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, 2008
 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 
incorporation or organization)
    
    (I.R.S. Employer
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
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PagePART IFinancial InformationItem 1 Financial StatementsUnaudited Condensed Consolidated Balance Sheets as at June 30, 2008 and December 31, 2007
    
    
    3Unaudited Condensed Consolidated Statements of Operations, Comprehensive Loss
and Accumulated Deficit for the Three-Month and Six-Month Periods Ended
June 30, 2008 and 2007
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Three-Month
and Six-Month Periods Ended June 30, 2008 and 2007
    
    
    5Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    37PART IIOther InformationItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults Upon Senior Securities
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43
  2




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##### 



Part I  Financial Information
 
 Item 1 Financial Statements
 IVANHOE ENERGY INC.
 
 Unaudited Condensed Consolidated Balance Sheets
  June 30, 2008
    
    
    December 31, 2007AssetsCurrent Assets:Cash and cash equivalents
    
    $
    10,214
    
    
    $
    11,356Accounts receivable
    
    
    11,893
    
    
    
    9,376Advance
    
    
    725
    
    
    
    825Prepaid and other current assets
    
    
    461
    
    
    
    602Future income tax assets
    
    
    2,286
    
    
    
    25,579
    
    
    
    22,159Oil and gas properties and development costs, net
    
    
    104,555
    
    
    
    111,853Intangible assets  technology
    
    
    102,153
    
    
    
    102,153Long term assets
    
    
    2,870
    
    
    
    751$
    235,157
    
    
    $
    236,916Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable and accrued liabilities
    
    $
    10,992
    
    
    $
    9,538Debt  current portion
    
    
    11,636
    
    
    
    6,729Derivative instruments
    
    
    27,863
    
    
    
    9,43250,491
    
    
    
    25,699Long term debt
    
    
    9,484
    
    
    
    9,812Asset retirement obligations
    
    
    3,673
    
    
    
    2,218Long term obligation
    
    
    1,900
    
    
    
    1,90065,548
    
    
    
    39,629Commitments and contingenciesShareholders Equity:Share capital, issued 245,540,784 common shares;
December 31, 2007 244,873,349 common shares
    
    
    325,168
    
    
    
    324,262Purchase warrants
    
    
    18,805
    
    
    
    23,078Contributed surplus
    
    
    15,901
    
    
    
    9,937Accumulated deficit
    
    
    (190,265
    )
    
    
    (159,990
    )169,609
    
    
    
    197,287$
    235,157
    
    
    $
    236,916
  3




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##### 



IVANHOE ENERGY INC.
 
 Unaudited Condensed Consolidated Statements of Operations,
 Comprehensive Loss and Accumulated Deficit
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007RevenueOil and gas revenue
    
    $
    17,979
    
    
    $
    9,789
    
    
    $
    33,022
    
    
    $
    19,385Loss on derivative instruments
    
    
    (20,787
    )
    
    
    (316
    )
    
    
    (24,733
    )
    
    
    (775
    )Interest income
    
    
    36
    
    
    
    116
    
    
    
    108
    
    
    
    236(2,772
    )
    
    
    9,589
    
    
    
    8,397
    
    
    
    18,846ExpensesOperating costs
    
    
    6,614
    
    
    
    4,223
    
    
    
    12,006
    
    
    
    7,908General and administrative
    
    
    4,084
    
    
    
    3,384
    
    
    
    7,749
    
    
    
    6,256Business and technology development
    
    
    1,914
    
    
    
    2,348
    
    
    
    3,671
    
    
    
    4,510Depletion and depreciation
    
    
    8,129
    
    
    
    6,024
    
    
    
    16,495
    
    
    
    12,916Interest expense and financing costs
    
    
    504
    
    
    
    189
    
    
    
    1,037
    
    
    
    38221,245
    
    
    
    16,168
    
    
    
    40,958
    
    
    
    31,972Loss before Income Taxes
    
    
    (24,017
    )
    
    
    (6,579
    )
    
    
    (32,561
    )
    
    
    (13,126
    )Future income tax recovery
    
    
    2,286
    
    
    
    
    
    
    
    2,286
    
    
    
    Net Loss and Comprehensive Loss
    
    
    (21,731
    )
    
    
    (6,579
    )
    
    
    (30,275
    )
    
    
    (13,126
    )Accumulated Deficit, beginning of period
    
    
    (168,534
    )
    
    
    (127,330
    )
    
    
    (159,990
    )
    
    
    (120,783
    )Accumulated Deficit, end of period
    
    $
    (190,265
    )
    
    $
    (133,909
    )
    
    $
    (190,265
    )
    
    $
    (133,909
    )Net Loss per share  Basic and Diluted
    
    $
    (0.09
    )
    
    $
    (0.03
    )
    
    $
    (0.12
    )
    
    $
    (0.05
    )Weighted Average
Number of Shares
(in thousands)
    
    
    245,250
    
    
    
    241,443
    
    
    
    245,063
    
    
    
    241,338
  4




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##### 



IVANHOE ENERGY INC.
 
 Unaudited Condensed Consolidated Statements of Cash Flows
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating ActivitiesNet loss and comprehensive loss
    
    $
    (21,731
    )
    
    $
    (6,579
    )
    
    $
    (30,275
    )
    
    $
    (13,126
    )Items not requiring use of cash:Depletion and depreciation
    
    
    8,129
    
    
    
    6,024
    
    
    
    16,495
    
    
    
    12,916Stock based compensation
    
    
    793
    
    
    
    1,053
    
    
    
    1,911
    
    
    
    1,855Unrealized loss on derivative instruments
    
    
    16,433
    
    
    
    286
    
    
    
    18,431
    
    
    
    952Future income tax recovery
    
    
    (2,286
    )
    
    
    
    
    
    
    (2,286
    )
    
    
    Other
    
    
    268
    
    
    
    161
    
    
    
    459
    
    
    
    330Changes in non-cash working capital items
    
    
    1,020
    
    
    
    (746
    )
    
    
    908
    
    
    
    (127
    )2,626
    
    
    
    199
    
    
    
    5,643
    
    
    
    2,800Investing ActivitiesCapital investments
    
    
    (2,593
    )
    
    
    (8,123
    )
    
    
    (7,916
    )
    
    
    (13,457
    )Proceeds from sale of assets
    
    
    100
    
    
    
    
    
    
    
    100
    
    
    
    1,000Recovery of HTLTM investments
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    9,000Advance repayments
    
    
    100
    
    
    
    200
    
    
    
    100
    
    
    
    400Other
    
    
    (73
    )
    
    
    
    
    
    
    (103
    )
    
    
    75Changes in non-cash working capital items
    
    
    (1,402
    )
    
    
    (481
    )
    
    
    (2,532
    )
    
    
    (1,494
    )(3,868
    )
    
    
    596
    
    
    
    (10,351
    )
    
    
    (4,476
    )Financing ActivitiesProceeds from exercise of options
    
    
    686
    
    
    
    165
    
    
    
    686
    
    
    
    165Proceeds from debt obligations, net of financing costs
    
    
    5,472
    
    
    
