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(Reuters) - Ivanhoe Energy IE.TO said it will sell its stake in the Zitong natural gas project to a unit of Royal Dutch Shell (RDSa.L) for about $160 million in cash, to focus on oil exploration projects.
Shares of the Canadian heavy oil producer rose 15.5 percent to C$1.34 in early trade on Wednesday on the Toronto Stock Exchange.
The company's Sunwing Zitong Energy unit will sell its interest in the Zitong block in China's Sichuan Basin to Shell's Chinese unit, to focus on its oil projects in Canada, Ecuador, Mongolia and China.
Sunwing, which discovered gas at two of its wells at the Zitong Block, owns a 90 percent stake in the project with Mitsubishi Gas Chemical Company Inc (4182.T) owning the rest.
Under the deal, Ivanhoe will receive a payment of up to $85 million as reimbursement for past qualified and recoverable costs incurred and up to $75 million on closing of the transaction.
Shell will also assume the $20 million bond that Ivanhoe was supposed to post to the China National Petroleum Corporation (CNPC), as part as part of completion of a supplementary agreement, the company said in a statement.
The deal, for which UBS is the financial adviser to Ivanhoe Energy, is expected to close on December 31, 2012.
Shares of the Calgary, Alberta-based company were trading up 3 Canadian cents at C$1.19 in morning trade, after touching a high of C$1.34 earlier.
Reporting by Maneesha Tiwari in Bangalore; Editing by Gopakumar Warrier