##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-30586
 IVANHOE ENERGY INC.
 (Exact name of registrant as specified in its charter)
 Yukon, Canada
    
    98-0372413(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)Suite 654  999 Canada PlaceVancouver, British Columbia, Canada
    
    V6C 3E1(Address of principal executive office)
    
    (zip code)
 (604) 688-8323  (registrants telephone number, including area code)
 No Changes  (Former name, former address and former fiscal year, if changed since last report)
  þ o
  o þ o
  o þ




---



##### 



TABLE OF CONTENTS
 PagePART IFinancial InformationItem 1 Financial StatementsUnaudited Condensed Consolidated Balance Sheets as at June 30, 2007 and December 31, 2006
    
    
    3Unaudited Condensed Consolidated Statements of Operations and Accumulated Deficit for the Three-Month and Six-Month Periods Ended June 30, 2007 and 2006
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flow for the Three-Month and Six-Month Periods Ended June 30, 2007 and 2006
    
    
    5Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    32Item 4. Controls and Procedures
    
    
    32PART IIOther InformationItem 1. Legal Proceedings
    
    
    33Item 1A. Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters To a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34
 2




---



##### 



Part I  Financial Information
 
 Item 1 Financial Statements
 IVANHOE ENERGY INC.
 
 Unaudited Condensed Consolidated Balance Sheets
 June 30, 2007
    
    
    December 31, 2006AssetsCurrent AssetsCash and cash equivalents
    
    $
    11,076
    
    
    $
    13,879Accounts receivable
    
    
    7,100
    
    
    
    7,435Advance
    
    
    925
    
    
    
    Prepaid and other current assets
    
    
    462
    
    
    
    77319,563
    
    
    
    22,087Oil and gas properties and investments, net
    
    
    113,092
    
    
    
    121,918Intangible assets  technology
    
    
    102,153
    
    
    
    102,153Long term assets
    
    
    953
    
    
    
    2,386$
    235,761
    
    
    $
    248,544Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    7,161
    
    
    $
    9,428Notes payable  current portion
    
    
    2,734
    
    
    
    2,147Asset retirement obligations  current portion
    
    
    740
    
    
    
    Derivative instruments
    
    
    1,445
    
    
    
    49312,080
    
    
    
    12,068Long term debt
    
    
    2,598
    
    
    
    4,237Asset retirement obligations
    
    
    1,902
    
    
    
    1,953Long term obligation
    
    
    1,900
    
    
    
    1,900Commitments and contingenciesShareholders EquityShare capital, issued 241,932,324 common
shares;
December 31, 2006 241,215,798 common shares
    
    
    319,587
    
    
    
    318,725Purchase warrants
    
    
    23,955
    
    
    
    23,955Contributed surplus
    
    
    7,648
    
    
    
    6,489Accumulated deficit
    
    
    (133,909
    )
    
    
    (120,783
    )217,281
    
    
    
    228,386$
    235,761
    
    
    $
    248,544
  3




---



##### 



IVANHOE ENERGY INC.
 
 Unaudited Condensed Consolidated Statements of Operations and Accumulated Deficit
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenueOil and gas revenue
    
    $
    9,789
    
    
    $
    12,814
    
    
    $
    19,385
    
    
    $
    22,640Loss on derivative instruments
    
    
    (316
    )
    
    
    
    
    
    
    (775
    )
    
    
    Interest income
    
    
    116
    
    
    
    270
    
    
    
    236
    
    
    
    3089,589
    
    
    
    13,084
    
    
    
    18,846
    
    
    
    22,948ExpensesOperating costs
    
    
    4,223
    
    
    
    3,858
    
    
    
    7,908
    
    
    
    6,574General and administrative
    
    
    3,384
    
    
    
    2,727
    
    
    
    6,256
    
    
    
    4,727Business and technology development
    
    
    2,348
    
    
    
    1,454
    
    
    
    4,510
    
    
    
    3,116Depletion and depreciation
    
    
    6,024
    
    
    
    9,189
    
    
    
    12,916
    
    
    
    17,036Interest expense and financing costs
    
    
    189
    
    
    
    261
    
    
    
    382
    
    
    
    526Provision for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75016,168
    
    
    
    17,489
    
    
    
    31,972
    
    
    
    32,729Net Loss
    
    
    (6,579
    )
    
    
    (4,405
    )
    
    
    (13,126
    )
    
    
    (9,781
    )Accumulated Deficit, beginning of period
    
    
    (127,330
    )
    
    
    (100,667
    )
    
    
    (120,783
    )
    
    
    (95,291
    )Accumulated Deficit, end of period
    
    $
    (133,909
    )
    
    $
    (105,072
    )
    
    $
    (133,909
    )
    
    $
    (105,072
    )Net Loss per share  Basic and Diluted
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    $
    (0.04
    )Weighted Average Number of Shares (in
thousands)
    
    
    241,443
    
    
    
    235,388
    
    
    
    241,338
    
    
    
    229,997
  4




---



##### 



IVANHOE ENERGY INC.
 
 Unaudited Condensed Consolidated Statements of Cash Flow
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating ActivitiesNet loss
    
    $
    (6,579
    )
    
    $
    (4,405
    )
    
    $
    (13,126
    )
    
    $
    (9,781
    )Items not requiring use of cash:Depletion and depreciation
    
    
    6,024
    
    
    
    9,189
    
    
    
    12,916
    
    
    
    17,036Provision for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Stock based compensation
    
    
    1,053
    
    
    
    716
    
    
    
    1,855
    
    
    
    1,069Unrealized loss on derivative instruments
    
    
    286
    
    
    
    
    
    
    
    952
    
    
    
    Other
    
    
    161
    
    
    
    409
    
    
    
    330
    
    
    
    507Changes in non-cash working capital items
    
    
    (746
    )
    
    
    (2,287
    )
    
    
    (127
    )
    
    
    (3,879
    )199
    
    
    
    3,622
    
    
    
    2,800
    
    
    
    5,702Investing ActivitiesCapital investments
    
    
    (8,123
    )
    
    
    (3,710
    )
    
    
    (13,457
    )
    
    
    (8,602
    )Merger and acquisition related costs
    
    
    
    
    
    
    (325
    )
    
    
    
    
    
    
    (502
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    5,350Recovery of HTLTM investments
    
    
    9,000
    
    
    
    
    
    
    
    9,000
    
    
    
    Advance repayments (payments)
    
    
    200
    
    
    
    (50
    )
    
    
    400
    
    
    
    (50
    )Other
    
    
    
    
    
    
    (60
    )
    
    
    75
    
    
    
    (69
    )Changes in non-cash working capital items
    
    
    (481
    )
    
    
    (1,770
    )
    
    
    (1,494
    )
    
    
    (2,855
    )596
    
    
    
    (5,915
    )
    
    
    (4,476
    )
    
    
    (6,728
    )Financing ActivitiesShares issued on private placements, net of
share issue costs
    
    
    
    
    
    
    25,315
    
    
    
    
    
    
    
    25,315Proceeds from exercise of options
    
    
    165
    
    
    
