##### 



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 September 30, 2005
 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(State or other jurisdiction of
incorporation or organization)
    
    98-0372413(I.R.S. Employer
Identification No.)
 Suite 654  999 Canada Place
Vancouver, British Columbia, Canada
V6C 3E1  (Address of principal executive office)
 (604) 688-8323  (registrants telephone number, including area code)
 
  þ o
  þ o
  o þ




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##### 



TABLE OF CONTENTS
 PagePART IFinancial InformationItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets as at September 30, 2005 and December 31, 2004
    
    
    3Unaudited Condensed Consolidated Statements of Loss and Accumulated Deficit for the Three-Month and Nine-Month Periods Ended September 30, 2005 and 2004
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flow for the Three-Month and Nine-Month Periods Ended September 30, 2005 and 2004
    
    
    5Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    39Item 4. Controls and Procedures
    
    
    39PART IIOther InformationItem 1. Legal Proceedings
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Securityholders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    39
 2




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##### 



Part I  Financial Information
 Item 1 Financial Statements
 IVANHOE ENERGY INC.
Unaudited Condensed Consolidated Balance Sheets
 September 30, 2005
    
    
    December 31, 2004AssetsCurrent AssetsCash and cash equivalents
    
    $
    3,800
    
    
    $
    9,322Notes and accounts receivable
    
    
    8,222
    
    
    
    5,377Prepaid and other current assets
    
    
    248
    
    
    
    81212,270
    
    
    
    15,511Long term assets
    
    
    613
    
    
    
    6,424Oil and gas properties and investments, net
    
    
    126,212
    
    
    
    96,551Intangible asset
    
    
    89,944
    
    
    
    $
    229,039
    
    
    $
    118,486Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    19,846
    
    
    $
    9,845Note payable  current portion
    
    
    1,667
    
    
    
    1,667Convertible loans
    
    
    8,000
    
    
    
    29,513
    
    
    
    11,512Long term debt
    
    
    1,389
    
    
    
    2,639Asset retirement obligations
    
    
    1,725
    
    
    
    749Commitments and contingencies
    
    
    1,900Shareholders EquityShare capital, issued 208,563,005 common shares;
December 31, 2004 169,664,911 common shares
    
    
    272,872
    
    
    
    183,617Purchase Warrants
    
    
    2,413
    
    
    
    Special Warrants
    
    
    2,492
    
    
    
    Contributed surplus
    
    
    3,141
    
    
    
    1,748Accumulated deficit
    
    
    (86,406
    )
    
    
    (81,779
    )194,512
    
    
    
    103,586$
    229,039
    
    
    $
    118,486
  3




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##### 



IVANHOE ENERGY INC.
Unaudited Condensed Consolidated Statements of Loss and Accumulated Deficit
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenueOil and gas revenue
    
    $
    8,883
    
    
    $
    4,874
    
    
    $
    21,193
    
    
    $
    11,638Interest income
    
    
    24
    
    
    
    58
    
    
    
    95
    
    
    
    1478,907
    
    
    
    4,932
    
    
    
    21,288
    
    
    
    11,785ExpensesOperating costs
    
    
    1,731
    
    
    
    1,257
    
    
    
    5,264
    
    
    
    3,688General and administrative
    
    
    2,411
    
    
    
    1,808
    
    
    
    6,328
    
    
    
    4,874Business development
    
    
    1,504
    
    
    
    457
    
    
    
    3,401
    
    
    
    1,156Depletion and depreciation
    
    
    4,476
    
    
    
    2,290
    
    
    
    9,250
    
    
    
    5,239Interest expense
    
    
    541
    
    
    
    71
    
    
    
    1,036
    
    
    
    119Write down of GTL and EOR investments
    
    
    357
    
    
    
    
    
    
    
    636
    
    
    
    25011,020
    
    
    
    5,883
    
    
    
    25,915
    
    
    
    15,326Net Loss
    
    
    2,113
    
    
    
    951
    
    
    
    4,627
    
    
    
    3,541Accumulated Deficit, beginning of period
    
    
    84,293
    
    
    
    63,644
    
    
    
    81,779
    
    
    
    61,054Accumulated Deficit, end of period
    
    $
    86,406
    
    
    $
    64,595
    
    
    $
    86,406
    
    
    $
    64,595Net Loss per share  Basic and Diluted
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.02Weighted Average Number of Shares (in thousands)
    
    
    206,629
    
    
    
    169,534
    
    
    
    191,374
    
    
    
    166,935
  4




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##### 



IVANHOE ENERGY INC.
Unaudited Condensed Consolidated Statements of Cash Flow
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating ActivitiesNet loss
    
    $
    (2,113
    )
    
    $
    (951
    )
    
    $
    (4,627
    )
    
    $
    (3,541
    )Items not requiring use of cashDepletion and depreciation
    
    
    4,476
    
    
    
    2,290
    
    
    
    9,250
    
    
    
    5,239Write down of GTL and EOR investments
    
    
    357
    
    
    
    
    
    
    
    636
    
    
    
    250Stock based compensation
    
    
    594
    
    
    
    430
    
    
    
    1,424
    
    
    
    911Write off of debt financing costs
    
    
    857
    
    
    
    
    
    
    
    857
    
    
    
    Changes in non-cash working capital items
    
    
    (1,671
    )
    
    
    (1,969
    )
    
    
    (2,415
    )
    
    
    (1,725
    )2,500
    
    
    
    (200
    )
    
    
    5,125
    
    
    
    1,134Investing ActivitiesCapital investments
    
    
    (9,769
    )
    
    
    (8,497
    )
    
    
    (34,106
    )
    
    
    (33,673
    )Merger, net of working capital
    
    
    (117
    )
    
    
    
    
    
    
    (10,096
    )
    
    
    Equity investment and Merger related costs
    
    
    
    
    
    
    (653
    )
    
    
    (1,687
    )
    
    
    (3,153
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,458Other
    
    
    (6
    )
    
    
    108
    
    
    
    (60
    )
    
    
    (72
    )Changes in non-cash working capital items
    
    
    1,064
    
    
    
    (4,559
    )
    
    
    10,376
    
    
    
    572(8,828
    )
    
    
    (13,601
    )
    
    
    (35,573
    )
    
    
    (22,868
    )Financing ActivitiesProceeds from private placements, net of share issue costs
    
    
    2,399
    
    
    
    
    
    
    
    12,552
    
    
    