    
    
    
    
    5,472
    
    
    
    Payments of debt obligations
    
    
    (615
    )
    
    
    (615
    )
    
    
    (1,230
    )
    
    
    (1,230
    )Payments of deferred financing costs
    
    
    (1,480
    )
    
    
    (62
    )
    
    
    (2,064
    )
    
    
    (62
    )Changes in non-cash working capital items
    
    
    702
    
    
    
    
    
    
    
    702
    
    
    
    4,765
    
    
    
    (512
    )
    
    
    3,566
    
    
    
    (1,127
    )Increase (decrease) in cash and cash equivalents, for the period
    
    
    3,523
    
    
    
    283
    
    
    
    (1,142
    )
    
    
    (2,803
    )Cash and cash equivalents, beginning of period
    
    
    6,691
    
    
    
    10,793
    
    
    
    11,356
    
    
    
    13,879Cash and cash equivalents, end of period
    
    $
    10,214
    
    
    $
    11,076
    
    
    $
    10,214
    
    
    $
    11,076
  5




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##### 



Notes to the Condensed Consolidated Financial Statements
 June 30, 2008
 1. BASIS OF PRESENTATION
 Company Ivanhoe Energy GAAP
  2. CHANGES IN ACCOUNTING POLICIES
 2008 Accounting Changes
 CICA S.1535 S.3862 S.3863
 Impact of New and Pending Canadian GAAP Accounting Standards
 S.3064 S.3062
 6




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##### 



Convergence of Canadian GAAP with International Financial Reporting Standards
 AcSB IFRS
 3. OIL AND GAS PROPERTIES AND DEVELOPMENT COSTS
  As at June 30, 2008Oil and GasU.S.
    
    
    China
    
    
    HTLTM
    
    
    GTL
    
    
    TotalOil and Gas Properties:Proved
    
    $
    110,316
    
    
    $
    137,698
    
    
    $
    
    
    
    $
    
    
    
    $
    248,014Unproved
    
    
    4,394
    
    
    
    4,019
    
    
    
    
    
    
    
    
    
    
    
    8,413114,710
    
    
    
    141,717
    
    
    
    
    
    
    
    
    
    
    
    256,427Accumulated depletion
    
    
    (30,228
    )
    
    
    (70,582
    )
    
    
    
    
    
    
    
    
    
    
    (100,810
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    (16,550
    )
    
    
    
    
    
    
    
    
    
    
    (66,900
    )34,132
    
    
    
    54,585
    
    
    
    
    
    
    
    
    
    
    
    88,717HTLTM and GTL Development Costs:Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    527
    
    
    
    5,054
    
    
    
    5,581Feedstock test facility
    
    
    
    
    
    
    
    
    
    
    5,505
    
    
    
    
    
    
    
    5,505Commercial demonstration facility
    
    
    
    
    
    
    
    
    
    
    11,083
    
    
    
    
    
    
    
    11,083Accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    (6,476
    )
    
    
    
    
    
    
    (6,476
    )
    
    
    
    
    
    
    
    10,639
    
    
    
    5,054
    
    
    
    15,693Furniture and equipment
    
    
    547
    
    
    
    119
    
    
    
    113
    
    
    
    
    
    
    
    779Accumulated depreciation
    
    
    (468
    )
    
    
    (79
    )
    
    
    (87
    )
    
    
    
    
    
    
    (634
    )79
    
    
    
    40
    
    
    
    26
    
    
    
    
    
    
    
    145$
    34,211
    
    
    $
    54,625
    
    
    $
    10,665
    
    
    $
    5,054
    
    
    $
    104,555
 As at December 31, 2007Oil and GasU.S.
    
    
    China
    
    
    HTLTM
    
    
    GTL
    
    
    TotalOil and Gas Properties:Proved
    
    $
    107,040
    
    
    $
    134,648
    
    
    $
    
    
    
    $
    
    
    
    $
    241,688Unproved
    
    
    4,373
    
    
    
    3,297
    
    
    
    
    
    
    
    
    
    
    
    7,670111,413
    
    
    
    137,945
    
    
    
    
    
    
    
    
    
    
    
    249,358Accumulated depletion
    
    
    (27,091
    )
    
    
    (58,583
    )
    
    
    
    
    
    
    
    
    
    
    (85,674
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    (16,550
    )
    
    
    
    
    
    
    
    
    
    
    (66,900
    )33,972
    
    
    
    62,812
    
    
    
    
    
    
    
    
    
    
    
    96,784HTLTM and GTL Development Costs:Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    389
    
    
    
    5,054
    
    
    
    5,443Feedstock test facility
    
    
    
    
    
    
    
    
    
    
    4,724
    
    
    
    
    
    
    
    4,724Commercial demonstration facility
    
    
    
    
    
    
    
    
    
    
    9,903
    
    
    
    
    
    
    
    9,903Accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    (5,159
    )
    
    
    
    
    
    
    (5,159
    )
    
    
    
    
    
    
    
    9,857
    
    
    
    5,054
    
    
    
    14,911Furniture and equipment
    
    
    529
    
    
    
    119
    
    
    
    107
    
    
    
    
    
    
    
    755Accumulated depreciation
    
    
    (449
    )
    
    
    (77
    )
    
    
    (71
    )
    
    
    
    
    
    
    (597
    )80
    
    
    
    42
    
    
    
    36
    
    
    
    
    
    
    
    158$
    34,052
    
    
    $
    62,854
    
    
    $
    9,893
    
    
    $
    5,054
    
    
    $
    111,853
 7




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##### 



4. INTANGIBLE ASSETS  TECHNOLOGY
  HTL TM Technology
 RTP TM Process TM TM HTL TM Technology HTL TM
 Syntroleum Master License
 Syntroleum GTL Technology GTL
 TM
 5. LONG TERM DEBT
  June 30,
    
    
    December 31,2008
    
    
    2007Variable rate bank note, (5.70% - 5.85% at June 30, 2008), due 2008
    
    $
    5,200
    
    
    $
    4,500Variable rate bank note (6.29% at June 30, 2008) due 2010
    
    
    10,000
    
    
    
    10,000Non-interest bearing promissory note, due 2006 through 2009
    
    
    1,646
    
    
    
    2,876Demand loan at 8% due August 2008
    
    
    4,936
    
    
    
    21,782
    
    
    
    17,376Less:Unamortized discount
    
    
    (48
    )
    
    
    (139
    )Unamortized deferred financing costs
    
    
    (614
    )
    
    
    (696
    )Current maturities
    
    
    (11,636
    )
    
    
    (6,729
    )(12,298
    )
    
    
    (7,564
    )$
    9,484
    
    
    $
    9,812
 Bank Loans
  8




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##### 



LIBOR
  Promissory Notes
 Richfirst Sunwing
 Demand Loan
   2008
    
    
    11,3662009
    
    
    4162010
    
    
    10,000$
    21,782
 6. ASSET RETIREMENT OBLIGATIONS
 TM CDF
 2008Carrying balance as of January 1, 2008
    