    358
    
    
    
    165
    
    
    
    449Payments of debt obligations
    
    
    (615
    )
    
    
    (5,032
    )
    
    
    (1,230
    )
    
    
    (5,654
    )Other
    
    
    (62
    )
    
    
    
    
    
    
    (62
    )
    
    
    (512
    )
    
    
    20,641
    
    
    
    (1,127
    )
    
    
    20,110Increase (decrease) in cash and cash
equivalents, for the period
    
    
    283
    
    
    
    18,348
    
    
    
    (2,803
    )
    
    
    19,084Cash and cash equivalents, beginning of period
    
    
    10,793
    
    
    
    7,460
    
    
    
    13,879
    
    
    
    6,724Cash and cash equivalents, end of period
    
    $
    11,076
    
    
    $
    25,808
    
    
    $
    11,076
    
    
    $
    25,808
  5




---



##### 



Notes to the Condensed Consolidated Financial Statements
 June 30, 2007
 1. BASIS OF PRESENTATION
 GAAP
  2. CHANGES IN ACCOUNTING POLICIES
 2007 Accounting Changes
 CICA S.1506 S.1530 S.3251 S.3855 S.3861 S.3865
    6




---



##### 



Financial assets
     Financial liabilities
       Derivative Financial Instruments
   7




---



##### 



Impact of New and Pending Canadian GAAP Accounting Standards
  S.1535 S.3862 S.3863
 8




---



##### 



3. OIL AND GAS PROPERTIES AND INVESTMENTS
  As at June 30, 2007Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    TotalOil and Gas Properties:Proved
    
    $
    105,775
    
    
    $
    108,897
    
    
    $
    
    
    
    $
    
    
    
    $
    214,672Unproved
    
    
    4,302
    
    
    
    15,875
    
    
    
    
    
    
    
    
    
    
    
    20,177110,077
    
    
    
    124,772
    
    
    
    
    
    
    
    
    
    
    
    234,849Accumulated depletion
    
    
    (24,321
    )
    
    
    (48,420
    )
    
    
    
    
    
    
    
    
    
    
    (72,741
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    (10,420
    )
    
    
    
    
    
    
    
    
    
    
    (60,770
    )35,406
    
    
    
    65,932
    
    
    
    
    
    
    
    
    
    
    
    101,338HTLTM and GTL Investments:Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    5,054
    
    
    
    5,293Feedstock test facility
    
    
    
    
    
    
    
    
    
    
    1,045
    
    
    
    
    
    
    
    1,045Commercial demonstration facility
    
    
    
    
    
    
    
    
    
    
    9,753
    
    
    
    
    
    
    
    9,753Accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    (4,533
    )
    
    
    
    
    
    
    (4,533
    )
    
    
    
    
    
    
    
    6,504
    
    
    
    5,054
    
    
    
    11,558Furniture and equipment
    
    
    522
    
    
    
    116
    
    
    
    108
    
    
    
    
    
    
    
    746Accumulated depreciation
    
    
    (428
    )
    
    
    (54
    )
    
    
    (68
    )
    
    
    
    
    
    
    (550
    )94
    
    
    
    62
    
    
    
    40
    
    
    
    
    
    
    
    196$
    35,500
    
    
    $
    65,994
    
    
    $
    6,544
    
    
    $
    5,054
    
    
    $
    113,092
 As at December 31, 2006Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    TotalOil and Gas Properties:Proved
    
    $
    102,884
    
    
    $
    106,171
    
    
    $
    
    
    
    $
    
    
    
    $
    209,055Unproved
    
    
    5,765
    
    
    
    8,279
    
    
    
    
    
    
    
    
    
    
    
    14,044108,649
    
    
    
    114,450
    
    
    
    
    
    
    
    
    
    
    
    223,099Accumulated depletion
    
    
    (21,249
    )
    
    
    (39,372
    )
    
    
    
    
    
    
    
    
    
    
    (60,621
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    (10,420
    )
    
    
    
    
    
    
    
    
    
    
    (60,770
    )37,050
    
    
    
    64,658
    
    
    
    
    
    
    
    
    
    
    
    101,708HTLTM and GTL Investments:Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    6,615
    
    
    
    5,054
    
    
    
    11,669Feedstock test facility
    
    
    
    
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    405Commercial demonstration facility
    
    
    
    
    
    
    
    
    
    
    11,700
    
    
    
    
    
    
    
    11,700Accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    (3,789
    )
    
    
    
    
    
    
    (3,789
    )
    
    
    
    
    
    
    
    14,931
    
    
    
    5,054
    
    
    
    19,985Furniture and equipment
    
    
    530
    
    
    
    115
    
    
    
    80
    
    
    
    
    
    
    
    725Accumulated depreciation
    
    
    (414
    )
    
    
    (56
    )
    
    
    (30
    )
    
    
    
    
    
    
    (500
    )116
    
    
    
    59
    
    
    
    50
    
    
    
    
    
    
    
    225$
    37,166
    
    
    $
    64,717
    
    
    $
    14,981
    
    
    $
    5,054
    
    
    $
    121,918
 TM TM
 INPEX TM TM
  9




---



##### 



TM
    4. INTANGIBLE ASSETS  TECHNOLOGY
  HTL TM Technology
 Ensyn RTP TM Process TM TM HTL TM Technology HTL TM
 Syntroleum Master License
 Syntroleum GTL Technology GTL
  5. NOTES PAYABLE
  June 30,
    
    
    December 31,2007
    
    
    2006Non-interest bearing promissory note, due 2006 through 2009
    
    $
    4,106
    
    
    $
    5,336Variable rate bank note, 8.36%, due 2008
    
    
    1,500
    
    
    
    1,5005,606
    
    
    
    6,836Less:Unamortized discount
    
    
    (274
    )
    
    
    (452
    )Current maturities
    
    
    (2,734
    )
    
    
    (2,147
    )(3,008
    )
    
    
    (2,599
    )$
    2,598
    
    
    $
    4,237
 Promissory Notes
  10




---



##### 



Bank Note
 LIBOR
  2007
    
    $
    1,2302008
    
    
    3,9602009
    
    
    416$
    5,606
 6. ASSET RETIREMENT OBLIGATIONS
 TM CDF
 Carrying balance, beginning of period
    
    $
    1,953Liabilities incurred
    
    
    20Liabilities transferred
    
    
    (3
    )Accretion expense
    
    
    63Revisions in estimated cash flows
    
    
    6092,642Less: current portion
    
    
    740Carrying balance, end of period
    
    $
    1,902
 7. COMMITMENTS AND CONTINGENCIES
 Zitong Block Exploration Commitment
 Phase 1
 Mitsubishi
 Zitong Partners Phase 2 CNPC
 11




---



##### 



Income Taxes
  Long Term Obligation
 TM
 Other Commitments
 Former Ensyn Affiliate
  12




---



##### 



8. SHARE CAPITAL
  Common Shares
    
    
    
    
    
    
    Stock OptionsWeightedAverageNumber
    
    
    
    
    
    
    Contributed
    
    
    Number
    
    
    Exercise Price(thousands)
    