    20,428Proceeds from exercise of options and warrants
    
    
    4,504
    
    
    
    289
    
    
    
    6,229
    
    
    
    1,664Share issue costs on shares issued for Merger
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    Proceeds from debt obligations
    
    
    
    
    
    
    2,000
    
    
    
    8,000
    
    
    
    14,000Repayments of debt obligations
    
    
    (417
    )
    
    
    (278
    )
    
    
    (1,250
    )
    
    
    (10,278
    )Other
    
    
    (86
    )
    
    
    
    
    
    
    (512
    )
    
    
    6,400
    
    
    
    2,011
    
    
    
    24,926
    
    
    
    25,814Increase (decrease) in cash and cash equivalents, for the
period
    
    
    72
    
    
    
    (11,790
    )
    
    
    (5,522
    )
    
    
    4,080Cash and cash equivalents, beginning of period
    
    
    3,728
    
    
    
    30,361
    
    
    
    9,322
    
    
    
    14,491Cash and cash equivalents, end of period
    
    $
    3,800
    
    
    $
    18,571
    
    
    $
    3,800
    
    
    $
    18,571Supplementary Information Regarding Non-Cash
TransactionsFinancing activities, non-cash:Shares issued for Merger
    
    $
    
    
    
    $
    
    
    
    $
    (75,000
    )
    
    $
    Included in the above are the following:Taxes paid
    
    $
    13
    
    
    $
    
    
    
    $
    17
    
    
    $
    3Interest paid
    
    $
    107
    
    
    $
    52
    
    
    $
    372
    
    
    $
    80Changes in non-cash working capital itemsOperating Activities:Notes and accounts receivable
    
    $
    (2,830
    )
    
    $
    (849
    )
    
    $
    (3,144
    )
    
    $
    (1,705
    )Prepaid and other current assets
    
    
    101
    
    
    
    40
    
    
    
    56
    
    
    
    71Accounts payable and accrued liabilities
    
    
    1,058
    
    
    
    (1,160
    )
    
    
    673
    
    
    
    (91
    )(1,671
    )
    
    
    (1,969
    )
    
    
    (2,415
    )
    
    
    (1,725
    )Investing ActivitiesNotes and accounts receivable
    
    
    504
    
    
    
    655
    
    
    
    99
    
    
    
    (498
    )Prepaid and other current assets
    
    
    158
    
    
    
    
    
    
    
    508
    
    
    
    Accounts payable and accrued liabilities
    
    
    402
    
    
    
    (5,214
    )
    
    
    9,769
    
    
    
    1,0701,064
    
    
    
    (4,559
    )
    
    
    10,376
    
    
    
    572$
    (607
    )
    
    $
    (6,528
    )
    
    $
    7,961
    
    
    $
    (1,153
    )
  5




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##### 



Notes to the Condensed Consolidated Financial Statements
September 30, 2005
 1.
    
    BASIS OF PRESENTATION AND LIQUIDITY
 GAAP
    2.
    
    SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
 Ensyn Merger Merger Agreement
 6




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##### 



RTP TM RTP TM CDF TM
  Intangible Assets
  RTP TM Technology TM TM TM TM  TM
 Development Costs
 GTL EOR TM MOU
 TM
 7




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##### 



TM
 3.
    
    OIL AND GAS PROPERTIES AND INVESTMENTS
  As at September 30, 2005Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    TotalOil and Gas Properties:Proved
    
    $
    85,207
    
    
    $
    61,543
    
    
    $
    
    
    
    $
    
    
    
    $
    146,750Unproved
    
    
    22,962
    
    
    
    8,924
    
    
    
    
    
    
    
    
    
    
    
    31,886108,169
    
    
    
    70,467
    
    
    
    
    
    
    
    
    
    
    
    178,636Accumulated depletion
    
    
    (14,666
    )
    
    
    (12,117
    )
    
    
    
    
    
    
    
    
    
    
    (26,783
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,350
    )43,153
    
    
    
    58,350
    
    
    
    
    
    
    
    
    
    
    
    101,503GTL and EOR Investments:GTL master license
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    10,000Commercial demonstration facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,668
    
    
    
    4,668Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    4,491
    
    
    
    5,365
    
    
    
    9,856
    
    
    
    
    
    
    
    14,491
    
    
    
    10,033
    
    
    
    24,524Furniture and equipment
    
    
    475
    
    
    
    95
    
    
    
    
    
    
    
    15
    
    
    
    585Accumulated depreciation
    
    
    (362
    )
    
    
    (33
    )
    
    
    
    
    
    
    (5
    )
    
    
    (400
    )113
    
    
    
    62
    
    
    
    
    
    
    
    10
    
    
    
    185$
    43,266
    
    
    $
    58,412
    
    
    $
    14,491
    
    
    $
    10,043
    
    
    $
    126,212
 As at December 31, 2004Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    TotalOil and Gas Properties:Proved
    
    $
    81,648
    
    
    $
    35,771
    
    
    $
    
    
    
    $
    
    
    
    $
    117,419Unproved
    
    
    20,447
    
    
    
    10,581
    
    
    
    
    
    
    
    
    
    
    
    31,028102,095
    
    
    
    46,352
    
    
    
    
    
    
    
    
    
    
    
    148,447Accumulated depletion
    
    
    (10,956
    )
    
    
    (6,663
    )
    
    
    
    
    
    
    
    
    
    
    (17,619
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,350
    )40,789
    
    
    
    39,689
    
    
    
    
    
    
    
    
    
    
    
    80,478GTL and EOR Investments:GTL master license
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    10,000Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    3,793
    
    
    
    2,091
    
    
    
    5,884
    
    
    
    
    
    
    
    13,793
    
    
    
    2,091
    
    
    
    15,884Furniture and equipment
    
    
    417
    
    
    
    84
    
    
    
    
    
    
    
    11
    
    
    
    512Accumulated depreciation
    
    
    (300
    )
    
    
    (22
    )
    
    
    
    
    
    
    (1
    )
    
    
    (323
    )117
    
    
    
    62
    
    
    
    
    
    
    
    10
    
    
    
    189$
    40,906
    
    
    $
    39,751
    
    
    $
    13,793
    
    
    $
    2,101
    
    
    $
    96,551
   8




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##### 



TM TM TM TM
 Ecopetrol
 4.
    