    $
    2,218Liabilities incurred
    
    
    218Accretion expense
    
    
    78Revisions in estimated cash flows
    
    
    1,159Carrying balance as of June 30, 2008
    
    $
    3,673
 9




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##### 



7. COMMITMENTS AND CONTINGENCIES
 Zitong Block Exploration Commitment
 CNPC Mitsubishi
 Zitong Partners Phase 2
 Long Term Obligation
 TM
 Income Taxes
  Pan-China
   10




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##### 



Other Commitments
 Zeton FTF TM
   8. SHARE CAPITAL AND WARRANTS
  Common Shares
    
    
    
    
    
    
    Stock OptionsWeighted AverageNumber
    
    
    
    
    
    
    Contributed
    
    
    Number
    
    
    Exercise Price(thousands)
    
    
    Amount
    
    
    Surplus
    
    
    (thousands)
    
    
    Cdn.$Balance December 31, 2007
    
    
    244,873
    
    
    $
    324,262
    
    
    $
    9,937
    
    
    
    12,945
    
    
    $
    2.37Shares issued for:Exercise of options
    
    
    668
    
    
    
    906
    
    
    
    (220
    )
    
    
    (781
    )
    
    $
    1.35Options:Granted
    
    
    
    
    
    
    
    
    
    
    1,911
    
    
    
    3,782
    
    
    $
    1.77Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139
    )
    
    $
    2.04Purchase warrants expired
    
    
    
    
    
    
    
    
    
    
    4,273Balance June 30, 2008
    
    
    245,541
    
    
    $
    325,168
    
    
    $
    15,901
    
    
    
    15,807
    
    
    $
    2.28
 Purchase Warrants
   Purchase WarrantsPrice per
    
    
    
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    
    
    
    Exercise
    
    Value onSpecial
    
    
    
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    
    
    
    Price per
    
    ExerciseWarrant
    
    Issued
    
    Exercisable
    
    Issuable
    
    Value
    
    Expiry Date
    
    Share
    
    ($U.S. 000)(thousands)
    
    ($U.S. 000)U.S.$2.23
    
    
    11,400
    
    
    
    11,400
    
    
    
    11,400
    
    
    
    18,805
    
    
    May 2011
    
    Cdn. $2.93 (1)
    
    
    32,973
 
 (1)
    
    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 of the
transaction. In September 2006, these warrants were listed on the Toronto Stock Exchange and the
exercise price was changed to Cdn. $2.93.  11




---



##### 



9. SEGMENT INFORMATION
 TM
 Oil and Gas
  HTL TM
 TM TM TM
 GTL
  Corporate
 .
  Three-Month Period Ended June 30, 2008Oil and GasChina
    
    
    U.S.
    
    
    HTLTM
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    11,747
    
    
    $
    6,232
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17,979Loss on derivative instruments
    
    
    (15,009
    )
    
    
    (5,778
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,787
    )Interest income
    
    
    11
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    36(3,251
    )
    
    
    476
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (2,772
    )Operating costs
    
    
    5,303
    
    
    
    1,311
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,614General and administrative
    
    
    697
    
    
    
    520
    
    
    
    
    
    
    
    
    
    
    
    2,867
    
    
    
    4,084Business and technology development
    
    
    
    
    
    
    
    
    
    
    1,885
    
    
    
    29
    
    
    
    
    
    
    
    1,914Depletion and depreciation
    
    
    5,794
    
    
    
    1,698
    
    
    
    634
    
    
    
    
    
    
    
    3
    
    
    
    8,129Interest expense and financing costs
    
    
    149
    
    
    
    132
    
    
    
    22
    
    
    
    
    
    
    
    201
    
    
    
    50411,943
    
    
    
    3,661
    
    
    
    2,541
    
    
    
    29
    
    
    
    3,071
    
    
    
    21,245Loss before Income Taxes
    
    
    (15,194
    )
    
    
    (3,185
    )
    
    
    (2,541
    )
    
    
    (29
    )
    
    
    (3,068
    )
    
    
    (24,017
    )Future income tax recovery
    
    
    2,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,286Net Loss and Comprehensive Loss
    
    $
    (12,908
    )
    
    $
    (3,185
    )
    
    $
    (2,541
    )
    
    $
    (29
    )
    
    $
    (3,068
    )
    
    $
    (21,731
    )Capital Investments
    
    $
    1,646
    
    
    $
    713
    
    
    $
    231
    
    
    $
    
    
    
    $
    3
    
    
    $
    2,593
 12




---



##### 



Six-Month Period Ended June 30, 2008Oil and GasChina
    
    
    U.S.
    
    
    HTLTM
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    22,635
    
    
    $
    10,387
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    33,022Loss on derivative instruments
    
    
    (17,691
    )
    
    
    (7,042
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,733
    )Interest income
    
    
    25
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    1084,969
    
    
    
    3,411
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    8,397Operating costs
    
    
    9,613
    
    
    
    2,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,006General and administrative
    
    
    1,263
    
    
    
    882
    
    
    
    
    
    
    
    
    
    
    
    5,604
    
    
    
    7,749Business and technology development
    
    
    
    
    
    
    
    
    
    
    3,605
    
    
    
    66
    
    
    
    
    
    
    
    3,671Depletion and depreciation
    
    
    12,000
    
    
    
    3,154
    
    
    
    1,334
    
    
    
    3
    
    
    
    4
    
    
    
    16,495Interest expense and financing costs
    
    
    473
    
    
    
    280
    
    
    
    32
    
    
    
    
    
    
    
    252
    
    
    
    1,03723,349
    
    
    
    6,709
    
    
    
    4,971
    
    
    
    69
    
    
    
    5,860
    
    
    
    40,958Loss before Income Taxes
    
    
    (18,380
    )
    
    
    (3,298
    )
    
    
    (4,971
    )
    
    
    (69
    )
    
    
    (5,843
    )
    
    
    (32,561
    )Future income tax recovery
    
    
    2,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,286Net Loss and Comprehensive Loss
    
    $
    (16,094
    )
    
    $
    (3,298
    )
    
    $
    (4,971
    )
    
    $
    (69
    )
    
    $
    (5,843
    )
    
    $
    (30,275
    )Capital Investments
    
    $
    3,771
    
    
    $
    3,196
    
    
    $
    946
    
    
    $
    
    
    
    $
    3
    
    
    $
    7,916Identifiable Assets (As at June 30, 2008)
    
    $
    72,530
    
    
    $
    41,001
    
    
    $
    103,066
    
    
    $
    15,088
    
    
    $
    3,472
    
    
    $
    235,157Identifiable Assets (As at December 31, 2007)
    
    $
    73,298
    
    
    $
    40,726
    
    
    $
    102,456
    
    
    $
    15,073
    
    
    $
    5,363
    
    
    $
    236,916
 Three-Month Period Ended June 30, 2007Oil and GasChina
    
    
    U.S.
    
