##### Table of Contents



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, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 000-30586
 
 IVANHOE ENERGY INC.
 (Exact name of registrant as specified in its charter)
 Yukon, Canada
    
    98-0372413(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)Suite 654  999 Canada Place
    
    V6C 3E1Vancouver, British Columbia, Canada
    
    (zip code)(Address of principal executive office)
 (604) 688-8323  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATIONItem 1. Financial StatementsUnaudited Consolidated Balance Sheets as at September 30, 2010 and
December 31, 2009
    
    3Unaudited Consolidated Statements of Operations and Comprehensive
Loss for the Three and Nine Months Ended September 30, 2010 and 2009
    
    4Unaudited Consolidated Statements of Cash Flows for the Three
and Nine Months Ended September 30, 2010 and 2009
    
    5Notes to the Unaudited Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    22Item 4. Controls and Procedures
    
    30PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    31Item 6. Exhibits
    
    31Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IVANHOE
ENERGY INC.
 
 Unaudited Consolidated Balance Sheets
 September
30,   2010
    
    

December
31, 2009AssetsCurrent AssetsCash and cash equivalents
    
    $
    90,248
    
    
    $
    21,512Accounts receivable
    
    
    4,332
    
    
    
    5,021Note receivable
    
    
    260
    
    
    
    225Prepaid and other current assets
    
    
    1,329
    
    
    
    771Restricted cash (Note 12)
    
    
    2,850
    
    
    
    2,85099,019
    
    
    
    30,379Oil and gas properties and development costs, net (Note 2)
    
    
    213,685
    
    
    
    158,392Intangible assets  HTLTM technology (Note 3)
    
    
    92,153
    
    
    
    92,153Long term assets
    
    
    2,126
    
    
    
    839$
    406,983
    
    
    $
    281,763Liabilities and Shareholders EquityCurrent LiabilitiesDebt (Note 4)
    
    $
    38,279
    
    
    $
    Accounts payable and accrued liabilities
    
    
    14,394
    
    
    
    10,779Income tax payable
    
    
    
    
    
    
    530Asset retirement obligations (Note 5)
    
    
    
    
    
    
    75352,673
    
    
    
    12,062Long term debt (Note 4)
    
    
    
    
    
    
    36,934Asset retirement obligations (Note 5)
    
    
    496
    
    
    
    195Long term obligation
    
    
    1,900
    
    
    
    1,900Future income tax liability (Note 11)
    
    
    22,624
    
    
    
    22,64377,693
    
    
    
    73,734Commitments and contingencies (Note 6)Going concern and basis of presentation (Note 1)Shareholders Equity (Note 7)Share capital, issued 334,011,588 common sharesDecember 31, 2009 282,558,593 common shares
    
    
    549,220
    
    
    
    422,322Purchase warrants
    
    
    33,423
    
    
    
    19,427Contributed surplus
    
    
    20,343
    
    
    
    20,029Convertible note
    
    
    2,086
    
    
    
    2,086Accumulated deficit
    
    
    (275,782
    )
    
    
    (255,835
    )329,290
    
    
    
    208,029$
    406,983
    
    
    $
    281,763
   3




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##### Table of Contents



IVANHOE
ENERGY INC.
 
 Unaudited Consolidated Statements of Operations and Comprehensive
Loss
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Note 12)
    
    
    
    
    
    
    (Note 12)RevenueOil revenue
    
    $
    4,177
    
    
    $
    7,917
    
    
    $
    15,554
    
    
    $
    19,659Gain (loss) on derivative instruments
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    (1,020
    )Interest
    
    
    88
    
    
    
    2
    
    
    
    130
    
    
    
    204,265
    
    
    
    7,991
    
    
    
    15,684
    
    
    
    18,659ExpensesOperating
    
    
    1,975
    
    
    
    2,907
    
    
    
    6,577
    
    
    
    8,052General and administrative (Note 2)
    
    
    6,055
    
    
    
    4,412
    
    
    
    16,510
    
    
    
    14,126Business and technology development
    
    
    3,045
    
    
    
    2,301
    
    
    
    7,979
    
    
    
    6,104Depletion and depreciation
    
    
    2,079
    
    
    
    5,308
    
    
    
    6,744
    
    
    
    17,308Foreign exchange (gain) loss
    
    
    (1,188
    )
    
    
    2,815
    
    
    
    (2,289
    )
    
    
    4,501Interest and financing
    
    
    6
    
    
    
    177
    
    
    
    14
    
    
    
    512Provision for impairment
    
    
    
    
    
    
    948
    
    
    
    
    
    
    
    94811,972
    
    
    
    18,868
    
    
    
    35,535
    
    
    
    51,551Loss from continuing operations before income taxes
    
    
    (7,707
    )
    
    
    (10,877
    )
    
    
    (19,851
    )
    
    
    (32,892
    )(Provision for) recovery of income taxesCurrent
    
    
    
    
    
    
    (618
    )
    
    
    (115
    )
    
    
    (1,624
    )Future
    
    
    479
    
    
    
    8,700
    
    
    
    19
    
    
    
    8,700479
    
    
    
    8,082
    
    
    
    (96
    )
    
    
    7,076Net loss from continuing operations
    
    
    (7,228
    )
    
    
    (2,795
    )
    
    
    (19,947
    )
    
    
    (25,816
    )Net loss from discontinued operations (net of tax of
$29.6 million for 2009) (Note 12)
    
    
    
    
    
    
    (23,290
    )
    
    
    
    
    
    
    (23,921
    )Net loss and comprehensive loss
    
    
    (7,228
    )
    
    
    (26,085
    )
    