    LONG TERM ASSETS
 EPIL TM
   September 30, 2005
    
    
    December 31, 2004Investment in EPIL
    
    $
    
    
    
    $
    3,000Merger related costs
    
    
    
    
    
    
    2,513Drilling deposits
    
    
    400
    
    
    
    400Deferred debt financing costs
    
    
    27
    
    
    
    384Other long term deposits and assets
    
    
    186
    
    
    
    127$
    613
    
    
    $
    6,424
 5.
    
    INTANGIBLE ASSET
 TM TM
 9




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##### 



6.
    
    SEGMENT INFORMATION
  Three-Month Period Ended September 30, 2005Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    4,336
    
    
    $
    4,547
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,883Interest income
    
    
    8
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    244,344
    
    
    
    4,550
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    8,907Operating costs
    
    
    1,180
    
    
    
    551
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,731General and administrative
    
    
    210
    
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    1,151
    
    
    
    2,411Business development
    
    
    
    
    
    
    
    
    
    
    296
    
    
    
    1,208
    
    
    
    
    
    
    
    1,504Depletion and depreciation
    
    
    1,286
    
    
    
    3,185
    
    
    
    3
    
    
    
    1
    
    
    
    1
    
    
    
    4,476Interest expense
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    460
    
    
    
    541Write down of GTL and EOR investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    
    
    
    
    3572,755
    
    
    
    4,786
    
    
    
    299
    
    
    
    1,568
    
    
    
    1,612
    
    
    
    11,020Net (Income) Loss
    
    $
    (1,589
    )
    
    $
    236
    
    
    $
    299
    
    
    $
    1,568
    
    
    $
    1,599
    
    
    $
    2,113Capital Investments
    
    $
    2,770
    
    
    $
    5,860
    
    
    $
    246
    
    
    $
    893
    
    
    $
    
    
    
    $
    9,769
 Nine-Month Period Ended September 30, 2005Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    10,500
    
    
    $
    10,693
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    21,193Interest income
    
    
    18
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    9510,518
    
    
    
    10,699
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    21,288Operating costs
    
    
    3,448
    
    
    
    1,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,264General and administrative
    
    
    624
    
    
    
    1,412
    
    
    
    
    
    
    
    
    
    
    
    4,292
    
    
    
    6,328Business development
    
    
    
    
    
    
    
    
    
    
    1,019
    
    
    
    2,382
    
    
    
    
    
    
    
    3,401Depletion and depreciation
    
    
    3,768
    
    
    
    5,457
    
    
    
    8
    
    
    
    12
    
    
    
    5
    
    
    
    9,250Interest expense
    
    
    233
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    801
    
    
    
    1,036Write down of GTL and EOR investments
    
    
    
    
    
    
    
    
    
    
    279
    
    
    
    357
    
    
    
    
    
    
    
    6368,073
    
    
    
    8,685
    
    
    
    1,306
    
    
    
    2,753
    
    
    
    5,098
    
    
    
    25,915Net (Income) Loss
    
    $
    (2,445
    )
    
    $
    (2,014
    )
    
    $
    1,306
    
    
    $
    2,753
    
    
    $
    5,027
    
    
    $
    4,627Capital Investments
    
    $
    5,282
    
    
    $
    24,111
    
    
    $
    977
    
    
    $
    3,736
    
    
    $
    
    
    
    $
    34,106Identifiable Assets (As at September 30,
2005)
    
    $
    47,564
    
    
    $
    64,612
    
    
    $
    14,533
    
    
    $
    100,080
    
    
    $
    2,250
    
    
    $
    229,039Identifiable Assets (As at December 31, 2004)
    
    $
    49,465
    
    
    $
    44,960
    
    
    $
    13,867
    
    
    $
    2,441
    
    
    $
    7,753
    
    
    $
    118,486
 10




---



##### 



Three-Month Period Ended September 30, 2004Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    2,628
    
    
    $
    2,246
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,874Interest income
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    582,632
    
    
    
    2,252
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    4,932Operating costs
    
    
    863
    
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,257General and administrative
    
    
    163
    
    
    
    182
    
    
    
    
    
    
    
    
    
    
    
    1,463
    
    
    
    1,808Business development
    
    
    
    
    
    
    
    
    
    
    315
    
    
    
    142
    
    
    
    
    
    
    
    457Depletion and depreciation
    
    
    1,600
    
    
    
    683
    
    
    
    3
    
    
    
    2
    
    
    
    2
    
    
    
    2,290Interest expense
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    712,696
    
    
    
    1,259
    
    
    
    318
    
    
    
    144
    
    
    
    1,466
    
    
    
    5,883Net (Income) Loss
    
    $
    64
    
    
    $
    (993
    )
    
    $
    318
    
    
    $
    144
    
    
    $
    1,418
    
    
    $
    951Capital Investments
    
    $
    3,508
    
    
    $
    4,480
    
    
    $
    
    
    
    $
    509
    
    
    $
    
    
    
    $
    8,497
 Nine-Month Period Ended September 30, 2004Oil and GasU.S.
    
    
    China
    
    
    GTL
    
    
    EOR
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    6,428
    
    
    $
    5,210
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11,638Interest income
    
    
    7
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    1476,435
    
    
    
    5,222
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    11,785Operating costs
    
    
    2,294
    
    
    
    1,394
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,688General and administrative
    
    
    572
    
    
    
    613
    
    
    
    
    
    
    
    
    
    
    
    3,689
    
    
    
    4,874Business development
    
    
    
    
    
    
    
    
    
    
    1,014
    
    
    
    142
    
    
    
    
    
    
    
    1,156Depletion and depreciation
    
    
    3,459
    
    
    
    1,760
    
    
    
    14
    
    
    
    2
    
    
    
    4
    
    
    
    5,239Interest expense
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    119Write down of GTL and EOR investments
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    2506,440
    
    
    
    3,767
    
    
    
    1,278
    
    
    
    144
    
    
    
    3,697
    
    
    
    15,326Net (Income) Loss
    
    $
    5
    
    
    $
    (1,455
    )
    
    $
    1,278
    
    
    $
    144
    
    
    $
    3,569
    
    
    $
    3,541Capital Investments
    
    $
    13,351
    
    
    $
    18,632
    
    
    $
    66
    
    
    $
    1,624
    
    
    $
    
    
    
    $
    33,673
 7.
    