    
    HTL
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    6,990
    
    
    $
    2,799
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,789Loss on derivative instruments
    
    
    
    
    
    
    (316
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )Interest income
    
    
    8
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    1166,998
    
    
    
    2,522
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    9,589Operating costs
    
    
    3,288
    
    
    
    935
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,223General and administrative
    
    
    623
    
    
    
    795
    
    
    
    
    
    
    
    
    
    
    
    1,966
    
    
    
    3,384Business and technology development
    
    
    
    
    
    
    
    
    
    
    2,135
    
    
    
    213
    
    
    
    
    
    
    
    2,348Depletion and depreciation
    
    
    4,328
    
    
    
    1,482
    
    
    
    211
    
    
    
    2
    
    
    
    1
    
    
    
    6,024Interest expense and financing costs
    
    
    
    
    
    
    98
    
    
    
    6
    
    
    
    
    
    
    
    85
    
    
    
    1898,239
    
    
    
    3,310
    
    
    
    2,352
    
    
    
    215
    
    
    
    2,052
    
    
    
    16,168Net Loss and Comprehensive Loss
    
    $
    (1,241
    )
    
    $
    (788
    )
    
    $
    (2,352
    )
    
    $
    (215
    )
    
    $
    (1,983
    )
    
    $
    (6,579
    )Capital Investments
    
    $
    6,516
    
    
    $
    981
    
    
    $
    626
    
    
    $
    
    
    
    $
    
    
    
    $
    8,123
 13




---



##### 



Six-Month Period Ended June 30, 2007Oil and GasChina
    
    
    U.S.
    
    
    HTL
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    13,875
    
    
    $
    5,510
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19,385Loss on derivative instruments
    
    
    
    
    
    
    (775
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (775
    )Interest income
    
    
    19
    
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    23613,894
    
    
    
    4,796
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    18,846Operating costs
    
    
    5,771
    
    
    
    2,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,908General and administrative
    
    
    1,030
    
    
    
    1,183
    
    
    
    
    
    
    
    
    
    
    
    4,043
    
    
    
    6,256Business and technology development
    
    
    
    
    
    
    
    
    
    
    4,152
    
    
    
    358
    
    
    
    
    
    
    
    4,510Depletion and depreciation
    
    
    9,054
    
    
    
    3,096
    
    
    
    759
    
    
    
    5
    
    
    
    2
    
    
    
    12,916Interest expense and financing costs
    
    
    5
    
    
    
    185
    
    
    
    13
    
    
    
    
    
    
    
    179
    
    
    
    38215,860
    
    
    
    6,601
    
    
    
    4,924
    
    
    
    363
    
    
    
    4,224
    
    
    
    31,972Net Loss and Comprehensive Loss
    
    $
    (1,966
    )
    
    $
    (1,805
    )
    
    $
    (4,924
    )
    
    $
    (363
    )
    
    $
    (4,068
    )
    
    $
    (13,126
    )Capital Investments
    
    $
    10,318
    
    
    $
    1,793
    
    
    $
    1,346
    
    
    $
    
    
    
    $
    
    
    
    $
    13,457
 10. FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS
  As at June 30, 2008FinancialAvailable-for-
    
    
    
    
    
    
    liabilitiesLoans and
    
    
    sale financial
    
    
    Held-for-
    
    
    measured at
    
    
    Total carryingreceivables
    
    
    assets
    
    
    trading
    
    
    amortized cost
    
    
    amountFinancial Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    10,214
    
    
    $
    
    
    
    $
    10,214Accounts receivable
    
    
    11,893
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,893Advance
    
    
    725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    725Financial Liabilities:Accounts payable and
accrued liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,992
    )
    
    
    (10,992
    )Derivative instruments
    
    
    
    
    
    
    
    
    
    
    (27,863
    )
    
    
    
    
    
    
    (27,863
    )Long term debt
    
    
    
    
    
    
    
    
    
    
    (4,874
    )
    
    
    (16,246
    )
    
    
    (21,120
    )$
    12,618
    
    
    $
    
    
    
    $
    (22,523
    )
    
    $
    (27,238
    )
    
    $
    (37,143
    )
 As at December 31, 2007FinancialAvailable-for-
    
    
    
    
    
    
    liabilitiesLoans and
    
    
    sale financial
    
    
    Held-for-
    
    
    measured at
    
    
    Total carryingreceivables
    
    
    assets
    
    
    trading
    
    
    amortized cost
    
    
    amountFinancial Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    11,356
    
    
    $
    
    
    
    $
    11,356Accounts receivable
    
    
    9,376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,376Advance
    
    
    825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    825Financial Liabilities:Accounts payable and
accrued liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,538
    )
    
    
    (9,538
    )Derivative instruments
    
    
    
    
    
    
    
    
    
    
    (9,432
    )
    
    
    
    
    
    
    (9,432
    )Long term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,541
    )
    
    
    (16,541
    )$
    10,201
    
    
    $
    
    
    
    $
    1,924
    
    
    $
    (26,079
    )
    
    $
    (13,954
    )
 Financial Risk Factors
  14




---



##### 



Market Risk
  Commodity Price Risk
     Foreign Currency Exchange Rate Risk
  Interest Rate Risk
  15




---



##### 



Credit Risk
 TM
 June 30,
    
    
    December 31,2008
    
    
    2007Accounts Receivable:Neither impaired nor past due
    
    $
    11,110
    
    
    $
    8,259Impaired (net of valuation allowance)
    
    
    
    
    
    
    Not impaired and past due in the following periods:within 30 days
    
    
    19
    
    
    
    34731 to 60 days
    
    
    27
    
    
    
    61 to 90 days
    
    
    11
    
    
    
    4over 90 days
    
    
    726
    
    
    
    76611,893
    
    
    
    9,376AdvanceNot impaired and past due over 90 days
    
    
    725
    
    
    
    825$
    12,618
    
    
    $
    10,201
  Liquidity Risk
   As at June 30, 2008
    
    As at December 31, 2007Contractual Maturity
    
    Contractual Maturity(Nominal Cash Flows)
    
    (Nominal Cash Flows)Less than
    
    1 to 2
    
    2 to 5
    
    Over 5
    
    Less than
    
    1 to 2
    
    2 to 5
    
    Over 51 year
    
    years
    
    years
    
    years
    
    1 year
    
    years
    
    years
    
    yearsDerivative
financial liabilities:Costless Collars  oil price commodity
    
    $
    19,478
    
    
    $
    8,385
    
    
    $
    
    
    
    $
    
    
    
    $
    7,156
    
    
    $
    2,276
    
    
    $
    
    
    
    $
    Non
derivative financial liabilities:Trade accounts payable
    
    $
    5,714
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,897
    
    
    $
    
    
    
    $
    
    
    
    $
    Accruals
    
    $
    5,278
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,641
    
    
    $
    
    
    
    $
    
    
    
    $
    Long term debt
    
    $
    12,363
    
    
    $
    859
    
    
    $
    10,139
    
    
    $
    
    
    
    $
    8,240
    
    
    $
    1,541
    
    
    $
    10,277
    
    
    $
    
 16




---



##### 



11. CAPITAL MANAGEMENT
     12. SUPPLEMENTAL CASH FLOW INFORMATION
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Supplemental Cash Flow Information:Cash paid during the period for:Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    6
    