    
    (19,947
    )
    
    
    (49,737
    )Accumulated deficit, beginning of period
    
    
    (268,554
    )
    
    
    (217,835
    )
    
    
    (255,835
    )
    
    
    (194,183
    )Accumulated deficit, end of period
    
    $
    (275,782
    )
    
    $
    (243,920
    )
    
    $
    (275,782
    )
    
    $
    (243,920
    )Net loss per shareNet loss from continuing operations, basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.06
    )
    
    $
    (0.09
    )Net loss from discontinued operations, basic and diluted
    
    
    
    
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.09
    )Net loss per share, basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.09
    )
    
    $
    (0.06
    )
    
    $
    (0.18
    )Weighted average number of sharesBasic and diluted (in thousands)
    
    
    334,012
    
    
    
    279,427
    
    
    
    325,153
    
    
    
    279,381
   4




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IVANHOE
ENERGY INC.
 
 Unaudited Consolidated Statements of Cash Flows
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Operating ActivitiesNet loss
    
    $
    (7,228
    )
    
    $
    (26,085
    )
    
    $
    (19,947
    )
    
    $
    (49,737
    )Net loss from discontinued operations
    
    
    
    
    
    
    23,290
    
    
    
    
    
    
    
    23,921Items not requiring use of cashDepletion and depreciation
    
    
    2,079
    
    
    
    5,308
    
    
    
    6,744
    
    
    
    17,308Provision for impairment
    
    
    
    
    
    
    948
    
    
    
    
    
    
    
    948Stock based compensation
    
    
    1,052
    
    
    
    1,270
    
    
    
    2,610
    
    
    
    2,242Unrealized (gain) loss on derivative instruments
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    1,632Unrealized foreign exchange (gain) loss
    
    
    (1,496
    )
    
    
    2,786
    
    
    
    (2,834
    )
    
    
    4,432Future income tax recovery
    
    
    (479
    )
    
    
    (8,700
    )
    
    
    (19
    )
    
    
    (8,700
    )Other
    
    
    4
    
    
    
    104
    
    
    
    14
    
    
    
    268Abandonment costs recovered (settled) (Note 5)
    
    
    3
    
    
    
    
    
    
    
    (179
    )
    
    
    Changes in non-cash working capital items (Note 10)
    
    
    644
    
    
    
    85
    
    
    
    (151
    )
    
    
    (3,177
    )Net cash used in operating activities from continuing operations
    
    
    (5,421
    )
    
    
    (1,066
    )
    
    
    (13,762
    )
    
    
    (10,863
    )Net cash (used in) provided by operating activities from discontinued
operations
    
    
    
    
    
    
    (135
    )
    
    
    
    
    
    
    2,703Net cash used in operating activities
    
    
    (5,421
    )
    
    
    (1,201
    )
    
    
    (13,762
    )
    
    
    (8,160
    )Investing ActivitiesAdditions to oil and gas properties and development costs
    
    
    (20,428
    )
    
    
    (5,823
    )
    
    
    (60,991
    )
    
    
    (17,723
    )Increase in restricted cash
    
    
    
    
    
    
    (2,000
    )
    
    
    
    
    
    
    (2,000
    )Other
    
    
    (442
    )
    
    
    (202
    )
    
    
    (1,288
    )
    
    
    (355
    )Changes in non-cash working capital items (Note 10)
    
    
    525
    
    
    
    (499
    )
    
    
    3,358
    
    
    
    (1,186
    )Net cash used in investing from continuing operations
    
    
    (20,345
    )
    
    
    (8,524
    )
    
    
    (58,921
    )
    
    
    (21,264
    )Net cash provided by investing activities from discontinued operations
    
    
    
    
    
    
    35,878
    
    
    
    
    
    
    
    35,292Net cash (used in) provided by investing activities
    
    
    (20,345
    )
    
    
    27,354
    
    
    
    (58,921
    )
    
    
    14,028Financing ActivitiesShares issued on private placements, net of share issue costs
    
    
    (69
    )
    
    
    
    
    
    
    135,696
    
    
    
    Proceeds from exercise of options and warrants
    
    
    8
    
    
    
    98
    
    
    
    2,102
    
    
    
    98Payments of debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (416
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )Changes in non-cash working capital items (Note 10)
    
    
    (41
    )
    
    
    
    
    
    
    (2
    )
    
    
    (26
    )Net cash (used in) provided by financing activities from continuing
operations
    
    
    (102
    )
    
    
    98
    
    
    
    137,796
    
    
    
    (444
    )Net cash used in financing activities from discontinued operations
    
    
    
    
    
    
    (5,200
    )
    
    
    
    
    
    
    (5,200
    )Net cash (used in) provided by financing activities
    
    
    (102
    )
    
    
    (5,102
    )
    
    
    137,796
    
    
    
    (5,644
    )Foreign exchange gain (loss) on cash and cash
equivalents held in a foreign currency
    
    
    2,299
    
    
    
    12
    
    
    
    3,623
    
    
    
    (23
    )Increase (decrease) in cash and cash equivalents, for the period
    
    
    (23,569
    )
    
    
    21,063
    
    
    
    68,736
    
    
    
    201Cash and cash equivalents, beginning of period
    
    
    113,817
    
    
    
    18,403
    
    
    
    21,512
    
    
    
    39,265Cash and cash equivalents, end of period
    
    $
    90,248
    
    
    $
    39,466
    
    
    $
    90,248
    
    
    $
    39,466Cash and cash equivalents, end of period  continuing operations
    
    $
    90,248
    
    
    $
    39,466
    
    
    $
    90,248
    
    
    $
    39,466Cash and cash equivalents, end of period  discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   5