    SHARE CAPITAL
  Common Shares
    
    
    
    
    
    
    Stock OptionsWeighted Avg.Number
    
    
    
    
    
    
    Contributed
    
    
    Number
    
    
    Exercise Price(thousands)
    
    
    Amount
    
    
    Surplus
    
    
    (thousands)
    
    
    Cdn.$Balance December 31, 2004
    
    
    169,665
    
    
    $
    183,617
    
    
    $
    1,748
    
    
    
    8,246
    
    
    $
    2.65Shares issued for:Merger, net of share issue costs
    
    
    30,000
    
    
    
    74,907
    
    
    
    
    
    
    
    
    
    
    
    Private placements, net of share issue costs
    
    
    4,100
    
    
    
    7,647
    
    
    
    
    
    
    
    
    
    
    
    Exercise of purchase warrants
    
    
    4,515
    
    
    
    6,133
    
    
    
    
    
    
    
    
    
    
    
    Services
    
    
    192
    
    
    
    441
    
    
    
    
    
    
    
    
    
    
    
    Exercise of options
    
    
    91
    
    
    
    127
    
    
    
    (31
    )
    
    
    (91
    )
    
    $
    1.50Options:Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,114
    
    
    $
    2.95Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,417
    )
    
    $
    6.15Stock based compensation
    
    
    
    
    
    
    
    
    
    
    1,424
    
    
    
    
    
    
    
    Balance September 30, 2005
    
    
    208,563
    
    
    $
    272,872
    
    
    $
    3,141
    
    
    
    9,852
    
    
    $
    2.25
 11




---



##### 



Private Placements
  Warrants
     Year of
    
    
    
    
    
    Number of
    
    RemainingSpecial
    
    Price per
    
    Purchase
    
    Number of
    
    Number of
    
    
    
    
    
    ExerciseWarrant
    
    Special
    
    Warrants
    
    Purchase
    
    Common
    
    
    
    
    
    Price perFinancing
    
    Warrant
    
    Issued
    
    Warrants
    
    Shares
    
    Expiry Date
    
    Share(thousands)2003
    
    
    U.S.$4.00
    
    
    
    1,250
    
    
    
    1,250
    
    
    
    1,250
    
    
    October 31, 2005
    
    
    U.S.$4.302004
    
    
    U.S.$2.90
    
    
    
    5,449
    
    
    
    5,449
    
    
    
    2,725
    
    
    February 18, 2006
    
    
    U.S.$3.202004
    
    
    U.S.$2.90
    
    
    
    1,724
    
    
    
    1,724
    
    
    
    862
    
    
    March 5, 2006
    
    
    U.S.$3.202005
    
    Cdn.$3.10
    
    
    4,100
    
    
    
    4,100
    
    
    
    4,100
    
    
    April 15, 2007
    
    Cdn.$3.5012,523
    
    
    
    12,523
    
    
    
    8,937
 8.
    
    STOCK BASED COMPENSATION
   12




---



##### 



9. NOTE AND ADVANCE PAYABLE
 LIBOR
  2005
    
    $
    4172006
    
    
    1,6672007
    
    
    9723,056Less: current portion
    
    
    1,667$
    1,389
  10. CONVERTIBLE LOANS
    11. ASSET RETIREMENT OBLIGATIONS
 TM
 13




---



##### 



12. MERGER
 Merger Shares
  Purchase Consideration29,999,886 shares of Ivanhoe at $2.50 per share
    
    $
    75,000Cash
    
    
    10,00085,000Merger related costs
    
    
    4,000Total purchase consideration and cost of the Merger
    
    $
    89,000Net Assets AcquiredCash
    
    $
    21Non-cash working capital, net
    
    
    (117
    )Oil and gas properties and investments
    
    
    4,561Intangible asset
    
    
    89,531Asset retirement obligation
    
    
    (96
    )Contingent obligation (Note 13)
    
    
    (1,900
    )Less : previous investment in EPIL
    
    
    (3,000
    )$
    89,000
   Three-Month Periods Ended September 30,2005
    
    
    2004Net
    
    
    Net Loss
    
    
    
    
    
    
    Net
    
    
    Net LossRevenue
    
    
    Loss
    
    
    Per Share
    
    
    Revenue
    
    
    Loss
    
    
    Per ShareAs reported
    
    $
    8,907
    
    
    $
    2,113
    
    
    $
    0.01
    
    
    $
    4,932
    
    
    $
    951
    
    
    $
    0.01Pro forma adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    635
    
    
    
    $
    8,907
    
    
    $
    2,113
    
    
    $
    0.01
    
    
    $
    5,022
    
    
    $
    1,586
    
    
    $
    0.01Weighted Average Number
of Shares (in thousands)
    
    
    
    
    
    
    
    
    
    
    206,629
    
    
    
    
    
    
    
    
    
    
    
    199,534
 14




---



##### 



Nine-Month Periods Ended September 30,2005
    
    
    2004Net
    
    
    Net Loss
    
    
    
    
    
    
    Net
    
    
    Net LossRevenue
    
    
    Loss
    
    
    Per Share
    
    
    Revenue
    
    
    Loss
    
    
    Per ShareAs reported
    
    $
    21,288
    
    
    $
    4,627
    
    
    $
    0.02
    
    
    $
    11,785
    
    
    $
    3,541
    
    
    $
    0.02Pro forma adjustments
    
    
    736
    
    
    
    730
    
    
    
    
    
    
    
    264
    
    
    
    1,240
    
    
    
    $
    22,024
    
    
    $
    5,357
    
    
    $
    0.02
    
    
    $
    12,049
    
    
    $
    4,781
    
    
    $
    0.02Weighted Average Number
of Shares (in thousands)
    
    
    
    
    
    
    
    
    
    
    202,583
    
    
    
    
    
    
    
    
    
    
    
    196,935
 13. ENSYN AGREEMENTS
 RTP TM Joint Venture
 RTP TM Joint
Venture TM TM TM TM TM TM TM TM TM TM TM TM
 IE HTL Aera TM TM TM TM TM TM
 TM TM
 TM TM TM TM TM
 ConocoPhillips Canada Resources Limited
 ConocoPhillips Canada
 14. COMMITMENTS AND CONTINGENCIES
 Zitong Exploration Commitment
 Phase 1
 15




---



##### 



Phase 2 CNPC
 Contingent Obligations
 TM
 15. SUBSEQUENT EVENTS
     16




---



##### 



16. ADDITIONAL DISCLOSURE REQUIRED UNDER U.S. GAAP
  Condensed Consolidated Balance Sheets
 Shareholders Equity and Oil and Gas Properties and Investments
 As at September 30, 2005Oil and Gas
    