    
    Amount
    
    
    Surplus
    
    
    (thousands)
    
    
    Cdn.$Balance December 31, 2006
    
    
    241,216
    
    
    $
    318,725
    
    
    $
    6,489
    
    
    
    12,370
    
    
    $
    2.34Shares issued for:Services
    
    
    374
    
    
    
    692
    
    
    
    
    
    
    
    
    
    
    $
    Exercise of options
    
    
    342
    
    
    
    170
    
    
    
    (4
    )
    
    
    (342
    )
    
    $
    0.52Options:Granted
    
    
    
    
    
    
    
    
    
    
    1,163
    
    
    
    1,160
    
    
    $
    2.30Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,157
    )
    
    $
    3.10Balance June 30, 2007
    
    
    241,932
    
    
    $
    319,587
    
    
    $
    7,648
    
    
    
    12,031
    
    
    $
    2.31
 Purchase Warrants
   Purchase WarrantsPrice per
    
    
    
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    
    
    Exercise
    
    Value onYear of
    
    Special
    
    
    
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    
    
    Price per
    
    ExerciseIssue
    
    Warrant
    
    Issued
    
    
    Exercisable
    
    
    Issuable
    
    
    Value
    
    
    Expiry Date
    
    Share
    
    ($U.S. 000)(thousands)
    
    
    ($U.S. 000)2005
    
    Cdn.  $3.10
    
    
    4,100
    
    
    
    4,100
    
    
    
    4,100
    
    
    $
    2,412
    
    
    (1)
    
    Cdn. $3.50
    
    $
    13,5002005
    
    Cdn.  $3.10
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    534
    
    
    July 2007
    
    Cdn. $3.50
    
    
    3,2932005
    
    U.S. $1.63
    
    
    11,196
    
    
    
    11,196
    
    
    
    11,196
    
    
    
    1,891
    
    
    November 2007
    
    U.S. $2.50
    
    
    27,9902005
    
    n/a
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    313
    
    
    November 2007
    
    U.S. $2.00
    
    
    4,0002006
    
    U.S.$2.23
    
    
    11,400
    
    
    
    11,400
    
    
    
    11,400
    
    
    
    18,805
    
    
    May 2011
    
    Cdn. $2.93 (2)
    
    
    31,42229,696
    
    
    
    29,696
    
    
    
    29,696
    
    
    $
    23,955
    
    
    
    
    
    
    $
    80,205
 
 (1)
    
    In March 2007, the Company agreed that the warrants, which were to have expired on April 15,
2007, would be extended until the earlier of: (i) April 15, 2008; and (ii) thirty days following
the date the closing trading price of the common shares of the Company on the Toronto Stock
Exchange exceeds the exercise price of the warrants for a period of five consecutive trading
days.(2)
    
    Each common share purchase warrant originally entitled the holder to purchase one common
share at a price of $2.63 per share until the fifth anniversary date of the closing. In September
2006, these warrants were listed on the Toronto Stock Exchange and the exercise price was changed
to Cdn.$2.93.  9. SEGMENT INFORMATION
 TM
 Oil and Gas
  13




---



##### 



HTL TM
 TM TM TM
 GTL
  Corporate
 .
  Three-Month Period Ended June 30, 2007Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    2,799
    
    
    $
    6,990
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,789Loss on derivative instruments
    
    
    (316
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )Interest income
    
    
    39
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    1162,522
    
    
    
    6,998
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    9,589Operating costs
    
    
    935
    
    
    
    3,288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,223General and administrative
    
    
    795
    
    
    
    623
    
    
    
    
    
    
    
    
    
    
    
    1,966
    
    
    
    3,384Business and technology development
    
    
    
    
    
    
    
    
    
    
    2,135
    
    
    
    213
    
    
    
    
    
    
    
    2,348Depletion and depreciation
    
    
    1,482
    
    
    
    4,328
    
    
    
    211
    
    
    
    2
    
    
    
    1
    
    
    
    6,024Interest expense and financing costs
    
    
    98
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    85
    
    
    
    1893,310
    
    
    
    8,239
    
    
    
    2,352
    
    
    
    215
    
    
    
    2,052
    
    
    
    16,168Net Loss
    
    $
    (788
    )
    
    $
    (1,241
    )
    
    $
    (2,352
    )
    
    $
    (215
    )
    
    $
    (1,983
    )
    
    $
    (6,579
    )Capital Investments
    
    $
    981
    
    
    $
    6,516
    
    
    $
    626
    
    
    $
    
    
    
    $
    
    
    
    $
    8,123
 14




---



##### 



Six-Month Period Ended June 30, 2007Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    5,510
    
    
    $
    13,875
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19,385Loss on derivative instruments
    
    
    (775
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (775
    )Interest income
    
    
    61
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    2364,796
    
    
    
    13,894
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    18,846Operating costs
    
    
    2,137
    
    
    
    5,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,908General and administrative
    
    
    1,183
    
    
    
    1,030
    
    
    
    
    
    
    
    
    
    
    
    4,043
    
    
    
    6,256Business and technology development
    
    
    
    
    
    
    
    
    
    
    4,152
    
    
    
    358
    
    
    
    
    
    
    
    4,510Depletion and depreciation
    
    
    3,096
    
    
    
    9,054
    
    
    
    759
    
    
    
    5
    
    
    
    2
    
    
    
    12,916Interest expense and financing costs
    
    
    185
    
    
    
    5
    
    
    
    13
    
    
    
    
    
    
    
    179
    
    
    
    3826,601
    
    
    
    15,860
    
    
    
    4,924
    
    
    
    363
    
    
    
    4,224
    
    
    
    31,972Net Loss
    
    $
    (1,805
    )
    
    $
    (1,966
    )
    
    $
    (4,924
    )
    
    $
    (363
    )
    
    $
    (4,068
    )
    
    $
    (13,126
    )Capital Investments
    
    $
    1,793
    
    
    $
    10,318
    
    
    $
    1,346
    
    
    $
    
    
    
    $
    
    
    
    $
    13,457Identifiable Assets (As at June 30, 2007)
    
    $
    40,308
    
    
    $
    72,213
    
    
    $
    98,797
    
    
    $
    15,073
    
    
    $
    9,370
    
    
    $
    235,761Identifiable Assets (As at December 31, 2006)
    
    $
    42,158
    
    
    $
    72,970
    
    
    $
    107,186
    
    
    $
    15,081
    
    
    $
    11,149
    
    
    $
    248,544
 Three-Month Period Ended June 30, 2006Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    3,068
    
    
    $
    9,746
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,814Interest income
    
    
    52
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    205
    
    
    
    2703,120
    
    
    
    9,759
    
    
    
    
    
    
    
    
    
    
    
    205
    
    
    
    13,084Operating costs
    
    
    912
    
    
    
    2,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,858General and administrative
    
    
    549
    
    
    
    334
    
    
    
    
    
    
    
    
    
    
    
    1,844
    
    
    
    2,727Business and technology development
    
    
    
    
    
    
    
    
    
    
    1,037
    
    
    