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##### Table of Contents



Notes to the Unaudited Consolidated Financial Statements
September 30, 2010
  1. GOING CONCERN AND BASIS OF PRESENTATION
     6




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##### Table of Contents



2. OIL AND GAS PROPERTIES AND DEVELOPMENT COSTS
 September 30, 2010Oil and Gas
    
    
    
    
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    
    
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    Corporate
    
    
    Development
    
    
    TotalOil and gas propertiesProved
    
    $
    
    
    
    $
    
    
    
    $
    153,963
    
    
    $
    
    
    
    $
    
    
    
    $
    153,963Unproved
    
    
    121,874
    
    
    
    22,479
    
    
    
    26,489
    
    
    
    
    
    
    
    
    
    
    
    170,842121,874
    
    
    
    22,479
    
    
    
    180,452
    
    
    
    
    
    
    
    
    
    
    
    324,805Accumulated depletion
    
    
    
    
    
    
    
    
    
    
    (106,398
    )
    
    
    
    
    
    
    
    
    
    
    (106,398
    )Accumulated provision for impairment
    
    
    
    
    
    
    
    
    
    
    (16,550
    )
    
    
    
    
    
    
    
    
    
    
    (16,550
    )121,874
    
    
    
    22,479
    
    
    
    57,504
    
    
    
    
    
    
    
    
    
    
    
    201,857Development costsFeasibility studies and other
deferred costsIraq and Libya  HTLTM
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    834
    
    
    
    834Egypt  GTL
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,054
    
    
    
    5,054Accumulated provision for
impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,888
    )
    
    
    (5,888
    )Feedstock test facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,357
    
    
    
    11,357Accumulated depreciation and
impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (789
    )
    
    
    (789
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,568
    
    
    
    10,568Furniture and equipment
    
    
    30
    
    
    
    408
    
    
    
    543
    
    
    
    1,429
    
    
    
    68
    
    
    
    2,478Accumulated depreciation
    
    
    (18
    )
    
    
    (99
    )
    
    
    (179
    )
    
    
    (909
    )
    
    
    (13
    )
    
    
    (1,218
    )12
    
    
    
    309
    
    
    
    364
    
    
    
    520
    
    
    
    55
    
    
    
    1,260$
    121,886
    
    
    $
    22,788
    
    
    $
    57,868
    
    
    $
    520
    
    
    $
    10,623
    
    
    $
    213,685
   7




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##### Table of Contents



December 31, 2009Oil and Gas
    
    
    
    
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    
    
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    Corporate
    
    
    Development
    
    
    TotalOil and gas propertiesProved
    
    $
    
    
    
    $
    
    
    
    $
    148,110
    
    
    $
    
    
    
    $
    
    
    
    $
    148,110Unproved
    
    
    94,431
    
    
    
    6,755
    
    
    
    14,411
    
    
    
    
    
    
    
    
    
    
    
    115,59794,431
    
    
    
    6,755
    
    
    
    162,521
    
    
    
    
    
    
    
    
    
    
    
    263,707Accumulated depletion
    
    
    
    
    
    
    
    
    
    
    (99,744
    )
    
    
    
    
    
    
    
    
    
    
    (99,744
    )Accumulated provision for impairment
    
    
    
    
    
    
    
    
    
    
    (16,550
    )
    
    
    
    
    
    
    
    
    
    
    (16,550
    )94,431
    
    
    
    6,755
    
    
    
    46,227
    
    
    
    
    
    
    
    
    
    
    
    147,413Development costsFeasibility studies and other
deferred costsIraq and Libya  HTLTM
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    834
    
    
    
    834Egypt  GTL
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,054
    
    
    
    5,054Accumulated provision for
impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,888
    )
    
    
    (5,888
    )Feedstock test facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,868
    
    
    
    10,868Accumulated depreciation and
impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (393
    )
    
    
    (393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,475
    
    
    
    10,475Furniture and equipment
    
    
    24
    
    
    
    169
    
    
    
    135
    
    
    
    968
    
    
    
    22
    
    
    
    1,318Accumulated depreciation
    
    
    (8
    )
    
    
    (53
    )
    
    
    (92
    )
    
    
    (650
    )
    
    
    (11
    )
    
    
    (814
    )16
    
    
    
    116
    
    
    
    43
    
    
    
    318
    
    
    
    11
    
    
    
    504$
    94,447
    
    
    $
    6,871
    
    
    $
    46,270
    
    
    $
    318
    
    
    $
    10,486
    
    
    $
    158,392
  3. INTANGIBLE ASSETS
 TM TM TM
 4. DEBT
 September 30,
    
    
    December 31,2010
    
    
    2009Convertible note
    
    $
    38,842
    
    
    $
    38,005Less: Unamortized discount
    
    
    (563
    )
    
    
    (1,071
    )$
    38,279
    
    
    $
    36,934
   8




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##### Table of Contents



5. ASSET RETIREMENT OBLIGATIONS
  September 30,
    
    
    December 31,2010
    
    
    2009Balance, beginning of period
    
    $
    948
    
    
    $
    1,928Liabilities incurred
    
    
    287
    
    
    
    185Liabilities settled
    
    
    (179
    )
    
    
    (118
    )Accretion expense
    
    
    14
    
    
    
    79Revisions in estimated cash flows
    
    
    (574
    )
    
    
    (1,126
    )Balance, end of period
    
    
    496
    
    
    
    948Less current portion
    
    
    
    
    