    

Shareholders EquityProperties and
    
    
    Share Capital and
    
    
    Contributed
    
    
    AccumulatedInvestments
    
    
    Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    126,212
    
    
    $
    277,777
    
    
    $
    3,141
    
    
    $
    (86,406
    )
    
    $
    194,512Adjustment for reduction in stated capital
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Adjustment to ascribed value of shares
issued for U.S. royalty interests, net
    
    
    1,358
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Provision for impairment
    
    
    (8,650
    )
    
    
    
    
    
    
    
    
    
    
    (8,650
    )
    
    
    (8,650
    )Depletion adjustments due to differences in
provision for impairment
    
    
    1,328
    
    
    
    
    
    
    
    
    
    
    
    1,328
    
    
    
    1,328GTL and EOR development costs expensed
    
    
    (9,856
    )
    
    
    
    
    
    
    
    
    
    
    (9,856
    )
    
    
    (9,856
    )Adjustment for change in accounting for
stock based compensation
    
    
    
    
    
    
    (306
    )
    
    
    (2,992
    )
    
    
    3,298
    
    
    
    U.S. GAAP
    
    $
    110,392
    
    
    $
    353,284
    
    
    $
    149
    
    
    $
    (174,741
    )
    
    $
    178,692
 As at December 31, 2004Oil and Gas
    
    

Shareholders EquityProperties and
    
    
    
    
    
    
    Contributed
    
    
    AccumulatedInvestments
    
    
    Share Capital
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    96,551
    
    
    $
    183,617
    
    
    $
    1,748
    
    
    $
    (81,779
    )
    
    $
    103,586Adjustment for reduction in stated capital
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Adjustment to ascribed value of shares
issued for U.S. royalty interests, net
    
    
    1,358
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Provision for impairment
    
    
    (8,650
    )
    
    
    
    
    
    
    
    
    
    
    (8,650
    )
    
    
    (8,650
    )Depletion adjustments due to differences in
provision for impairment
    
    
    482
    
    
    
    
    
    
    
    
    
    
    
    482
    
    
    
    482GTL and EOR development costs expensed
    
    
    (5,884
    )
    
    
    
    
    
    
    
    
    
    
    (5,884
    )
    
    
    (5,884
    )Adjustment for change in accounting for
stock based compensation
    
    
    
    
    
    
    (300
    )
    
    
    (1,660
    )
    
    
    1,960
    
    
    
    U.S. GAAP
    
    $
    83,857
    
    
    $
    259,130
    
    
    $
    88
    
    
    $
    (168,326
    )
    
    $
    90,892
 Shareholders Equity
   17




---



##### 



Oil and Gas Properties and Investments
     Condensed Consolidated Statements of Loss
  18




---



##### 



Three-Month Periods Ended September 30,2005
    
    
    2004Net
    
    
    
    
    
    
    NetNet
    
    
    Loss
    
    
    Net
    
    
    LossLoss
    
    
    Per Share
    
    
    Loss
    
    
    Per ShareCanadian GAAP
    
    $
    2,113
    
    
    $
    0.01
    
    
    $
    951
    
    
    $
    0.01Stock based compensation expense
    
    
    (540
    )
    
    
    
    
    
    
    (416
    )
    
    
    Depletion adjustments due to differences in
provision for impairment
    
    
    (418
    )
    
    
    
    
    
    
    (64
    )
    
    
    GTL and EOR development costs expensed, net
    
    
    688
    
    
    
    
    
    
    
    509
    
    
    
    U.S. GAAP
    
    $
    1,843
    
    
    $
    0.01
    
    
    $
    980
    
    
    $
    0.01Weighted Average Number of Shares
under U.S. GAAP (in thousands)
    
    
    
    
    
    
    206,629
    
    
    
    
    
    
    
    169,534
 Nine-Month Periods Ended September 30,2005
    
    
    2004Net
    
    
    
    
    
    
    NetNet
    
    
    Loss
    
    
    Net
    
    
    LossLoss
    
    
    Per Share
    
    
    Loss
    
    
    Per ShareCanadian GAAP
    
    $
    4,627
    
    
    $
    0.02
    
    
    $
    3,541
    
    
    $
    0.02Stock based compensation expense
    
    
    (1,338
    )
    
    
    (0.01
    )
    
    
    (877
    )
    
    
    Depletion adjustments due to differences in
provision for impairment
    
    
    (846
    )
    
    
    
    
    
    
    (144
    )
    
    
    GTL and EOR development costs expensed, net
    
    
    3,972
    
    
    
    0.02
    
    
    
    1,440
    
    
    
    U.S. GAAP
    
    $
    6,415
    
    
    $
    0.03
    
    
    $
    3,960
    
    
    $
    0.02Weighted Average Number of Shares under
U.S. GAAP (in thousands)
    
    
    
    
    
    
    191,374
    
    
    
    
    
    
    
    166,935
    19




---



##### 



Stock Based Compensation
  Three-Month Periods
    
    
    Nine-Month PeriodsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss under U.S. GAAP
    
    $
    1,843
    
    
    $
    980
    
    
    $
    6,415
    
    
    $
    3,960Stock-based compensation expense determined under the fair
value based method for employee and director awards
    
    
    570
    
    
    
    507
    
    
    
    1,430
    
    
    
    1,499Pro forma net loss under U.S. GAAP
    
    $
    2,413
    
    
    $
    1,487
    
    
    $
    7,845
    
    
    $
    5,459Basic loss per common share under U.S. GAAP:As reported
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.02Pro forma
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.04
    
    
    $
    0.03Weighted Average Number of Shares under U.S. GAAP (in thousands)
    
    
    206,629
    
    
    
    169,534
    
    
    
    191,374
    
    
    
    166,935
  Pro Forma Effect of Merger
  Three-Month Periods Ended September 30,2005
    
    
    2004Net
    
    
    Net Loss
    
    
    
    
    
    
    Net
    
    
    Net LossRevenue
    
    
    Loss
    
    
    Per Share
    
    
    Revenue
    
    
    Loss
    
    
    Per ShareAs reported
    
    $
    8,907
    
    
    $
    1,843
    
    
    $
    0.01
    
    
    $
    4,932
    
    
    $
    980
    
    
    $
    0.01Pro forma adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    635
    
    
    