    417
    
    
    
    
    
    
    
    1,454Depletion and depreciation
    
    
    1,273
    
    
    
    6,239
    
    
    
    1,673
    
    
    
    2
    
    
    
    2
    
    
    
    9,189Interest expense and financing costs
    
    
    67
    
    
    
    61
    
    
    
    2
    
    
    
    
    
    
    
    131
    
    
    
    2612,801
    
    
    
    9,580
    
    
    
    2,712
    
    
    
    419
    
    
    
    1,977
    
    
    
    17,489Net Income (Loss)
    
    $
    319
    
    
    $
    179
    
    
    $
    (2,712
    )
    
    $
    (419
    )
    
    $
    (1,772
    )
    
    $
    (4,405
    )Capital Investments
    
    $
    788
    
    
    $
    1,934
    
    
    $
    833
    
    
    $
    155
    
    
    $
    
    
    
    $
    3,710
 Six-Month Period Ended June 30, 2006Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    6,059
    
    
    $
    16,581
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,640Interest income
    
    
    66
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    3086,125
    
    
    
    16,596
    
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    22,948Operating costs
    
    
    2,116
    
    
    
    4,458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,574General and administrative
    
    
    922
    
    
    
    679
    
    
    
    
    
    
    
    
    
    
    
    3,126
    
    
    
    4,727Business and technology development
    
    
    
    
    
    
    
    
    
    
    2,347
    
    
    
    769
    
    
    
    
    
    
    
    3,116Depletion and depreciation
    
    
    2,461
    
    
    
    11,663
    
    
    
    2,904
    
    
    
    5
    
    
    
    3
    
    
    
    17,036Interest expense and financing costs
    
    
    129
    
    
    
    106
    
    
    
    3
    
    
    
    
    
    
    
    288
    
    
    
    526Provision for impairment
    
    
    
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7505,628
    
    
    
    17,656
    
    
    
    5,254
    
    
    
    774
    
    
    
    3,417
    
    
    
    32,729Net Income (Loss)
    
    $
    497
    
    
    $
    (1,060
    )
    
    $
    (5,254
    )
    
    $
    (774
    )
    
    $
    (3,190
    )
    
    $
    (9,781
    )Capital Investments
    
    $
    2,065
    
    
    $
    4,651
    
    
    $
    1,514
    
    
    $
    372
    
    
    $
    
    
    
    $
    8,602
 15




---



##### 



10. DERIVATIVE INSTRUMENTS
    11. SUPPLEMENTAL CASH FLOW INFORMATION
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Supplemental Cash Flow Information:Cash paid during the period for:Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    5
    
    
    $
    6Interest
    
    $
    52
    
    
    $
    127
    
    
    $
    86
    
    
    $
    298Investing and Financing activities, non-cash:Acquisition of oil and gas assetsShares issued
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    20,000Debt issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,547Receivable applied to acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,746$
    
    
    
    $
    
    
    
    $
    
    
    
    $
    28,293Changes in non-cash working capital itemsOperating Activities:Accounts receivable
    
    $
    (540
    )
    
    $
    (835
    )
    
    $
    469
    
    
    $
    (1,856
    )Prepaid and other current assets
    
    
    69
    
    
    
    157
    
    
    
    251
    
    
    
    (97
    )Accounts payable and accrued liabilities
    
    
    (275
    )
    
    
    (1,609
    )
    
    
    (847
    )
    
    
    (1,926
    )(746
    )
    
    
    (2,287
    )
    
    
    (127
    )
    
    
    (3,879
    )Investing ActivitiesAccounts receivable
    
    
    (19
    )
    
    
    61
    
    
    
    (134
    )
    
    
    2,137Prepaid and other current assets
    
    
    17
    
    
    
    59
    
    
    
    60
    
    
    
    44Accounts payable and accrued liabilities
    
    
    (479
    )
    
    
    (5,139
    )
    
    
    (1,420
    )
    
    
    (8,285
    )Project advance from partner
    
    
    
    
    
    
    3,249
    
    
    
    
    
    
    
    3,249(481
    )
    
    
    (1,770
    )
    
    
    (1,494
    )
    
    
    (2,855
    )$
    (1,227
    )
    
    $
    (4,057
    )
    
    $
    (1,621
    )
    
    $
    (6,734
    )
 12. MERGER AND ACQUISITIONS
 Richfirst Sunwing
 16




---



##### 



13. ADDITIONAL DISCLOSURE REQUIRED UNDER U.S. GAAP
  Condensed Consolidated Balance Sheets
 Shareholders Equity and Oil and Gas Properties and Investments
 As at June 30, 2007Shareholders' EquityOil and GasProperties and
    
    
    Derivative
    
    
    Share Capital
    
    
    Contributed
    
    
    AccumulatedInvestments
    
    
    Instruments
    
    
    and Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    113,092
    
    
    $
    1,445
    
    
    $
    343,542
    
    
    $
    7,648
    
    
    $
    (133,909
    )
    
    $
    217,281Adjustments for:Reduction in stated capital (i)
    
    
    
    
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Accounting for stock based
compensation (ii)
    
    
    
    
    
    
    
    
    
    
    (387
    )
    
    
    (3,361
    )
    
    
    3,748
    
    
    
    Ascribed value of shares issued for U.S.
royalty interests, net (iv)
    
    
    1,358
    
    
    
    
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Fair value adjustment of derivative
instruments (iii)
    
    
    
    
    
    
    10,474
    
    
    
    (8,552
    )
    
    
    
    
    
    
    (1,922
    )
    
    
    (10,474
    )Provision for impairment (v)
    
    
    (26,270
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,270
    )
    
    
    (26,270
    )Depletion adjustments due to differences
in provision for impairment (vi)
    
    
    6,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,816
    
    
    
    6,816HTLTM and GTL development costs
expensed, net (vii)
    
    
    (5,508
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,508
    )
    
    
    (5,508
    )U.S. GAAP
    
    $
    89,488
    
    
    $
    11,919
    
    
    $
    410,416
    
    
    $
    4,287
    
    
    $
    (231,500
    )
    
    $
    183,203
 As at December 31, 2006Shareholders' EquityOil and GasProperties and
    
    
    Derivative
    
    
    Share Capital
    
    
    Contributed
    
    
    AccumulatedInvestments
    
    
    Instruments
    
    
    and Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    121,918
    
    
    $
    493
    
    
    $
    342,680
    
    
    $
    6,489
    
    
    $
    (120,783
    )
    
    $
    228,386Adjustments for:Reduction in stated capital (i)
    
    
    
    
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Accounting for stock based
compensation (ii)
    
    
    
    
    
    
    
    
    
    
    (387
    )
    
    
    (3,361
    )
    
    
    3,748
    
    
    
    Ascribed value of shares issued for U.S.
royalty interests, net (iv)
    
    
    1,358
    
    
    
    
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Fair value adjustment of derivative
instruments (iii)
    
    
    
    
    
    
    6,378
    
    
    
    (8,552
    )
    
    
    
    
    
    
    2,174
    
    
    