    
    (753
    )Balance, end of period
    
    $
    496
    
    
    $
    195
 6. COMMITMENTS AND CONTINGENCIES
 Zitong Block Exploration Commitment
   Nyalga Block Exploration Commitment
   9




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##### Table of Contents



Lease Commitments
 AfterTotal
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2013Lease commitments
    
    $
    3,055
    
    
    $
    313
    
    
    $
    1,601
    
    
    $
    828
    
    
    $
    313
    
    
    
    
 7. SHAREHOLDERS EQUITY
 Common SharesNumber
    
    
    
    
    
    
    Purchase
    
    
    Contributed
    
    
    Convertible(000s)
    
    
    Amount
    
    
    Warrants
    
    
    Surplus
    
    
    NoteBalance December 31, 2008
    
    
    279,381
    
    
    $
    413,857
    
    
    $
    18,805
    
    
    $
    16,862
    
    
    $
    2,086Shares issued for acquisition of a business
    
    
    2,683
    
    
    
    6,874
    
    
    
    622
    
    
    
    
    
    
    
    Shares issued for services
    
    
    81
    
    
    
    207
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    414
    
    
    
    1,384
    
    
    
    
    
    
    
    (492
    )
    
    
    Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,659
    
    
    
    Balance December 31, 2009
    
    
    282,559
    
    
    $
    422,322
    
    
    $
    19,427
    
    
    $
    20,029
    
    
    $
    2,086Shares issued for cash, net of share issue costs
    
    
    50,000
    
    
    
    121,697
    
    
    
    13,999
    
    
    
    
    
    
    
    Shares issued for services
    
    
    280
    
    
    
    799
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    1,171
    
    
    
    4,393
    
    
    
    
    
    
    
    (2,296
    )
    
    
    Exercise of purchase warrants
    
    
    2
    
    
    
    9
    
    
    
    (3
    )
    
    
    
    
    
    
    Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,610
    
    
    
    Balance September 30, 2010
    
    
    334,012
    
    
    $
    549,220
    
    
    $
    33,423
    
    
    $
    20,343
    
    
    $
    2,086
   8. SEGMENT INFORMATION
 Form 10-K.
  10




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##### Table of Contents



Three Months Ended September 30, 2010Oil and Gas
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    US
    
    
    Development
    
    
    Corporate
    
    
    TotalRevenueOil
    
    $
    
    
    
    $
    
    
    
    $
    4,177
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4,177Interest
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    88
    
    
    
    
    
    
    
    4,178
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    4,265ExpensesOperating
    
    
    
    
    
    
    
    
    
    
    1,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,975General and administrative
    
    
    421
    
    
    
    661
    
    
    
    877
    
    
    
    
    
    
    
    
    
    
    
    4,096
    
    
    
    6,055Business and technology
development
    
    
    54
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    2,976
    
    
    
    
    
    
    
    3,045Depletion and depreciation
    
    
    2
    
    
    
    14
    
    
    
    1,914
    
    
    
    
    
    
    
    81
    
    
    
    68
    
    
    
    2,079Foreign exchange gain
    
    
    (10
    )
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    (1,129
    )
    
    
    (1,188
    )Interest and financing
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    6468
    
    
    
    692
    
    
    
    4,717
    
    
    
    
    
    
    
    3,060
    
    
    
    3,035
    
    
    
    11,972Loss from continuing
operations before
income taxes
    
    
    (468
    )
    
    
    (692
    )
    
    
    (539
    )
    
    
    
    
    
    
    (3,060
    )
    
    
    (2,948
    )
    
    
    (7,707
    )Recovery of income taxesCurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Future
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    479Net loss from
continuing operations
    
    
    (468
    )
    
    
    (692
    )
    
    
    (539
    )
    
    
    
    
    
    
    (2,581
    )
    
    
    (2,948
    )
    
    
    (7,228
    )Net loss from
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss and
comprehensive loss
    
    $
    (468
    )
    
    $
    (692
    )
    
    $
    (539
    )
    
    $
    
    
    
    $
    (2,581
    )
    
    $
    (2,948
    )
    
    $
    (7,228
    )Capital Investments
    
    $
    3,600
    
    
    $
    5,722
    
    
    $
    10,951
    
    
    $
    
    
    
    $
    172
    
    
    $
    (17
    )
    
    $
    20,428
  11




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##### Table of Contents



Nine Months Ended September 30, 2010Oil and Gas
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    US
    
    
    Development
    
    
    Corporate
    
    
    TotalRevenueOil
    
    $
    
    
    
    $
    
    
    
    $
    15,554
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    15,554Interest
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    130
    
    
    
    
    
    
    
    15,559
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    15,684ExpensesOperating
    
    
    
    
    
    
    
    
    
    
    6,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,577General and administrative
    
    
    1,293
    
    
    
    1,759
    
    
    
    2,438
    
    
    
    
    
    
    
    
    
    
    
    11,020
    
    
    
    16,510Business and technology
development
    
    
    77
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    7,861
    
    
    
    
    
    
    
    7,979Depletion and depreciation
    
    
    6
    
    
    
    30
    
    
    
    6,704
    
    
    
    
    
    
    
    (173
    )
    
    
    177
    
    
    
    6,744Foreign exchange (gain) loss
    
    
    (13
    )
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    (2,314
    )
    
    
    (2,289
    )Interest and financing
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    141,367
    
    
    
    1,832
    
    
    
    15,757
    
    
    
    
    
    
    
    7,696
    
    
    
    8,883
    
    
    
    35,535Loss from continuing
operations before
income taxes
    
    
    (1,367
    )
    
    
    (1,832
    )
    
    
    (198
    )
    
    
    
    
    
    
    (7,696
    )
    