    $
    8,907
    
    
    $
    1,843
    
    
    $
    0.01
    
    
    $
    5,022
    
    
    $
    1,615
    
    
    $
    0.01Weighted Average Number
of Shares (in thousands)
    
    
    
    
    
    
    
    
    
    
    206,629
    
    
    
    
    
    
    
    
    
    
    
    199,534
 Nine-Month Periods Ended September 30,2005
    
    
    2004Net
    
    
    Net Loss
    
    
    
    
    
    
    Net
    
    
    Net LossRevenue
    
    
    Loss
    
    
    Per Share
    
    
    Revenue
    
    
    Loss
    
    
    Per ShareAs reported
    
    $
    21,288
    
    
    $
    6,415
    
    
    $
    0.03
    
    
    $
    11,785
    
    
    $
    3,960
    
    
    $
    0.02Pro forma adjustments
    
    
    736
    
    
    
    730
    
    
    
    
    
    
    
    264
    
    
    
    1,240
    
    
    
    $
    22,024
    
    
    $
    7,145
    
    
    $
    0.03
    
    
    $
    12,049
    
    
    $
    5,200
    
    
    $
    0.02Weighted Average Number
of Shares (in thousands)
    
    
    
    
    
    
    
    
    
    
    202,583
    
    
    
    
    
    
    
    
    
    
    
    196,935
 Condensed Consolidated Statements of Cash Flow
  20




---



##### 



Impact of New and Pending Canadian GAAP Accounting Standards
 CICA S.1530 S.3855 S.3865
  AcG 15
 Impact of New and Pending U.S. GAAP Accounting Standards
 FASB
 SFAS No. 123(R)
 21




---



##### 



FIN 47
 SFAS 154
  22




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
   Executive Overview of 2005 Results
   23




---



##### 



Three-Month Periods Ended
    
    Nine-Month Periods Ended(stated in thousands of U.S. dollars,
    
    September 30,
    
    September 30,except per share and production amounts)
    
    2005
    
    2004
    
    2005
    
    2004Oil and gas revenue
    
    
    8,883
    
    
    
    4,874
    
    
    
    21,193
    
    
    
    11,638Net loss
    
    
    2,113
    
    
    
    951
    
    
    
    4,627
    
    
    
    3,541Net loss per share
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.02
    
    
    
    0.02Average production (Boe/d)
    
    
    1,902
    
    
    
    1,466
    
    
    
    1,741
    
    
    
    1,277Capital investments
    
    
    9,769
    
    
    
    8,497
    
    
    
    34,106
    
    
    
    33,673Cash flow from (used in) operating activities
    
    
    2,500
    
    
    
    (200
    )
    
    
    5,125
    
    
    
    1,134
 Financial Results Change in Net Losses
  Three-Months
    
    
    Nine-MonthsEnded
    
    
    Ended(stated in thousands of U.S. Dollars)
    
    September 30,
    
    
    September 30,Net Losses for 2004
    
    $
    951
    
    
    $
    3,541Favorable (unfavorable) variances:Cash Items:Net Operating Revenues:Production volumes
    
    
    1,217
    
    
    
    3,763Oil and gas prices
    
    
    2,792
    
    
    
    5,792Less: Operating costs
    
    
    (474
    )
    
    
    (1,576
    )3,535
    
    
    
    7,979General and administrative
    
    
    (530
    )
    
    
    (1,081
    )Business development
    
    
    (956
    )
    
    
    (2,105
    )Net interest
    
    
    (504
    )
    
    
    (969
    )Total Cash Variances
    
    
    1,545
    
    
    
    3,824Non-Cash Items:Depletion and depreciation
    
    
    (2,186
    )
    
    
    (4,011
    )Stock based compensation
    
    
    (164
    )
    
    
    (513
    )Write down of GTL and EOR investments
    
    
    (357
    )
    
    
    (386
    )Total Non-Cash Variances
    
    
    (2,707
    )
    
    
    (4,910
    )Net Losses for 2005
    
    $
    2,113
    
    
    $
    4,627
   24




---



##### 



Net Operating Revenues
 
    
    Production Volumes 2005 vs. 2004
  China
   U.S.
  25




---



##### 



Three-Month Periods Ended
    
    Nine-Month Periods EndedSeptember 30,
    
    September 30,Average Net Boes
    
    Percentage
    

Average
Net Boes
    
    Percentage2005
    
    2004
    
    Change
    
    2005
    
    2004
    
    ChangeChina:Dagang
    
    
    80,799
    
    
    
    50,067
    
    
    
    61
    %
    
    
    199,320
    
    
    
    125,405
    
    
    
    59
    %Daqing
    
    
    6,087
    
    
    
    12,222
    
    
    
    -50
    %
    
    
    25,935
    
    
    
    32,748
    
    
    
    -21
    %86,886
    
    
    
    62,289
    
    
    
    39
    %
    
    
    225,255
    
    
    
    158,153
    
    
    
    42
    %U.S.:South Midway
    
    
    46,994
    
    
    
    48,869
    
    
    
    -4
    %
    
    
    148,314
    
    
    
    136,167
    
    
    
    9
    %Citrus
    
    
    8,463
    
    
    
    10,710
    
    
    
    -21
    %
    
    
    26,807
    
    
    
    16,580
    
    
    
    62
    %Knights Landing
    
    
    24,559
    
    
    
    4,145
    
    
    
    493
    %
    
    
    52,482
    
    
    
    8,045
    
    
    
    552
    %Others
    
    
    8,102
    
    
    
    8,903
    
    
    
    -9
    %
    
    
    22,376
    
    
    
    31,049
    
    
    
    -28
    %88,118
    
    
    
    72,627
    
    
    
    21
    %
    
    
    249,979
    
    
    
    191,841
    
    
    
    30
    %175,004
    
    
    
    134,916
    
    
    
    30
    %
    
    
    475,234
    
    
    
    349,994
    
    
    
    36
    %
 
    
    Oil and Gas Prices 2005 vs. 2004
  China
  U.S.
  
    
    Operating Costs 2005 vs. 2004
  China
  26




---



##### 



U.S.
   Three-Month Periods Ended September 30,2005
    
    
    2004U.S.
    
    
    China
    
    
    Total
    
    
    U.S.
    