    (6,378
    )Provision for impairment (v)
    
    
    (26,270
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,270
    )
    
    
    (26,270
    )Depletion adjustments due to differences
in provision for impairment (vi)
    
    
    4,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,402
    
    
    
    4,402HTLTM and GTL development costs
expensed, net (vii)
    
    
    (11,669
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,669
    )
    
    
    (11,669
    )U.S. GAAP
    
    $
    89,739
    
    
    $
    6,871
    
    
    $
    409,554
    
    
    $
    3,128
    
    
    $
    (222,853
    )
    
    $
    189,829
 17




---



##### 



Shareholders Equity
   FASB SFAS No. 123(R)
 SFAS No. 133
 Oil and Gas Properties and Investments
   18




---



##### 



Ceiling Test Impairments
    
    
    (Increase)U.S. GAAP
    
    
    Canadian GAAP
    
    
    DecreaseU.S. PropertiesPrior to 2004
    
    $
    34,000
    
    
    $
    34,000
    
    
    $
    2004
    
    
    15,000
    
    
    
    16,350
    
    
    
    1,3502005
    
    
    2,800
    
    
    
    
    
    
    
    (2,800
    )2006
    
    
    7,600
    
    
    
    
    
    
    
    (7,600
    )2007
    
    
    
    
    
    
    
    
    
    
    59,400
    
    
    
    50,350
    
    
    
    (9,050
    )China PropertiesPrior to 2004
    
    
    10,000
    
    
    
    
    
    
    
    (10,000
    )2004
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    1,700
    
    
    
    5,000
    
    
    
    3,3002006
    
    
    15,940
    
    
    
    5,420
    
    
    
    (10,520
    )2007
    
    
    
    
    
    
    
    
    
    
    27,640
    
    
    
    10,420
    
    
    
    (17,220
    )$
    87,040
    
    
    $
    60,770
    
    
    $
    (26,270
    )
  TM TM TM
 TM TM
 Condensed Consolidated Statements of Operations
  Three Month Periods Ended June 30,2007
    
    
    2006Net
    
    
    Net Loss
    
    
    Net
    
    
    Net LossLoss
    
    
    Per Share
    
    
    Loss
    
    
    Per ShareCanadian GAAP
    
    $
    (6,579
    )
    
    $
    (0.03
    )
    
    $
    (4,405
    )
    
    $
    (0.02
    )Depletion adjustments due to differences in
provision for impairment (viii)
    
    
    1,111
    
    
    
    
    
    
    
    737
    
    
    
    HTLTM and GTL development costs
expensed (vii and ix)
    
    
    (118
    )
    
    
    
    
    
    
    (314
    )
    
    
    Recovery of HTLTM investments (vii and ix)
    
    
    6,279
    
    
    
    0.03
    
    
    
    
    
    
    
    Fair value adjustment of derivative
instruments (iii)
    
    
    (1,904
    )
    
    
    
    
    
    
    1,653
    
    
    
    0.01U.S. GAAP
    
    $
    (1,211
    )
    
    $
    
    
    
    $
    (2,329
    )
    
    $
    (0.01
    )Weighted Average Number of Shares under U.S. GAAP (in
thousands)
    
    
    
    
    
    
    241,443
    
    
    
    
    
    
    
    235,388
 19




---



##### 



Six-Month Periods Ended June 30,2007
    
    
    2006Net
    
    
    Net Loss
    
    
    Net
    
    
    Net LossLoss
    
    
    Per Share
    
    
    Loss
    
    
    Per ShareCanadian GAAP
    
    $
    (13,126
    )
    
    $
    (0.05
    )
    
    $
    (9,781
    )
    
    $
    (0.04
    )Provision for impairment (v and viii)
    
    
    
    
    
    
    
    
    
    
    (6,450
    )
    
    
    (0.03
    )Depletion adjustments due to differences in
provision for impairment (viii)
    
    
    2,414
    
    
    
    0.01
    
    
    
    1,022
    
    
    
    HTLTM and GTL development costs
expensed (vii and ix)
    
    
    (118
    )
    
    
    
    
    
    
    (885
    )
    
    
    Recovery of HTLTM investments (vii and ix)
    
    
    6,279
    
    
    
    0.03
    
    
    
    
    
    
    
    Fair value adjustment of derivative
instruments (iii)
    
    
    (4,096
    )
    
    
    (0.02
    )
    
    
    (2,651
    )
    
    
    (0.01
    )U.S. GAAP
    
    $
    (8,647
    )
    
    $
    (0.04
    )
    
    $
    (18,745
    )
    
    $
    (0.08
    )Weighted Average Number of Shares under U.S.
GAAP (in thousands)
    
    
    
    
    
    
    241,338
    
    
    
    
    
    
    
    229,997
  TM
 Pro Forma Effect of Merger and Acquisition
  Three-Months Ended June 30, 2006
    
    
    Six-Months Ended June 30, 2006Net
    
    
    Net Loss
    
    
    
    
    
    
    Net
    
    
    Net LossRevenue
    
    
    Loss
    
    
    Per Share
    
    
    Revenue
    
    
    Loss
    
    
    Per ShareAs reported
    
    $
    13,084
    
    
    $
    (2,329
    )
    
    $
    (0.01
    )
    
    $
    22,948
    
    
    $
    (18,745
    )
    
    $
    (0.08
    )Pro forma adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,051
    
    
    
    809
    
    
    
    $
    13,084
    
    
    $
    (2,329
    )
    
    $
    (0.01
    )
    
    $
    23,999
    
    
    $
    (17,936
    )
    
    $
    (0.08
    )Weighted Average
Number of Shares
(in thousands)
    
    
    
    
    
    
    
    
    
    
    235,388
    
    
    
    
    
    
    
    
    
    
    
    232,418
 Income Taxes
 FIN 48
 20




---



##### 



Condensed Consolidated Statements of Cash Flow
 TM
 Impact of New and Pending U.S. GAAP Accounting Standards
 FASB SFAS No. 159
 SFAS No. 157
 21




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
 TM
   SPECIAL NOTE TO CANADIAN INVESTORS
 SEC CSA National Instrument 51-101  Standards of Disclosure for
Oil and Gas Activities Special Note to Canadian Investors
   Boe
    
    = barrel of oil equivalentBbl
    
    = barrelMBbl
    
    = thousand barrelsMMBbl
    
    = million barrelsMboe
    
    = thousands of barrels of oil equivalentBopd
    
    = barrels of oil per dayBbls/d
    
    = barrels per dayBoe/d
    
    = barrels of oil equivalent per dayMboe/d
    
    = thousands of barrels of oil equivalent per dayMBbls/d
    
    = thousand barrels per dayMMBls/d
    
    = million barrels per dayMMBtu
    
    = million British thermal unitsMcf
    
    = thousand cubic feetMMcf
    
    = million cubic feetMcf/d
    
    = thousand cubic feet per dayMMcf/d
    
    = million cubic feet per day
 equivalents
 22




---



##### 



(www.ivanhoeenergy.com)
 Ivanhoe Energys Business
 RTP TM Process HTL TM Technology HTL TM EOR E&P GTL
Technology GTL
 TM TM
 TM TM TM .
 Corporate Strategy
 Importance of the Heavy Oil Segment of the Oil and Gas Industry
      23




---



##### 



Ivanhoes Value Proposition
 TM
 TM TM
 TM TM TM
 TM
 TM
 Implementation Strategies
 TM
 1.
    