    
    (8,758
    )
    
    
    (19,851
    )(Provision for) recovery of
income taxesCurrent
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (115
    )Future
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    19
    
    
    
    (4
    )
    
    
    (96
    )Net loss from
continuing operations
    
    
    (1,367
    )
    
    
    (1,832
    )
    
    
    (309
    )
    
    
    
    
    
    
    (7,677
    )
    
    
    (8,762
    )
    
    
    (19,947
    )Net loss from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss and comprehensive
loss
    
    $
    (1,367
    )
    
    $
    (1,832
    )
    
    $
    (309
    )
    
    $
    
    
    
    $
    (7,677
    )
    
    $
    (8,762
    )
    
    $
    (19,947
    )Capital Investments
    
    $
    26,762
    
    
    $
    15,004
    
    
    $
    18,317
    
    
    $
    
    
    
    $
    537
    
    
    $
    371
    
    
    $
    60,991Identifiable AssetsAs at September 30, 2010
    
    $
    122,198
    
    
    $
    24,677
    
    
    $
    71,023
    
    
    $
    
    
    
    $
    103,050
    
    
    $
    86,035
    
    
    $
    406,983As at December 31, 2009
    
    $
    94,594
    
    
    $
    7,597
    
    
    $
    57,528
    
    
    $
    
    
    
    $
    102,878
    
    
    $
    19,166
    
    
    $
    281,763
  12




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##### Table of Contents



Three Months Ended September 30, 2009Oil and Gas
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    US
    
    
    Development
    
    
    Corporate
    
    
    TotalRevenueOil
    
    $
    
    
    
    $
    
    
    
    $
    7,917
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7,917Gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    7,989
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    7,991ExpensesOperating
    
    
    
    
    
    
    
    
    
    
    2,907
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,907General and administrative
    
    
    239
    
    
    
    606
    
    
    
    636
    
    
    
    
    
    
    
    
    
    
    
    2,931
    
    
    
    4,412Business and technology
development
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,197
    
    
    
    
    
    
    
    2,301Depletion and depreciation
    
    
    1
    
    
    
    11
    
    
    
    5,130
    
    
    
    
    
    
    
    129
    
    
    
    37
    
    
    
    5,308Foreign exchange (gain) loss
    
    
    (7
    )
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    2,817
    
    
    
    2,815Interest and financing
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    25
    
    
    
    1
    
    
    
    177Provision for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948
    
    
    
    
    
    
    
    948337
    
    
    
    617
    
    
    
    8,827
    
    
    
    
    
    
    
    3,301
    
    
    
    5,786
    
    
    
    18,868Loss from continuing
operations before income
taxes
    
    
    (337
    )
    
    
    (617
    )
    
    
    (838
    )
    
    
    
    
    
    
    (3,301
    )
    
    
    (5,784
    )
    
    
    (10,877
    )(Provision for) recovery of
income taxesCurrent
    
    
    
    
    
    
    
    
    
    
    (269
    )
    
    
    
    
    
    
    
    
    
    
    (349
    )
    
    
    (618
    )Future
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,700
    
    
    
    
    
    
    
    8,700
    
    
    
    
    
    
    
    (269
    )
    
    
    
    
    
    
    8,700
    
    
    
    (349
    )
    
    
    8,082Net income (loss) from
continuing operations
    
    
    (337
    )
    
    
    (617
    )
    
    
    (1,107
    )
    
    
    
    
    
    
    5,399
    
    
    
    (6,133
    )
    
    
    (2,795
    )Net loss from discontinued
operations (net of tax of
$29.6 million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,290
    )
    
    
    
    
    
    
    
    
    
    
    (23,290
    )Net income (loss) and
comprehensive income
(loss)
    
    $
    (337
    )
    
    $
    (617
    )
    
    $
    (1,107
    )
    
    $
    (23,290
    )
    
    $
    5,399
    
    
    $
    (6,133
    )
    
    $
    (26,085
    )Capital Investments
    
    $
    3,186
    
    
    $
    1,333
    
    
    $
    1,179
    
    
    $
    
    
    
    $
    125
    
    
    $
    
    
    
    $
    5,823
  13




---



##### Table of Contents



Nine Months Ended September 30, 2009Oil and Gas
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    US
    
    
    Development
    
    
    Corporate
    
    
    TotalRevenueOil
    
    $
    
    
    
    $
    
    
    
    $
    19,659
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19,659Loss on derivative
instruments
    
    
    
    
    
    
    
    
    
    
    (1,020
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,020
    )Interest
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    20
    
    
    
    
    
    
    
    18,643
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    18,659ExpensesOperating
    
    
    
    
    
    
    
    
    
    
    8,052
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,052General and administrative
    
    
    573
    
    
    
    1,583
    
    
    
    1,663
    
    
    
    
    
    
    
    
    
    
    
    10,307
    
    
    
    14,126Business and technology
development
    
    
    491
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,613
    
    
    
    
    
    
    
    6,104Depletion and depreciation
    
    
    3
    
    
    
    47
    
    
    
    15,646
    
    
    
    
    
    
    
    1,502
    
    
    
    110
    
    
    
    17,308Foreign exchange (gain)
loss
    
    
    (12
    )
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    2
    
    
    
    4,472
    
    
    
    4,501Interest and financing
    
    
    
    
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    76
    
    
    
    6
    
    
    
    512Provision for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948
    
    
    
    
    
    
    
    9481,055
    
    
    
    1,630
    
    
    
    25,830
    
    
    
    
    
    
    
    8,141
    
    
    
    14,895
    
    
    