    
    $
    5Interest
    
    $
    239
    
    
    $
    73
    
    
    $
    605
    
    
    $
    34Changes in non-cash working capital itemsOperating Activities:Accounts receivable
    
    $
    (1,365
    )
    
    $
    (540
    )
    
    $
    (2,549
    )
    
    $
    469Prepaid and other current assets
    
    
    23
    
    
    
    69
    
    
    
    131
    
    
    
    251Accounts payable and accrued liabilities
    
    
    2,362
    
    
    
    (275
    )
    
    
    3,326
    
    
    
    (847
    )1,020
    
    
    
    (746
    )
    
    
    908
    
    
    
    (127
    )Investing ActivitiesAccounts receivable
    
    
    (5
    )
    
    
    (19
    )
    
    
    32
    
    
    
    (134
    )Prepaid and other current assets
    
    
    31
    
    
    
    17
    
    
    
    10
    
    
    
    60Accounts payable and accrued liabilities
    
    
    (1,428
    )
    
    
    (479
    )
    
    
    (2,574
    )
    
    
    (1,420
    )(1,402
    )
    
    
    (481
    )
    
    
    (2,532
    )
    
    
    (1,494
    )Financing ActivitiesAccounts payable and accrued liabilities
    
    
    702
    
    
    
    
    
    
    
    702
    
    
    
    $
    320
    
    
    $
    (1,227
    )
    
    $
    (922
    )
    
    $
    (1,621
    )
  13. INCOME TAXES
  17




---



##### 



14. SUBSEQUENT EVENTS
 Special Warrants Offering TM
 Talisman 2008 Note Convertible Note
 Contingent Payment
   Back-in Right
 (a)
    
    100% of the Companys acquisition cost and certain expenses in respect of the
relevant lease if the Back-in Right is exercised on or before July 11, 2009;(b)
    
    150% of the Companys acquisition cost and certain expenses in respect of the
relevant lease if the Back-in Right is exercised after July 11, 2009 but on or before
July 11, 2010; and(c)
    
    200% of the Companys acquisition cost and certain expenses in respect of the
relevant lease if the Back-in Right is exercised after July 11, 2010 but on or before
July 11, 2011.
  18




---



##### 



15. ADDITIONAL DISCLOSURE REQUIRED UNDER U.S. GAAP
  Condensed Consolidated Balance Sheets
 Shareholders Equity and Oil and Gas Properties and Development Costs
 As at June 30, 2008Assets
    
    
    Liabilities
    
    

Shareholders EquityOil and GasProperties andDevelopment
    
    
    Derivative
    
    
    Share Capital
    
    
    Contributed
    
    
    AccumulatedCosts
    
    
    Instruments
    
    
    and Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    104,555
    
    
    $
    27,863
    
    
    $
    343,973
    
    
    $
    15,901
    
    
    $
    (190,265
    )
    
    $
    169,609Adjustments for:Reduction in stated capital (i)
    
    
    
    
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Accounting for stock based
compensation (ii)
    
    
    
    
    
    
    
    
    
    
    (435
    )
    
    
    (3,313
    )
    
    
    3,748
    
    
    
    Fair value adjustment of warrants (iii)
    
    
    
    
    
    
    21,157
    
    
    
    (5,575
    )
    
    
    (2,977
    )
    
    
    (12,605
    )
    
    
    (21,157
    )Ascribed value of shares issued for U.S.
royalty interests, net (iv)
    
    
    1,358
    
    
    
    
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Provision for impairment (v)
    
    
    (25,990
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,990
    )
    
    
    (25,990
    )Depletion adjustments due to differences
in provision for impairment (vi)
    
    
    11,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,641
    
    
    
    11,641HTLTM and GTL development costs
expensed, (vii)
    
    
    (5,795
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,795
    )
    
    
    (5,795
    )U.S. GAAP
    
    $
    85,769
    
    
    $
    49,020
    
    
    $
    413,776
    
    
    $
    9,611
    
    
    $
    (293,721
    )
    
    $
    129,666
 As at December 31, 2007Assets
    
    
    Liabilities
    
    

Shareholders EquityOil and GasProperties andDevelopment
    
    
    Derivative
    
    
    Share Capital
    
    
    Contributed
    
    
    AccumulatedCosts
    
    
    Instruments
    
    
    and Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    111,853
    
    
    $
    9,432
    
    
    $
    347,340
    
    
    $
    9,937
    
    
    $
    (159,990
    )
    
    $
    197,287Adjustments for:Reduction in stated capital (i)
    
    
    
    
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Accounting for stock based
compensation (ii)
    
    
    
    
    
    
    
    
    
    
    (396
    )
    
    
    (3,352
    )
    
    
    3,748
    
    
    
    Fair value adjustment of warrants (iii)
    
    
    
    
    
    
    5,786
    
    
    
    (7,988
    )
    
    
    (564
    )
    
    
    2,766
    
    
    
    (5,786
    )Ascribed value of shares issued for U.S.
royalty interests, net (iv)
    
    
    1,358
    
    
    
    
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Provision for impairment (v)
    
    
    (25,990
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,990
    )
    
    
    (25,990
    )Depletion adjustments due to differences
in provision for impairment (vi)
    
    
    9,334
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,334
    
    
    
    9,334HTLTM and GTL development costs
expensed, (vii)
    
    
    (5,658
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,658
    )
    
    
    (5,658
    )U.S. GAAP
    
    $
    90,897
    
    
    $
    15,218
    
    
    $
    414,769
    
    
    $
    6,021
    
    
    $
    (250,245
    )
    
    $
    170,545
 Shareholders Equity
  19




---



##### 



FASB SFAS No. 123(R)
 SFAS No. 133
 Oil and Gas Properties and Development Costs
   20




---



##### 



TM TM TM
 Deferred Financing Costs
  Condensed Consolidated Statements of Operations
  Three Month Periods Ended June 30,2008
    
    
    2007Net
    
    
    Net Loss
    
    
    Net
    
    
    Net LossLoss
    
    
    Per Share
    
    
    Loss
    
    
    Per ShareCanadian GAAP
    
    $
    (21,731
    )
    
    $
    (0.09
    )
    
    $
    (6,579
    )
    
    $
    (0.03
    )Fair value adjustment of derivative instruments (iii)
    
    
    (12,204
    )
    
    
    (0.05
    )
    
    
    (1,904
    )
    
    
    Depletion adjustments due to differences in
provision for impairment (viii)
    
    
    1,082
    
    
    
    0.01
    
    
    
    1,111
    
    
    
    HTLTM and GTL development costs expensed,
net of write downs, (ix)
    
    
    (128
    )
    
    
    
    
    
    
    (118
    )
    
    
    Recovery of HTLTM investments (ix)
    
    
    
    
    
    
    
    
    
    
    6,279
    
    
    
    0.03U.S. GAAP
    
    $
    (32,981
    )
    
    $
    (0.13
    )
    
    $
    (1,211
    )
    
    $
    Weighted Average Number of Shares under U.S. GAAP (in
thousands)
    
    
    
    
    
    
    245,250
    
    
    
    
    
    
    