    Build a portfolio of major HTLTMprojects.We will continue to deploy our
personnel and our financial resources in support of our goal to capture opportunities for
development projects utilizing our HTLTM Technology. We recently signed an
agreement with a Western Canadian oil sands producer for a joint feasibility and testing
program using our HTLTM Technology for the processing of a unique heavy oil
stream from the producers operations in the Athabasca oil sands. The application
contemplated by this test program complements our main strategy of deploying our
HTLTM Technology as a strategic tool to acquire and develop heavy oil reserves.2.
    
    Advance the technology.Additional development work will continue as we advance the
technology through the first commercial application and beyond. To optimize the technology
development process, the Company has recently commenced design and construction of a
Feedstock Test Facility (FTF) that has been designed to process small quantities of heavy
oil and will allow us to:
 
    
    Screen and test heavy oil and bitumen feedstocks in cost-effective quantities for current and potential partners,
    
    Produce, assess and evaluate physical liquid products from partner heavy oil and bitumen feedstocks,
    
    Conduct ongoing research and development in order to add to our portfolio of
patents through the development and testing of improvements and optimizations, and
    
    Have an HTLTM showcase that possesses all of the key elements of a
commercial facility.
 3.
    
    Enhance our financial position in anticipation of major projects.Implementation of
large projects requires significant capital outlays. We are refining our financing plans
and establishing the relationships required for the development activities that we see
ahead. The Companys agreement with INPEX Corporation, Japans largest oil and gas
exploration and production company, to jointly pursue the opportunity to develop a heavy
oil field in Iraq complements a number of other initiatives that the Company has underway
that focus on heavy oil basins around the world.4.
    
    Build internal capabilities in advance of major projects.The HTLTM
technical team, which includes our own staff and specialized consultants, including the
inventors of the technology, has been expanded by adding additional expertise in areas such
as project management and heavy oil development.
 24




---



##### 



5.
    
    Build the relationships that we will need for the future.Commercialization of our
technologies demands close alignment with partners, suppliers, host governments and
financiers. The Company recently successfully completed a key Athabasca bitumen test run at
its CDF. This test was an important step for our business development activities, as well
as for the design of full-scale HTLTM facilities. This run represents the
culmination of the CDF testing program carried out over the last two years. This test run
was carried out pursuant to a technology development agreement entered into in August 2000
between predecessors of Ivanhoe Energy and ConocoPhillips Canada Resources Corp.
(ConocoPhillips Canada). ConocoPhillips Canada provided the Company with the Athabasca
bitumen. ConocoPhillips Canada has certain non-exclusive, capacity and time-specific rights
to use the HTLTM Technology in Canada. The test run was witnessed by a third
party engineering firm in preparation for the formalization of key investment banking
relationships for the Company.6.
    
    Capture value from other company assets as we complete the transition to a heavy oil
focused company.Revenue from existing operations in California and China will be utilized
to fund growth of the business. Non-heavy oil related investment opportunities in our
portfolio will be leveraged to capture value and provide maximum return for the Company.
 Executive Overview of 2007 Results
  Three-Month Periods Ended June 30,
    
    Six-Month Periods Ended June 30,2007
    
    2006
    
    2007
    
    2006Oil and gas revenue
    
    $
    9,789
    
    
    $
    12,814
    
    
    $
    19,385
    
    
    $
    22,640Net loss
    
    $
    (6,579
    )
    
    $
    (4,405
    )
    
    $
    (13,126
    )
    
    $
    (9,781
    )Net loss per share
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    $
    (0.04
    )Average production (Boe/d)
    
    
    1,824
    
    
    
    2,280
    
    
    
    1,929
    
    
    
    2,147Net operating revenue per Boe
    
    $
    33.53
    
    
    $
    43.16
    
    
    $
    32.87
    
    
    $
    41.34Capital investments
    
    $
    8,123
    
    
    $
    3,710
    
    
    $
    13,457
    
    
    $
    8,602Cash flow from operating activities
    
    $
    199
    
    
    $
    3,622
    
    
    $
    2,800
    
    
    $
    5,702
 25




---



##### 



Financial Results  Change in Net Loss
  Three-Month Periods Ended June 30,:
    
    
    Six-Month Periods Ended June 30,:Favorable
    
    
    
    
    
    
    
    
    
    
    
    
    Favorable(Unfavorable)
    
    
    
    
    
    
    
    
    
    
    
    
    (Unfavorable)2007
    
    


Variances


    
    2006
    
    
    2007
    
    
Variances
    
    2006Summary of Net Loss
by Significant Components:Cash Items:Net operating revenues:Oil and Gas Revenues:
    
    $
    9,789
    
    
    
    
    
    
    
    
    $
    12,814
    
    
    $
    19,385
    
    
    
    
    
    
    
    
    $
    22,640Production volumes
    
    
    
    
    
    
    $
    (2,574
    )
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,278
    )Oil and gas prices
    
    
    
    
    
    
    
    (451
    )
    
    
    
    
    
    
    
    
    
    
    
    
    (977
    )Realized gain (loss) on derivative
instruments
    
    
    (30
    )
    
    
    
    (30
    )
    
    
    
    
    
    
    
    177
    
    
    
    
    177
    
    
    
    
    Less: Operating costs
    
    
    (4,223
    )
    
    
    
    (365
    )
    
    
    
    (3,858
    )
    
    
    (7,908
    )
    
    
    
    (1,334
    )
    
    
    
    (6,574
    )Total net operating revenues
    
    
    5,536
    
    
    
    
    (3,420
    )
    
    
    
    8,956
    
    
    
    11,654
    
    
    
    
    (4,412
    )
    
    
    
    16,066General and administrative, less
stock based compensation
    
    
    (2,523
    )
    
    
    
    (390
    )
    
    
    
    (2,133
    )
    
    
    (4,748
    )
    
    
    
    (929
    )
    
    
    
    (3,819
    )Business and technology development,
less stock based compensation
    
    
    (2,156
    )
    
    
    
    (824
    )
    
    
    
    (1,332
    )
    
    
    (4,163
    )
    
    
    
    (1,208
    )
    
    
    
    (2,955
    )Net interest
    
    
    (9
    )
    
    
    
    (42
    )
    
    
    
    33
    
    
    
    (28
    )
    
    
    
    115
    
    
    
    
    (143
    )Total Cash Variances
    
    
    848
    
    
    
    
    (4,676
    )
    
    
    
    5,524
    
    
    
    2,715
    
    
    
    
    (6,434
    )
    
    
    
    9,149Non-Cash Items:Unrealized loss on derivative
instruments
    
    
    (286
    )
    
    
    
    (286
    )
    
    
    
    
    
    
    
    (952
    )
    