    51,551Loss from continuing
operations before income
taxes
    
    
    (1,055
    )
    
    
    (1,630
    )
    
    
    (7,187
    )
    
    
    
    
    
    
    (8,141
    )
    
    
    (14,879
    )
    
    
    (32,892
    )(Provision for) recovery
of income taxesCurrent
    
    
    
    
    
    
    
    
    
    
    (1,266
    )
    
    
    
    
    
    
    
    
    
    
    (358
    )
    
    
    (1,624
    )Future
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,700
    
    
    
    
    
    
    
    8,700
    
    
    
    
    
    
    
    (1,266
    )
    
    
    
    
    
    
    8,700
    
    
    
    (358
    )
    
    
    7,076Net income (loss) from
continuing operations
    
    
    (1,055
    )
    
    
    (1,630
    )
    
    
    (8,453
    )
    
    
    
    
    
    
    559
    
    
    
    (15,237
    )
    
    
    (25,816
    )Net loss from discontinued
operations (net of tax
of $29.6 million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,921
    )
    
    
    
    
    
    
    
    
    
    
    (23,921
    )Net income (loss) and
comprehensive loss
    
    $
    (1,055
    )
    
    $
    (1,630
    )
    
    $
    (8,453
    )
    
    $
    (23,921
    )
    
    $
    559
    
    
    $
    (15,237
    )
    
    $
    (49,737
    )Capital Investments
    
    $
    9,263
    
    
    $
    2,883
    
    
    $
    3,702
    
    
    $
    
    
    
    $
    1,818
    
    
    $
    57
    
    
    $
    17,723
  14




---



##### Table of Contents



9. FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS
  Financial Risk Factors
  10. SUPPLEMENTAL CASH FLOW INFORMATION
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cash paid during the period forIncome taxes
    
    $
    8
    
    
    $
    
    
    
    $
    646
    
    
    $
    1,655Interest
    
    $
    819
    
    
    $
    864
    
    
    $
    1,634
    
    
    $
    2,059Shares issued for services and capitalized
    
    $
    
    
    
    $
    
    
    
    $
    799
    
    
    $
    Changes in non-cash working capital itemsOperating activitiesAccounts receivable
    
    $
    1,338
    
    
    $
    (1,308
    )
    
    $
    1,029
    
    
    $
    (2,669
    )Note receivable
    
    
    (4
    )
    
    
    
    
    
    
    (35
    )
    
    
    Prepaid and other current assets
    
    
    1,092
    
    
    
    294
    
    
    
    414
    
    
    
    287Accounts payable and accrued liabilities
    
    
    (1,774
    )
    
    
    480
    
    
    
    (1,029
    )
    
    
    (764
    )Income tax payable
    
    
    (8
    )
    
    
    619
    
    
    
    (530
    )
    
    
    (31
    )644
    
    
    
    85
    
    
    
    (151
    )
    
    
    (3,177
    )Investing activitiesAccounts receivable
    
    
    (298
    )
    
    
    3
    
    
    
    (327
    )
    
    
    49Note receivable
    
    
    
    
    
    
    (248
    )
    
    
    
    
    
    
    (248
    )Prepaid and other current assets
    
    
    (1,055
    )
    
    
    (11
    )
    
    
    (972
    )
    
    
    Accounts payable and accrued liabilities
    
    
    1,878
    
    
    
    (243
    )
    
    
    4,657
    
    
    
    (987
    )525
    
    
    
    (499
    )
    
    
    3,358
    
    
    
    (1,186
    )Financing activitiesAccounts payable and accrued liabilities
    
    
    (41
    )
    
    
    
    
    
    
    (2
    )
    
    
    (26
    )$
    1,128
    
    
    $
    (414
    )
    
    $
    3,205
    
    
    $
    (4,389
    )
 September 30,
    
    
    December 31,2010
    
    
    2009Cash and cash equivalentsBank accounts
    
    $
    9,164
    
    
    $
    21,512Term deposit
    
    
    81,084
    
    
    
    $
    90,248
    
    
    $
    21,512
  15




---



##### Table of Contents



11. INCOME TAXES
  12. DISCONTINUED OPERATIONS
      16




---



##### Table of Contents



Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009RevenueOil and gas
    
    $
    
    
    
    $
    556
    
    
    $
    
    
    
    $
    5,455Gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    556
    
    
    
    
    
    
    
    5,652ExpensesOperating
    
    
    
    
    
    
    164
    
    
    
    
    
    
    
    2,132General and administrative
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    139Depletion and depreciation
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    3,772Interest and financing
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    173
    
    
    
    489
    
    
    
    
    
    
    
    6,216Net income (loss) before disposition
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    (564
    )Loss on disposition (net of tax of $29.6 million for 2009)
    
    
    
    
    
    
    (23,357
    )
    
    
    
    
    
    
    (23,357
    )Net loss from discontinued operations
    
    $
    
    
    
    $
    (23,290
    )
    
    $
    
    
    
    $
    (23,921
    )
 13. ADDITIONAL DISCLOSURE REQUIRED UNDER US GAAP
   17




---



##### Table of Contents



Consolidated Balance Sheets
  As at September 30, 2010
    
    
    As at December 31, 2009Canadian
    
    
    Increase
    
    
    
    
    
    
    US
    
    
    Canadian
    
    
    Increase
    
    
    
    
    
    
    USGAAP
    
    
    (Decrease)
    
    
    Notes
    
    
    GAAP
    
    
    GAAP
    
    
    (Decrease)
    
    
    Notes
    
    
    GAAPAssetsCurrent AssetsCash and cash equivalents
    
    $
    90,248
    
    
    
    
    
    
    