    241,443
 Six-Month Periods Ended June 30,2008
    
    
    2007Net
    
    
    Net Loss
    
    
    Net
    
    
    Net LossLoss
    
    
    Per Share
    
    
    Loss
    
    
    Per ShareCanadian GAAP
    
    $
    (30,275
    )
    
    $
    (0.12
    )
    
    $
    (13,126
    )
    
    $
    (0.05
    )Fair value adjustment of warrants (iii)
    
    
    (15,371
    )
    
    
    (0.07
    )
    
    
    (4,096
    )
    
    
    (0.03
    )Depletion adjustments due to differences in
provision for impairment (viii)
    
    
    2,307
    
    
    
    0.01
    
    
    
    2,414
    
    
    
    0.01HTLTM and GTL development costs expensed,
net of write downs, (ix)
    
    
    (137
    )
    
    
    
    
    
    
    (118
    )
    
    
    Recovery of HTLTM investments (ix)
    
    
    
    
    
    
    
    
    
    
    6,279
    
    
    
    0.03U.S. GAAP
    
    $
    (43,476
    )
    
    $
    (0.18
    )
    
    $
    (8,647
    )
    
    $
    (0.04
    )Weighted Average Number of Shares under U.S. GAAP (in
thousands)
    
    
    
    
    
    
    245,063
    
    
    
    
    
    
    
    241,338
 21




---



##### 



TM
 INPEX TM TM
 Condensed Consolidated Statements of Cash Flow
 TM
 Impact of New and Pending U.S. GAAP Accounting Standards
 FASB SFAS
No. 162 GAAP GAAP hierarchy AICPA
 SFAS No. 161
 22




---



##### 



SFAS No. 141(R) SFAS No. 160
 SFAS No. 157
  Level 1:
 Level 2:
 Level 3:
   As at June 30, 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalDerivative instruments liabilities
    
    $
    21,157
    
    
    $
    27,863
    
    
    $
    
    
    
    $
    49,020Long term debt
    
    
    
    
    
    
    4,874
    
    
    
    
    
    
    
    4,874$
    21,157
    
    
    $
    32,737
    
    
    $
    
    
    
    $
    53,894
  23




---



##### 



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
 24




---



##### 



www.ivanhoeenergy.com
 Ivanhoe Energys Business
 RTP TM Process HTL TM Technology HTL TM
 E&P GTL Technology GTL
 Corporate Strategy
 Importance of the Heavy Oil Segment of the Oil and Gas Industry
      Ivanhoes Value Proposition
 TM
  25




---



##### 



1.
    
    Virtual elimination of external energy requirements for steam generation and/or power
for upstream operations.2.
    
    Elimination of the need for diluent or blend oils for transport.3.
    
    Capture of the majority of the heavy-light oil value differential.4.
    
    Relatively small minimum economic scale of operations suited for field upgrading and
for smaller field developments.
 TM
 TM
 Implementation Strategy and the Talisman Lease Acquisition
 Talisman)
     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 additional
opportunities for development projects utilizing our HTLTM Technology.2.
    
    Advance the technology.Additional development work will continue as we advance the
technology through the first commercial application and beyond.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.
 26




---



##### 



4.
    
    Build internal capabilities.During recent months, the Company has made significant
progress in building its execution teams in preparation for the Talisman acquisition. The
upstream team consists of a number of Calgary-based, experienced heavy-oil engineers and
geologists complemented by a core team of petroleum engineers and geologists located in
Ivanhoes offices in Bakersfield, California, a number of who are expected to move to
Calgary. The Houston-based HTL technology team also has been strengthened. The Company
expects to continue filling key positions in its execution mode.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.
    Executive Overview of 2008 Results
  Three-Month Periods Ended June 30,
    
    Six-Month Periods Ended June 30,2008
    
    2007
    
    2008
    
    2007Oil and gas revenue
    
    $
    17,979
    
    
    $
    9,789
    
    
    $
    33,022
    
    
    $
    19,385Net loss
    
    $
    (21,731
    )
    
    $
    (6,579
    )
    
    $
    (30,275
    )
    
    $
    (13,126
    )Net loss per share
    
    $
    (0.09
    )
    
    $
    (0.03
    )
    
    $
    (0.12
    )
    
    $
    (0.05
    )Average production (Boe/d)
    
    
    1,891
    
    
    
    1,824
    
    
    
    1,899
    
    
    
    1,929Net operating revenue per Boe
    
    $
    66.05
    
    
    $
    33.53
    
    
    $
    60.80
    
    
    $
    32.87Cash flow from operating activities
    
    $
    2,626
    
    
    $
    199
    
    
    $
    5,643
    
    
    $
    2,800Capital investments
    
    $
    2,593
    
    
    $
    8,123
    
    
    $
    7,916
    
    
    $
    13,457
 27




---



##### 



Financial Results  Change in Net Loss
  Three-Month Periods Ended June 30,
    
    
    Six-Month Periods Ended June 30,Favorable
    
    
    
    
    
    
    
    
    
    
    
    
    Favorable(Unfavorable)
    
    
    
    
    
    
    
    
    
    
    
    
    (Unfavorable)2008
    
    
    
    Variances
    
    
    
    2007
    
    
    2008
    
    
    
    Variances
    
    
    
    2007Summary of Net Loss
by Significant Components:Oil and Gas Revenues:
    
    $
    17,979
    
    
    
    
    
    
    
    
    $
    9,789
    
    
    $
    33,022
    
    
    
    
    
    
    
    
    $
    19,385Production volumes
    
    
    
    
    
    
    $
    336
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (207
    )Oil and gas prices
    
    
    
    
    
    
    
    7,854
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,844Realized gain (loss) on
derivative instruments
    
    
    (4,354
    )
    
    
    
    (4,324
    )
    
    
    
    (30
    )
    
    
    (6,302
    )
    
    
    
    (6,479
    )
    
    
    
    177Operating costs
    
    
    (6,614
    )
    
    
    
    (2,391
    )
    
    
    
    (4,223
    )
    
    
    (12,006
    )
    
    
    
    (4,098
    )
    
    
    
    (7,908
    )General and administrative, less
stock based compensation
    
    
    (3,533
    )
    
    
    
    (1,010
    )
    
    
    
    (2,523
    )
    
    
    (6,291
    )
    
    
    
    (1,543
    )
    
    
    
    (4,748
    )Business and technology development,
less stock based compensation
    
    
    (1,672
    )
    
    
    
    484
    
    
    
    
    (2,156
    )
    
    
    (3,218
    )
    
    
    
    945
    
    
    
    
    (4,163
    )Net interest
    
    
    (259
    )
    
    
    
    (250
    )
    
    
    
    (9
    )
    
    
    (605
    )
    
    
    
    (577
    )
    
    
    
    (28
    )Unrealized loss on derivative
instruments
    
    
    (16,433
    )
    
    
    
    (16,147
    )
    
    
    
    (286
    )
    
    
    (18,431
    )
    
    
    
    (17,479
    )
    
    
    
    (952
    )Depletion and depreciation
    
    
    (8,129
    )
    
