as part of completion of a supplementary agreement with the China National Petroleum Corporation.
The transaction will close by 31 December 2012, subject to government approvals and other conditions. A definitive purchase and sale agreement associated with the proposed transaction will be signed by Shell and Sunwing before 23 January 2012.
The transaction will help Ivanhoe finance and advance its core heavy oil business. Ivanhoe executive co-chairman Carlos Cabrera said the company’s core business remains the international exploration, development and bringing to market of heavy and conventional oil, using its proprietary HTL oil upgrading process.
“Our immediate objective is to maximise return on equity by actively pursuing a number of corporate development and financing initiatives, including strategic joint ventures, to de-risk our projects from technical and financial perspectives,” he said.
Sunwing operates the Zitong gas exploration block in the Sichuan province of China with a 90% stake, while Japan’s Mitsubishi Gas Chemical Company holds 10%.