    
    
    (952
    )
    
    
    
    Depletion and depreciation
    
    
    (6,024
    )
    
    
    
    3,165
    
    
    
    
    (9,189
    )
    
    
    (12,916
    )
    
    
    
    4,120
    
    
    
    
    ( 17,036
    )Stock based compensation
    
    
    (1,053
    )
    
    
    
    (337
    )
    
    
    
    (716
    )
    
    
    (1,855
    )
    
    
    
    (786
    )
    
    
    
    (1,069
    )Impairment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750
    
    
    
    
    (750
    )Other
    
    
    (64
    )
    
    
    
    (40
    )
    
    
    
    (24
    )
    
    
    (118
    )
    
    
    
    (43
    )
    
    
    
    (75
    )Total Non-Cash Variances
    
    
    (7,427
    )
    
    
    
    2,502
    
    
    
    
    (9,929
    )
    
    
    (15,841
    )
    
    
    
    3,089
    
    
    
    
    (18,930
    )Net Loss
    
    $
    (6,579
    )
    
    
    $
    (2,174
    )
    
    
    $
    (4,405
    )
    
    $
    (13,126
    )
    
    
    $
    (3,345
    )
    
    
    $
    (9,781
    )
    26




---



##### 



Net Operating Revenues
  Three-Month Periods Ended June 30,
    
    
    Six-Month Periods Ended June 30,Net Boes
    
    
    Percentage
    
    
    Net Boes
    
    
    Percentage2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeChina:Dagang
    
    
    110,680
    
    
    
    149,174
    
    
    
    -26
    %
    
    
    231,356
    
    
    
    267,090
    
    
    
    -13
    %Daqing
    
    
    5,257
    
    
    
    6,414
    
    
    
    -18
    %
    
    
    10,897
    
    
    
    11,993
    
    
    
    -9
    %115,937
    
    
    
    155,588
    
    
    
    -25
    %
    
    
    242,253
    
    
    
    279,083
    
    
    
    -13
    %U.S.:South Midway
    
    
    44,195
    
    
    
    45,137
    
    
    
    -2
    %
    
    
    95,968
    
    
    
    91,213
    
    
    
    5
    %Spraberry
    
    
    5,345
    
    
    
    6,028
    
    
    
    -11
    %
    
    
    10,038
    
    
    
    11,969
    
    
    
    -16
    %Others
    
    
    474
    
    
    
    766
    
    
    
    -38
    %
    
    
    853
    
    
    
    6,419
    
    
    
    -87
    %50,014
    
    
    
    51,931
    
    
    
    -4
    %
    
    
    106,859
    
    
    
    109,601
    
    
    
    -3
    %165,951
    
    
    
    207,519
    
    
    
    -20
    %
    
    
    349,112
    
    
    
    388,684
    
    
    
    -10
    %
    China
  PRC Windfall Levy Measures Windfall Levy
 U.S.
  27




---



##### 



Three-Month Periods Ended June 30,2007
    
    2006U.S.
    
    China
    
    Total
    
    U.S.
    
    China
    
    TotalNet Production:Boe
    
    
    50,014
    
    
    
    115,937
    
    
    
    165,951
    
    
    
    51,931
    
    
    
    155,588
    
    
    
    207,519Boe/day for the period
    
    
    550
    
    
    
    1,274
    
    
    
    1,824
    
    
    
    570
    
    
    
    1,710
    
    
    
    2,280
 Per Boe
    
    
    Per BoeOil and gas revenue
    
    $
    55.96
    
    
    $
    60.29
    
    
    $
    58.98
    
    
    $
    59.08
    
    
    $
    62.64
    
    
    $
    61.75Field operating costs
    
    
    12.22
    
    
    
    21.23
    
    
    
    18.52
    
    
    
    12.59
    
    
    
    11.67
    
    
    
    11.90Production tax (U.S.) and Windfall Levy (China)
    
    
    1.19
    
    
    
    5.80
    
    
    
    4.41
    
    
    
    1.46
    
    
    
    6.57
    
    
    
    5.29Engineering and support costs
    
    
    5.28
    
    
    
    1.33
    
    
    
    2.52
    
    
    
    3.51
    
    
    
    0.69
    
    
    
    1.4018.69
    
    
    
    28.36
    
    
    
    25.45
    
    
    
    17.56
    
    
    
    18.93
    
    
    
    18.59Net operating revenue
    
    
    37.27
    
    
    
    31.93
    
    
    
    33.53
    
    
    
    41.52
    
    
    
    43.71
    
    
    
    43.16Depletion
    
    
    29.38
    
    
    
    37.28
    
    
    
    34.90
    
    
    
    24.52
    
    
    
    40.10
    
    
    
    36.20Net revenue (loss) from operations
    
    $
    7.89
    
    
    $
    (5.35
    )
    
    $
    (1.37
    )
    
    $
    17.00
    
    
    $
    3.61
    
    
    $
    6.96
 Six-Month Periods Ended June 30,2007
    
    2006U.S.
    
    China
    
    Total
    
    U.S.
    
    China
    
    TotalNet Production:Boe
    
    
    106,859
    
    
    
    242,253
    
    
    
    349,112
    
    
    
    109,601
    
    
    
    279,083
    
    
    
    388,684Boe/day for the period
    
    
    590
    
    
    
    1,339
    
    
    
    1,929
    
    
    
    605
    
    
    
    1,542
    
    
    
    2,147
 Per Boe
    
    
    Per BoeOil and gas revenue
    
    $
    51.56
    
    
    $
    57.27
    
    
    $
    55.53
    
    
    $
    55.28
    
    
    $
    59.41
    
    
    $
    58.25Field operating costs
    
    
    13.55
    
    
    
    17.87
    
    
    
    16.55
    
    
    
    14.14
    
    
    
    11.60
    
    
    
    12.31Production tax (U.S.) and Windfall Levy (China)
    
    
    1.20
    
    
    
    4.73
    
    
    
    3.65
    
    
    
    1.38
    
    
    
    3.66
    
    
    
    3.02Engineering and support costs
    
    
    5.25
    
    
    
    1.23
    
    
    
    2.46
    
    
    
    3.79
    
    
    
    0.72
    
    
    
    1.5820.00
    
    
    
    23.83
    
    
    
    22.66
    
    
    
    19.31
    
    
    
    15.98
    
    
    
    16.91Net operating revenue
    
    
    31.56
    
    
    
    33.44
    
    
    
    32.87
    
    
    
    35.97
    
    
    
    43.43
    
    
    
    41.34Depletion
    
    
    28.75
    
    
    
    37.35
    
    
    
    34.72
    
    
    
    22.22
    
    
    
    41.79
    
    
    
    36.27Net revenue (loss) from operations
    
    $
    2.81
    
    
    $
    (3.91
    )
    
    $
    (1.85
    )
    
    $
    13.75
    
    
    $
    1.64
    
    
    $
    5.07
 28




---



##### 



General and Administrative
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2007 vs.
    