    
    
    
    $
    90,248
    
    
    $
    21,512
    
    
    
    
    
    
    
    
    
    
    $
    21,512Accounts receivable
    
    
    4,332
    
    
    
    
    
    
    
    
    
    
    
    4,332
    
    
    
    5,021
    
    
    
    
    
    
    
    
    
    
    
    5,021Note receivable
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    225Prepaid and other current
assets
    
    
    1,329
    
    
    
    
    
    
    
    
    
    
    
    1,329
    
    
    
    771
    
    
    
    
    
    
    
    
    
    
    
    771Restricted cash
    
    
    2,850
    
    
    
    
    
    
    
    
    
    
    
    2,850
    
    
    
    2,850
    
    
    
    
    
    
    
    
    
    
    
    2,85099,019
    
    
    
    
    
    
    
    
    
    
    
    99,019
    
    
    
    30,379
    
    
    
    
    
    
    
    
    
    
    
    30,379Oil and gas properties
and development costs, net
    
    
    213,685
    
    
    
    (38,500
    )
    
    (i)
    
    
    
    
    197,301
    
    
    
    158,392
    
    
    
    (38,500
    )
    
    (i)
    
    
    
    
    139,34623,504
    
    
    (ii)
    
    
    
    
    
    
    
    
    
    
    20,315
    
    
    (ii)(1,388
    )
    
    (iii)
    
    
    
    
    
    
    
    
    
    
    (861
    )
    
    (iii)Intangible assets  technology
    
    
    92,153
    
    
    
    
    
    
    
    
    
    
    
    92,153
    
    
    
    92,153
    
    
    
    
    
    
    
    
    
    
    
    92,153Long term assets
    
    
    2,126
    
    
    
    
    
    
    
    
    
    
    
    2,126
    
    
    
    839
    
    
    
    
    
    
    
    
    
    
    
    839Total Assets
    
    $
    406,983
    
    
    
    (16,384
    )
    
    
    
    
    
    $
    390,599
    
    
    $
    281,763
    
    
    
    (19,046
    )
    
    
    
    
    
    $
    262,717Liabilities and Shareholders EquityCurrent LiabilitiesDebt
    
    $
    38,279
    
    
    
    698
    
    
    (iii)
    
    $
    38,845
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    (132
    )
    
    (iii)Accounts payable
and accrued liabilities
    
    
    14,394
    
    
    
    
    
    
    
    
    
    
    
    14,394
    
    
    
    10,779
    
    
    
    
    
    
    
    
    
    
    
    10,779Income tax payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    530
    
    
    
    
    
    
    
    
    
    
    
    530Derivative instruments
    
    
    
    
    
    
    6,273
    
    
    (vi)
    
    
    6,273
    
    
    
    
    
    
    
    8,249
    
    
    (vi)
    
    
    8,249Asset retirement obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    753
    
    
    
    
    
    
    
    
    
    
    
    75352,673
    
    
    
    6,839
    
    
    
    
    
    
    
    59,512
    
    
    
    12,062
    
    
    
    8,249
    
    
    
    
    
    
    
    20,311Long term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,934
    
    
    
    1,225
    
    
    (iii)
    
    
    38,005(154
    )
    
    (iii)Asset retirement obligations
    
    
    496
    
    
    
    
    
    
    
    
    
    
    
    496
    
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    195Long term obligation
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    1,900Future income tax liability
    
    
    22,624
    
    
    
    
    
    
    
    
    
    
    
    22,624
    
    
    
    22,643
    
    
    
    
    
    
    
    
    
    
    
    22,64377,693
    
    
    
    6,839
    
    
    
    
    
    
    
    84,532
    
    
    
    73,734
    
    
    
    9,320
    
    
    
    
    
    
    
    83,054Shareholders EquityShare capital
    
    
    549,220
    
    
    
    74,455
    
    
    (iv)
    
    
    637,205
    
    
    
    422,322
    
    
    
    74,455
    
    
    (iv)
    
    
    510,784(1,028
    )
    
    (v)
    
    
    
    
    
    
    
    
    
    
    
    
    (551
    )
    
    (v)1,358
    
    
    (vii)
    
    
    
    
    
    
    
    
    
    
    1,358
    
    
    (vii)13,200
    
    
    (vi)
    
    
    
    
    
    
    
    
    
    
    13,200
    
    
    (vi)Purchase warrants
    
    
    33,423
    
    
    
    (33,423
    )
    
    (vi)
    
    
    
    
    
    
    19,427
    
    
    
    (19,427
    )
    
    (vi)
    
    
    Contributed surplus
    
    
    20,343
    
    
    
    (2,720
    )
    
    (v)
    
    
    
    
    14,676
    
    
    
    20,029
    
    
    
    (3,197
    )
    
    (v)
    
    
    
    
    13,885(2,947
    )
    
    (vi)
    
    
    
    
    
    
    
    
    
    
    (2,947
    )
    
    (vi)Convertible note
    
    
    2,086
    
    
    
    (2,086
    )
    
    (iii)
    
    
    
    
    
    
    2,086
    
    
    
    (2,086
    )
    
    (iii)
    
    
    Accumulated deficit
    
    
    (275,782
    )
    
    
    (70,032
    )
    
    
    
    
    
    
    (345,814
    )
    
    
    (255,835
    )
    
    
    (89,171
    )
    
    
    
    
    
    
    (345,006
    )329,290
    
    
    
    (23,223
    )
    
    
    
    
    
    
    306,067
    
    
    
    208,029
    
    
    
    (28,366
    )
    
    
    
    
    
    
    179,663$
    406,983
    
    
    