    
    
    (2,105
    )
    
    
    
    (6,024
    )
    
    
    (16,495
    )
    
    
    
    (3,579
    )
    
    
    
    (12,916
    )Stock based compensation
    
    
    (793
    )
    
    
    
    260
    
    
    
    
    (1,053
    )
    
    
    (1,911
    )
    
    
    
    (56
    )
    
    
    
    (1,855
    )Future income tax recovery
    
    
    2,286
    
    
    
    
    2,286
    
    
    
    
    
    
    
    
    2,286
    
    
    
    
    2,286
    
    
    
    
    Other
    
    
    (209
    )
    
    
    
    (145
    )
    
    
    
    (64
    )
    
    
    (324
    )
    
    
    
    (206
    )
    
    
    
    (118
    )Net Loss
    
    $
    (21,731
    )
    
    
    $
    (15,152
    )
    
    
    $
    (6,579
    )
    
    $
    (30,275
    )
    
    
    $
    (17,149
    )
    
    
    $
    (13,126
    )
    Revenues and Operating Costs
  28




---



##### 



Three-Month Periods Ended June 30,
    
    Six-Month Periods Ended June 30,Net Boes
    
    Percentage
    

Net Boes
    
    Percentage2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeChina:Dagang
    
    
    111,662
    
    
    
    110,680
    
    
    
    1
    %
    
    
    231,490
    
    
    
    231,356
    
    
    
    0
    %Daqing
    
    
    4,845
    
    
    
    5,257
    
    
    
    -8
    %
    
    
    9,988
    
    
    
    10,897
    
    
    
    -8
    %116,507
    
    
    
    115,937
    
    
    
    0
    %
    
    
    241,478
    
    
    
    242,253
    
    
    
    0
    %U.S.:South Midway
    
    
    52,020
    
    
    
    44,195
    
    
    
    18
    %
    
    
    95,697
    
    
    
    95,968
    
    
    
    0
    %Spraberry
    
    
    3,215
    
    
    
    5,345
    
    
    
    -40
    %
    
    
    7,724
    
    
    
    10,038
    
    
    
    -23
    %Others
    
    
    352
    
    
    
    474
    
    
    
    -26
    %
    
    
    767
    
    
    
    853
    
    
    
    -10
    %55,587
    
    
    
    50,014
    
    
    
    11
    %
    
    
    104,188
    
    
    
    106,859
    
    
    
    -2
    %172,094
    
    
    
    165,951
    
    
    
    4
    %
    
    
    345,666
    
    
    
    349,112
    
    
    
    -1
    %
     China
 
    
    Production Volumes
  
    
    Operating Costs
  29




---



##### 



Windfall Levy
 U.S.
 
    
    Production Volumes
  
    
    Operating Costs
    Three-Month Periods Ended June 30,2008
    
    
    2007China
    
    
    U.S.
    
    
    Total
    
    
    China
    
    
    U.S.
    
    
    TotalNet Production:Boe
    
    
    116,507
    
    
    
    55,587
    
    
    
    172,094
    
    
    
    115,937
    
    
    
    50,014
    
    
    
    165,951Boe/day for the period
    
    
    1,280
    
    
    
    611
    
    
    
    1,891
    
    
    
    1,274
    
    
    
    550
    
    
    
    1,824Per Boe
    
    
    Per BoeOil and gas revenue
    
    $
    100.82
    
    
    $
    112.12
    
    
    $
    104.48
    
    
    $
    60.29
    
    
    $
    55.96
    
    
    $
    58.98Field operating costs
    
    
    22.06
    
    
    
    18.41
    
    
    
    20.88
    
    
    
    21.23
    
    
    
    12.22
    
    
    
    18.52Production tax (U.S.) and
Windfall Levy (China)
    
    
    21.92
    
    
    
    1.15
    
    
    
    15.21
    
    
    
    5.80
    
    
    
    1.19
    
    
    
    4.41Engineering and support costs
    
    
    1.54
    
    
    
    4.03
    
    
    
    2.34
    
    
    
    1.33
    
    
    
    5.28
    
    
    
    2.5245.52
    
    
    
    23.59
    
    
    
    38.43
    
    
    
    28.36
    
    
    
    18.69
    
    
    
    25.45Net operating revenue
    
    
    55.30
    
    
    
    88.53
    
    
    
    66.05
    
    
    
    31.93
    
    
    
    37.27
    
    
    
    33.53Depletion
    
    
    49.72
    
    
    
    30.39
    
    
    
    43.48
    
    
    
    37.28
    
    
    
    29.38
    
    
    
    34.90Net revenue from operations
    
    $
    5.58
    
    
    $
    58.14
    
    
    $
    22.57
    
    
    $
    (5.35
    )
    
    $
    7.89
    
    
    $
    (1.37
    )
 30




---



##### 



Six-Month Periods Ended June 30,2008
    
    
    2007China
    
    
    U.S.
    
    
    Total
    
    
    China
    
    
    U.S.
    
    
    TotalNet Production:Boe
    
    
    241,478
    
    
    
    104,188
    
    
    
    345,666
    
    
    
    242,253
    
    
    
    106,859
    
    
    
    349,112Boe/day for the period
    
    
    1,327
    
    
    
    572
    
    
    
    1,899
    
    
    
    1,339
    
    
    
    590
    
    
    
    1,929Per Boe
    
    Per BoeOil and gas revenue
    
    $
    93.74
    
    
    $
    99.69
    
    
    $
    95.54
    
    
    $
    57.27
    
    
    $
    51.56
    
    
    $
    55.53Field operating costs
    
    
    19.42
    
    
    
    17.31
    
    
    
    18.79
    
    
    
    17.87
    
    
    
    13.55
    
    
    
    16.55Production tax (U.S.) and
Windfall Levy (China)
    
    
    19.11
    
    
    
    1.31
    
    
    
    13.75
    
    
    
    4.73
    
    
    
    1.20
    
    
    
    3.65Engineering and support costs
    
    
    1.28
    
    
    
    4.35
    
    
    
    2.20
    
    
    
    1.23
    
    
    
    5.25
    
    
    
    2.4639.81
    
    
    
    22.97
    
    
    
    34.74
    
    
    
    23.83
    
    
    
    20.00
    
    
    
    22.66Net operating revenue
    
    
    53.93
    
    
    
    76.72
    
    
    
    60.80
    
    
    
    33.44
    
    
    
    31.56
    
    
    
    32.87Depletion
    
    
    49.69
    
    
    
    30.11
    
    
    
    43.79
    
    
    
    37.35
    
    
    
    28.75
    
    
    
    34.72Net revenue (loss) from operations
    
    $
    4.24
    
    
    $
    46.61
    
    
    $
    17.01
    
    
    $
    (3.91
    )
    
    $
    2.81
    
    
    $
    (1.85
    )
 General and Administrative
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2008 vs.
    
    
    2008 vs.2007
    
    
    2007Favorable (unfavorable) variances:Oil and Gas Activities:China
    
    $
    (74
    )
    
    $
    (233
    )U.S.
    