    
    2007 vs.2006
    
    
    2006Favorable (unfavorable) variances:Oil and Gas Activities:China
    
    $
    (289
    )
    
    $
    (351
    )U.S.
    
    
    (246
    )
    
    
    (261
    )Corporate
    
    
    (122
    )
    
    
    (917
    )(657
    )
    
    
    (1,529
    )Less: stock based compensation
    
    
    267
    
    
    
    600$
    (390
    )
    
    $
    (929
    )
  Business and Technology Development
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2007 vs.
    
    
    2007 vs.2006
    
    
    2006Favorable (unfavorable) variances:HTLTM
    
    $
    (1,098
    )
    
    $
    (1,805
    )GTL
    
    
    204
    
    
    
    411(894
    )
    
    
    (1,394
    )Less: stock based compensation
    
    
    70
    
    
    
    186$
    (824
    )
    
    $
    (1,208
    )
 TM TM TM
 29




---



##### 



Depletion and Depreciation
  China
   U.S.
  HTL TM
  Financial Condition, Liquidity and Capital Resources
 Sources and Uses of Cash
  Operating Activities
  Investing Activities
 TM TM
 30




---



##### 



TM TM
 Financing Activities
  Outlook for balance of 2007
 TM TM
 Contractual Obligations
  Payments Due by Year(stated in thousands of U.S. dollars)Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    After 2010Consolidated Balance Sheets:Note payable  current portion
    
    
    2,734
    
    
    
    1,095
    
    
    
    1,639
    
    
    
    
    
    
    
    
    
    
    
    Long term debt
    
    
    2,598
    
    
    
    
    
    
    
    2,186
    
    
    
    412
    
    
    
    
    
    
    
    Asset retirement obligation
    
    
    2,642
    
    
    
    147
    
    
    
    593
    
    
    
    497
    
    
    
    
    
    
    
    1,405Long term obligation
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    Other Commitments:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest payable
    
    
    415
    
    
    
    198
    
    
    
    213
    
    
    
    4
    
    
    
    
    
    
    
    Lease commitments
    
    
    3,638
    
    
    
    539
    
    
    
    997
    
    
    
    801
    
    
    
    676
    
    
    
    625Zitong exploration commitment
    
    
    188
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    14,115
    
    
    $
    2,167
    
    
    $
    5,628
    
    
    $
    3,614
    
    
    $
    676
    
    
    $
    2,030
 Off Balance Sheet Arrangements
  31




---



##### 



Outstanding Share Data
  Quarterly Financial Data In Accordance With Canadian and U.S. GAAP (Unaudited)
 QUARTER ENDED2007
    

    2006
    
    
    20052nd Qtr
    
    1st Qtr
    
    4th Qtr
    
    3rd Qtr
    
    2nd Qtr
    
    1st Qtr
    
    4th Qtr
    
    3rd QtrTotal revenue
    
    $
    9,589
    
    
    $
    9,257
    
    
    $
    11,137
    
    
    $
    14,015
    
    
    $
    13,084
    
    
    $
    9,864
    
    
    $
    8,651
    
    
    $
    8,907Net loss:Canadian GAAP
    
    $
    (6,579
    )
    
    $
    (6,547
    )
    
    $
    (11,323
    )
    
    $
    (4,388
    )
    
    $
    (4,405
    )
    
    $
    (5,376
    )
    
    $
    (8,885
    )
    
    $
    (2,113
    )U.S. GAAP
    
    $
    (996
    )
    
    $
    (7,536
    )
    
    $
    (18,255
    )
    
    $
    (5,422
    )
    
    $
    (2,329
    )
    
    $
    (16,416
    )
    
    $
    (7,545
    )
    
    $
    530Net loss per share:Canadian GAAP
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.01
    )U.S. GAAP
    
    $
    
    
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    
 TM
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
    32




---



##### 



Part II  Other Information
 
 Item 1. Legal Proceedings:
 
 Item 1A. Risk Factors:
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
 
 Item 3. Defaults Upon Senior Securities:
 
 Item 4. Submission of Matters To a Vote of Security Holders:
 AGM
 Name of Director Nominee
    
    Votes in Favor
    
    Votes WithheldA. Robert Abboud
    
    
    153,502,378
    
    
    
    532,993Howard Balloch
    
    
    153,483,807
    
    
    
    551,564E. Leon Daniel
    
    
    153,355,000
    
    
    
    680,371Brian F. Downey
    
    
    153,510,309
    
    
    
    525,062Robert M. Friedland
    
    
    148,985,174
    
    
    
    5,050,197Joseph I. Gasca
    
    
    153,516,811
    
    
    
    518,560Robert G. Graham
    
    
    153,515,216
    
    
    
    520,155David R. Martin
    
    
    153,383,262
    
    
    
    652,109Robert A. Pirraglia
    
    
    153,378,610
    
    
    
    656,761J. Stephen Rhodes
    
    
    153,513,137
    
    
    
    522,234Shun-Ichi Shimizu
    
    
    153,513,378
    
    
    
    521,993
  
    
    Deloitte & Touche LLP were re-appointed as the Companys auditors for remuneration to be
determined by the Companys Board of Directors (153,629,617 Common Shares voted in favor
and 405,754 Common Shares withheld from voting);
    
    An ordinary resolution was passed authorizing the Company to amend and restate its
Employees and Directors Equity Incentive Plan (the Incentive Plan) to (i) increase the
maximum number of common shares available for issuance thereunder from 20,000,000 common
shares to 24,000,000 common shares; (ii) increase the maximum number of common shares of
the Company which may be allocated for issuance under the Bonus Plan component of the
Incentive Plan from 2,000,000 common shares to 2,400,000 common shares; (iii) replace the
existing terms thereof governing the circumstances and manner in which the Incentive Plan
may be amended with more detailed and prescriptive provisions in order to comply with
recently enacted changes to the rules and policies of The Toronto Stock Exchange (TSX)
respecting equity incentive plan amendments; (iv) formally recognize the role of the
Compensation Committee in administering the Incentive Plan; (v) provide for the automatic
extension of the exercise term of any incentive stock option issued under the Incentive
Plan that would otherwise expire during a blackout period if the holder is prevented from
exercising the incentive stock option due to blackout period trading restrictions; and (vi)
make other technical amendments to the Incentive Plan (60,739,136 Common Shares voted in
favor and 6,770,457 Common Shares voted against);
 33




---



##### 




    
    a special resolution was passed to amend the articles of the Company increasing the
maximum number of directors to thirteen (13) (65,074,754 Common Shares voted in favor and
2,046,855 Common Shares voted against); and
    
    an ordinary resolution was passed confirming amendments to the bylaws of the Company to
permit Common Shares of the Company to be issued and transferred electronically, without a
physical certificate, in order to facilitate the Companys compliance with new regulatory
requirements applicable to companies having securities listed on a U.S. stock exchange and
scheduled to take effect in 2008 (66,726,598 Common Shares voted in favor and 791,997
Common Shares voted against).
 
 Item 5. Other Information:
 
 Item 6. Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certification by the Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    Certification by the Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 
  W. Gordon Lancaster
  34




---



##### 



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification by the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 35