    
    China
    
    
    TotalNet Production:Boe
    
    
    88,118
    
    
    
    86,886
    
    
    
    175,004
    
    
    
    72,627
    
    
    
    62,289
    
    
    
    134,916Boe/day for the period
    
    
    958
    
    
    
    944
    
    
    
    1,902
    
    
    
    789
    
    
    
    677
    
    
    
    1,466
 Per Boe
    
    
    Per BoeOil and gas revenue
    
    $
    49.21
    
    
    $
    52.33
    
    
    $
    50.76
    
    
    $
    36.19
    
    
    $
    36.05
    
    
    $
    36.13Field operating costs
    
    
    9.85
    
    
    
    5.82
    
    
    
    7.85
    
    
    
    8.70
    
    
    
    4.96
    
    
    
    6.98Production taxes
    
    
    0.70
    
    
    
    
    
    
    
    0.35
    
    
    
    0.95
    
    
    
    
    
    
    
    0.51Engineering support
    
    
    2.84
    
    
    
    0.52
    
    
    
    1.69
    
    
    
    2.23
    
    
    
    1.36
    
    
    
    1.8313.39
    
    
    
    6.34
    
    
    
    9.89
    
    
    
    11.88
    
    
    
    6.32
    
    
    
    9.32Net revenue before depletion
    
    
    35.82
    
    
    
    45.99
    
    
    
    40.87
    
    
    
    24.31
    
    
    
    29.73
    
    
    
    26.81Depletion
    
    
    14.38
    
    
    
    36.63
    
    
    
    25.43
    
    
    
    21.58
    
    
    
    10.99
    
    
    
    16.69Net Revenue from operations
    
    $
    21.44
    
    
    $
    9.36
    
    
    $
    15.44
    
    
    $
    2.73
    
    
    $
    18.74
    
    
    $
    10.12
 27




---



##### 



Nine-Month Periods Ended September 30,2005
    
    
    2004U.S.
    
    
    China
    
    
    Total
    
    
    U.S.
    
    
    China
    
    
    TotalNet Production:Boe
    
    
    249,979
    
    
    
    225,255
    
    
    
    475,234
    
    
    
    191,841
    
    
    
    158,153
    
    
    
    349,994Boe/day for the period
    
    
    916
    
    
    
    825
    
    
    
    1,741
    
    
    
    700
    
    
    
    577
    
    
    
    1,277
 Per Boe
    
    
    Per BoeOil and gas revenue
    
    $
    42.00
    
    
    $
    47.47
    
    
    $
    44.59
    
    
    $
    33.51
    
    
    $
    32.94
    
    
    $
    33.25Field operating costs
    
    
    10.23
    
    
    
    7.13
    
    
    
    8.76
    
    
    
    8.58
    
    
    
    6.37
    
    
    
    7.58Production taxes
    
    
    0.58
    
    
    
    
    
    
    
    0.31
    
    
    
    1.07
    
    
    
    
    
    
    
    0.59Engineering support
    
    
    2.98
    
    
    
    0.93
    
    
    
    2.01
    
    
    
    2.30
    
    
    
    2.45
    
    
    
    2.3713.79
    
    
    
    8.06
    
    
    
    11.08
    
    
    
    11.95
    
    
    
    8.82
    
    
    
    10.54Net revenue before depletion
    
    
    28.21
    
    
    
    39.41
    
    
    
    33.51
    
    
    
    21.56
    
    
    
    24.12
    
    
    
    22.71Depletion
    
    
    14.84
    
    
    
    24.21
    
    
    
    19.28
    
    
    
    17.56
    
    
    
    11.12
    
    
    
    14.66Net revenue from operations
    
    $
    13.37
    
    
    $
    15.20
    
    
    $
    14.23
    
    
    $
    4.00
    
    
    $
    13.00
    
    
    $
    8.05
 General and Administrative 2005 vs. 2004
  Three-Months
    
    
    Nine-MonthsEnded
    
    
    Ended(stated in thousands of U.S. Dollars)
    
    September 30,
    
    
    September 30,General and Administrative for 2004
    
    $
    1,808
    
    
    $
    4,874Favorable (unfavorable) variances:Oil and Gas Activities:China
    
    
    (868
    )
    
    
    (799
    )U.S.
    
    
    (47
    )
    
    
    (52
    )Corporate
    
    
    312
    
    
    
    (603
    )(603
    )
    
    
    (1,454
    )General and Administrative for 2005
    
    $
    2,411
    
    
    $
    6,328
   Business Development 2005 vs. 2004
  28




---



##### 



Three-Months
    
    
    Nine-MonthsEnded
    
    
    Ended(stated in thousands of U.S. Dollars)
    
    September 30,
    
    
    September 30,Business Development for 2004
    
    $
    457
    
    
    $
    1,156Favorable (unfavorable) variances:GTL
    
    
    19
    
    
    
    (5
    )EOR
    
    
    (1,066
    )
    
    
    (2,240
    )(1,047
    )
    
    
    (2,245
    )Business Development for 2005
    
    $
    1,504
    
    
    $
    3,401
 TM TM
 Depletion and Depreciation 2005 vs. 2004
  China
  
    
    As noted in our periodic report on Form 10-Q for the quarterly period ended June 30,
2005 and in related shareholder communications, as a result of the work completed in the
northern blocks of the Dagang project, we stated that we were assessing our drilling
program for the Dagang field, were anticipating a reduction in wells drilled in the
northern blocks of the field and would be reducing our internally estimated proved
reserves. In order that we may assess production decline performance of recently drilled
wells, as well as maximizing cash flow from these operations, we have temporarily suspended
new drilling activity. As a result, we have reduced our estimate of the overall
development program and revised our internal estimate of total proved reserves downward
accordingly.
    
    In the second quarter of 2005, we impaired the cost of our first Zitong block
exploration well, the Dingyuan 1, resulting in those costs and other associated costs being
included with our proved properties and therefore subject to depletion.
    
    During periods of increasing oil prices our share of proved oil reserves decreases, as
fewer barrels of oil are required to recover our costs under our Dagang production-sharing
contract.
 U.S.
  29




---



##### 



Capital Investments
  Three-Month Periods Ended
    
    
    Nine-Month Periods EndedSeptember 30,
    
    
    September 30,(Increase)
    
    
    
    
    
    
    
    
    
    
    (Increase)(stated in thousands of U.S. Dollars)
    
    2005
    
    
    2004
    
    
    Decrease
    
    
    2005
    
    
    2004
    
    
    DecreaseOil and Gas Activities:China
    
    $
    5,860
    
    
    $
    4,480
    
    
    $
    (1,380
    )
    
    $
    24,111
    
    
    $
    18,632
    
    
    $
    (5,479
    )U.S.
    