    
    275
    
    
    
    301Corporate
    
    
    (901
    )
    
    
    (1,561
    )(700
    )
    
    
    (1,493
    )Less: stock based compensation
    
    
    (310
    )
    
    
    (50
    )$
    (1,010
    )
    
    $
    (1,543
    )
 China
  U.S.
  Corporate
  31




---



##### 



Business and Technology Development
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2008 vs.
    
    
    2008 vs.2007
    
    
    2007Favorable (unfavorable) variances:HTLTM
    
    $
    250
    
    
    $
    547GTL
    
    
    184
    
    
    
    292434
    
    
    
    839Less: stock based compensation
    
    
    50
    
    
    
    106$
    484
    
    
    $
    945
  Net Interest
  Unrealized Loss on Derivative Instruments
   Depletion and Depreciation
  China
  32




---



##### 



Financial Condition, Liquidity and Capital Resources
 Sources and Uses of Cash
  Operating Activities
  Investing Activities
 TM
 TM TM
 
    
    China
  
    
    U.S.
  
    
    HTLTM
 TM FTF
 33




---



##### 



Financing Activities
  Outlook for balance of 2008
   TM
 Contractual Obligations
  Payments Due by Year(stated in thousands of U.S. dollars)Total
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    After 2011Consolidated Balance Sheets:Note payable  current portion
    
    
    11,636
    
    
    
    11,224
    
    
    
    412
    
    
    
    
    
    
    
    
    
    
    
    Long term debt
    
    
    9,484
    
    
    
    
    
    
    
    
    
    
    
    9,484
    
    
    
    
    
    
    
    Asset retirement obligation
    
    
    3,673
    
    
    
    
    
    
    
    15
    
    
    
    1,883
    
    
    
    
    
    
    
    1,775Long term obligation
    
    
    1,900
    
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    Other Commitments:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest payable
    
    
    2,238
    
    
    
    724
    
    
    
    859
    
    
    
    655
    
    
    
    
    
    
    
    Lease commitments
    
    
    2,891
    
    
    
    540
    
    
    
    893
    
    
    
    773
    
    
    
    549
    
    
    
    136Zitong exploration commitment
    
    
    22,500
    
    
    
    2,500
    
    
    
    9,000
    
    
    
    11,000
    
    
    
    
    
    
    
    Total
    
    $
    54,322
    
    
    $
    14,988
    
    
    $
    13,079
    
    
    $
    23,795
    
    
    $
    549
    
    
    $
    1,911
 34




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##### 



Off Balance Sheet Arrangements
  Outstanding Share Data
  Quarterly Financial Data In Accordance With Canadian and U.S. GAAP (Unaudited)
 QUARTER ENDED2008
    


    2007
    
    20062nd Qtr
    
    1st Qtr
    
    4th Qtr
    
    3rd Qtr
    
    2nd Qtr
    
    1st Qtr
    
    4th Qtr
    
    3rd QtrTotal revenue
    
    $
    (2,772
    )
    
    $
    11,169
    
    
    $
    5,848
    
    
    $
    8,823
    
    
    $
    9,589
    
    
    $
    9,257
    
    
    $
    11,137
    
    
    $
    14,015Net loss:Canadian GAAP
    
    $
    (21,731
    )
    
    $
    (8,544
    )
    
    $
    (18,849
    )
    
    $
    (7,232
    )
    
    $
    (6,579
    )
    
    $
    (6,547
    )
    
    $
    (11,323
    )
    
    $
    (4,388
    )U.S. GAAP
    
    $
    (32,981
    )
    
    $
    (10,495
    )
    
    $
    (16,094
    )
    
    $
    (2,551
    )
    
    $
    (1,211
    )
    
    $
    (7,536
    )
    
    $
    (18,255
    )
    
    $
    (5,422
    )Net loss per share:Canadian GAAP
    
    $
    (0.09
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )
    
    $
    (0.02
    )U.S. GAAP
    
    $
    (0.13
    )
    
    $
    (0.04
    )
    
    $
    (0.07
    )
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    (0.03
    )
    
    $
    (0.08
    )
    
    $
    (0.03
    )
 TM
 Status of our Transition to International Financial Reporting Standards (IFRS)
 GAAP
  .
 35




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##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Commodity Price Risk
     Foreign Currency Exchange Rate Risk
  Interest Rate Risk
  36




---



##### 



Item 4. Controls and Procedures
    37




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##### 



Part II  Other Information
 
 Item 1. Legal Proceedings:
 
 Item 1A. Risk Factors:
  Future Payments and Security granted to Talisman under the Talisman Lease Acquisition
 Capital Requirements and Additional Financing
 Resources
  Stage of Development
 38




---



##### 



Nature of Oil Sands Exploration and Development and Operational Risks
 SAGD Bitumen Recovery Process and Technology Risks
 Regulations Permits, Leases and Licenses
   39




---



##### 



Royalty Regime.
 WTI
    Environmental Regulation
 40




---



##### 



GHGs
    Title Risks and Aboriginal Claims
  41




---



##### 



Human Resources
 
 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
    
    
    167,012,125
    
    
    
    1,751,064Howard Balloch
    
    
    167,257,781
    
    
    
    1,505,408Brian F. Downey
    
    
    167,151,828
    
    
    
    1,611,361Robert M. Friedland
    
    
    167,225,182
    
    
    
    1,538,007Robert G. Graham
    
    
    166,055,520
    
    
    
    2,707,669Robert A. Pirraglia
    
    
    159,352,624
    
    
    
    9,410,565Peter Meredith
    
    
    167,204,610
    
    
    
    1,558,579
  
    
    Deloitte & Touche LLP were re-appointed as the Companys auditors for remuneration to be
determined by the Companys Board of Directors (166,739,706 Common Shares voted in favor
and 1,224,688 Common Shares withheld from voting); and
    
    An ordinary resolution was passed authorizing the Company to: (a) 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 24,000,000 common
shares to 29,250,000 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 2,400,000 common shares to 2,900,000 common shares; and (iii) make
certain technical amendments to the Incentive Plan; and (b) to ratify the grant of excess
stock options made pursuant to the Incentive Plan (88,223,504 Common Shares voted in favor
15,546,219 Common Shares voted against and 34,500 Common Shares withheld from voting).
 42




---



##### 



Item 5. Other Information:
 
 Item 6. Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION10.1
    
    Asset Transfer Agreement dated July 11, 2008 between Ivanhoe Energy Inc. and Talisman Energy Canada.10.2
    
    Back-In Agreement dated July 11, 2008 between Ivanhoe Energy Inc. and Talisman Energy Canada.31.1
    
    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
 43




---



##### 



IVANHOE ENERGY INC.By:
    
    /s/ W. Gordon LancasterName:
    
    W. Gordon LancasterTitle:
    
    Chief Financial Officer
  44




---



##### 



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    Asset Transfer Agreement dated July 11, 2008 between Ivanhoe Energy Inc. and Talisman
Energy Canada.10.2
    
    Back-In Agreement dated July 11, 2008 between Ivanhoe Energy Inc. and Talisman Energy
Canada.31.1
    
    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
 45