    
    2,770
    
    
    
    3,508
    
    
    
    738
    
    
    
    5,282
    
    
    
    13,351
    
    
    
    8,069EOR
    
    
    893
    
    
    
    509
    
    
    
    (384
    )
    
    
    3,736
    
    
    
    1,624
    
    
    
    (2,112
    )GTL
    
    
    246
    
    
    
    
    
    
    
    (246
    )
    
    
    977
    
    
    
    66
    
    
    
    (911
    )$
    9,769
    
    
    $
    8,497
    
    
    $
    (1,272
    )
    
    $
    34,106
    
    
    $
    33,673
    
    
    $
    (433
    )
 Oil and Gas Activities  China
  Dagang
   Zitong
  30




---



##### 



.
 Oil and Gas Activities  U.S.
    Knights Landing
 .
 Citrus
  31




---



##### 



South Midway
  Northwest Lost Hills
 rd Aera 1 2
 LAK Ranch
  North Salt Creek
  Peach
  32




---



##### 



Other California Exploration
  Enhanced Oil Recovery and Heavy Oil Processing Activities
 TM
 Iraq
 o TM
 .
 Colombia
  33




---



##### 



RTP TM CDF
 TM TM TM TM TM TM RTP TM Unit TM
 RTP TM Technology
 TM TM TM TM TM
  TM TM TM
 Gas-To-Liquids Activities
  34




---



##### 



Egypt
 EGAS
 Mongolia
 CTL
 Bolivia
  Liquidity and Capital Resources
 Sources and Uses of Cash
  Operating Activities
  Investing Activities
  35




---



##### 



Financing Activities
   Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(stated in thousands of U.S. Dollars)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Cash flow from operating activities
    
    $
    2,500
    
    
    $
    (200
    )
    
    $
    5,125
    
    
    $
    1,134Investing ActivitiesCapital investments, after changes in non-cash working capital
    
    
    (8,705
    )
    
    
    (13,056
    )
    
    
    (23,730
    )
    
    
    (33,101
    )Merger, net of working capital
    
    
    (117
    )
    
    
    
    
    
    
    (10,096
    )
    
    
    Equity investment and Merger related costs
    
    
    
    
    
    
    (653
    )
    
    
    (1,687
    )
    
    
    (3,153
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,458Other
    
    
    (6
    )
    
    
    108
    
    
    
    (60
    )
    
    
    (72
    )(8,828
    )
    
    
    (13,601
    )
    
    
    (35,573
    )
    
    
    (22,868
    )Financing ActivitiesProceeds from private placements, net of all share issue costs
    
    
    2,399
    
    
    
    
    
    
    
    12,459
    
    
    
    20,428Proceeds from exercise of options and warrants
    
    
    4,504
    
    
    
    289
    
    
    
    6,229
    
    
    
    1,664Net debt financing
    
    
    (417
    )
    
    
    1,722
    
    
    
    6,750
    
    
    
    3,722Other
    
    
    (86
    )
    
    
    
    
    
    
    (512
    )
    
    
    6,400
    
    
    
    2,011
    
    
    
    24,926
    
    
    
    25,814Net Source (Use) of Cash
    
    $
    72
    
    
    $
    (11,790
    )
    
    $
    (5,522
    )
    
    $
    4,080
 Outlook
  36




---



##### 



Contractual Obligations
  37




---



##### 



Payments Due by Year(stated in thousands of U.S. dollars)Total
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    After 2008Purchase Agreement:
    
    $
    100
    
    
    $
    
    
    
    $
    100
    
    
    $
    
    
    
    $
    
    
    
    $
    Consolidated Balance Sheets:Note payable  current portion (Note 9)
    
    
    1,667
    
    
    
    417
    
    
    
    1,250
    
    
    
    
    
    
    
    
    
    
    
    Long term debt (Note 9)
    
    
    1,389
    
    
    
    
    
    
    
    417
    
    
    
    972
    
    
    
    
    
    
    
    Convertible loans (Note 10)
    
    
    8,000
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Commitments:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest payable
    
    
    791
    
    
    
    648
    
    
    
    122
    
    
    
    21
    
    
    
    
    
    
    
    Lease commitments
    
    
    2,182
    
    
    
    154
    
    
    
    649
    
    
    
    477
    
    
    
    375
    
    
    
    527Zitong exploration commitment (Note 14)
    
    
    4,300
    
    
    
    4,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Contingent obligation (Note 14)
    
    
    1,900
    
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    20,329
    
    
    $
    13,519
    
    
    $
    4,438
    
    
    $
    1,470
    
    
    $
    375
    
    
    $
    527
 Off Balance Sheet Arrangements
  Outstanding Share Data
  Quarterly Financial Data In Accordance With Canadian and U.S. GAAP (Unaudited)
 QUARTER ENDED2005
    
    2004
    
    20033rd Qtr
    
    2nd Qtr
    
    1st Qtr
    
    4th Qtr
    
    3rd Qtr
    
    2nd Qtr
    
    1st Qtr
    
    4th QtrTotal revenue
    
    $
    8,907
    
    
    $
    6,645
    
    
    $
    5,736
    
    
    $
    6,212
    
    
    $
    4,932
    
    
    $
    3,521
    
    
    $
    3,332
    
    
    $
    2,330Net lossCanadian GAAP
    
    $
    2,113
    
    
    $
    1,031
    
    
    $
    1,483
    
    
    $
    17,184
    
    
    $
    951
    
    
    $
    1,298
    
    
    $
    1,292
    
    
    $
    23,154U.S. GAAP
    
    $
    1,843
    
    
    $
    1,564
    
    
    $
    3,008
    
    
    $
    15,736
    
    
    $
    980
    
    
    $
    1,510
    
    
    $
    1,470
    
    
    $
    23,270Net loss per shareCanadian GAAP
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.09
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.15U.S. GAAP
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.09
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.15
  38




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Item 4. Controls and Procedures
   Part II  Other Information
 Item 1. Legal Proceedings: None
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds: None
 Item 3. Defaults Upon Senior Securities: None
 Item 4. Submission of Matters To a Vote of Securityholders: None
 Item 5. Other Information: None
 Item 6. 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
   39




---



##### 



W. Gordon Lancaster
  40




---



##### 



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
 41