    (16,384
    )
    
    
    
    
    
    $
    390,599
    
    
    $
    281,763
    
    
    
    (19,046
    )
    
    
    
    
    
    $
    262,717
  18




---



##### Table of Contents



Oil and Gas Properties and Development Costs
 (i)
    
    There are certain differences between the full cost method of accounting for oil and gas
properties as applied in Canada and as applied in the US. The principal difference is in the
method of performing ceiling test evaluations under the full cost method of accounting rules.
In the ceiling test evaluation for US GAAP purposes, the Company limits, on a
country-by-country basis, the capitalized costs of oil and gas properties, net of accumulated
depletion, depreciation and amortization and deferred income taxes, to (a) the present value
of estimated future net revenues computed by applying current prices of oil and gas reserves
to estimated future production of proved oil and gas reserves as of the date of the latest
balance sheet presented, less estimated future expenditures (based on current costs) to be
incurred in developing and producing the proved reserves computed using a discount factor of
10% and assuming continuation of existing economic conditions; plus (b) the cost of properties
not being amortized (e.g. major development projects) and (c) the lower of cost or fair value
of unproved properties included in the costs being amortized less (d) income tax effects
related to the difference between the book and tax basis of the properties referred to in (b)
and (c) above. If capitalized costs exceed this limit, the excess is charged as a provision
for impairment. Unproved properties and major development projects are assessed on a quarterly
basis for possible impairments or reductions in value. If a reduction in value has occurred,
the impairment is transferred to the carrying value of proved oil and gas properties. The
Company performed the ceiling test in accordance with US GAAP and determined that for the
three months ended September 30, 2010, no impairment provision was required, nor was an
impairment provision required under Canadian GAAP. The cumulative differences in the amount
of impairment provisions between US and Canadian GAAP were $38.5 million at September 30,
2010, and December 31, 2009.
 (ii)
    
    The cumulative differences in the amount of impairment provisions between US and Canadian
GAAP resulted in a reduction in accumulated depletion.
 (iii)
    
    The Company was required, under Canadian GAAP, to bifurcate the value of a convertible note,
allocating a portion to long-term debt and a portion to equity. Under US GAAP, the convertible
debt security is classified in its entirety as debt. Under Canadian GAAP, this discount
accretion was capitalized. To reconcile to US GAAP, the entire $2.1 million recorded in
equity as well as the unamortized discount of $0.7 million and the accreted discount that was
capitalized in the amount of $1.4 million are reversed. In addition, because the convertible
note is not denominated in US currency the re-measurement of the different carrying value for
US GAAP results in an adjustment to net income. The foreign exchange gain of $0.1 million is
shown as a separate amount in the US GAAP reconciliation of the Companys consolidated balance
sheet shown above and is adjusted to the Foreign Exchange Loss line item in the US GAAP
reconciliation of the consolidated statement of operations below.
 Shareholders Equity
 (iv)
    
    In June 1999, the shareholders approved a reduction of stated capital in respect of the
common shares by an amount of $74.5 million being equal to the accumulated deficit as at
December 31, 1998. Under US GAAP, a reduction of the accumulated deficit such as this is not
recognized except in the case of a quasi reorganization.
 (v)
    
    Under Canadian GAAP, the Company accounts for all stock options granted to employees and
directors since January 1, 2002, using the fair value based method of accounting. Under this
method, compensation costs are recognized in the financial statements over the stock options
vesting period using an option-pricing model for determining the fair value of the stock
options at the grant date. Under US GAAP, prior to January 1, 2006, the Company applied
Accounting Principles Board (APB) Opinion No. 25, as interpreted by the Financial Accounting
Standards Board (FASB) Interpretation No. 44, in accounting for its stock option plan and
did not recognize compensation costs in its financial statements for stock options issued to
employees and directors. Beginning January 1, 2006, the Company applied the revision to FASBs
Accounting Standards Codification (ASC) Topic 718 Stock Compensation (formerly SFAS 123R)
which supersedes APB No. 25, Accounting for Stock Issued to Employees. The Company elected
to implement this statement on a modified prospective basis starting in the first quarter of
2006 whereby the Company began recognizing stock based compensation in its US GAAP results of
operations for the unvested portion of awards outstanding as at January 1, 2006, and for all
awards granted after January 1, 2006. There are no significant differences between the
accounting for stock options under Canadian GAAP and US GAAP subsequent to January 1, 2006.
 (vi)
    
    The Company accounts for purchase warrants as equity under Canadian GAAP. As more fully
described in its consolidated financial statements in Item 8 of the Companys 2009 Annual
Report filed on Form 10-K, the accounting treatment of warrants under US GAAP reflects the
application of ASC Topic 815 Derivatives and Hedging (formerly SFAS 133). Under Topic 815,
share purchase warrants with an exercise price denominated in a currency other than a
companys functional currency are accounted for as derivative liabilities. Changes in the fair
value of the warrants are required to be recognized in the statement of operations each
reporting period for US GAAP purposes. At the time that the Companys share purchase warrants
are exercised, the value of the warrants will be reclassified to shareholders equity for US
GAAP purposes. Under Canadian GAAP, the fair value of the warrants on the issue date is
recorded as a reduction to the proceeds from the issuance of common shares, with the offset to
the warrant component of equity. The warrants are not revalued to fair value under Canadian
GAAP.
 (vii)
    
    Under US GAAP, the aggregate value attributed to the acquisition of royalty rights during
1999 and 2000 was $1.4 million higher, due to the difference between Canadian and US GAAP in
the value ascribed to the shares issued, primarily resulting from differences in the
recognition of effective dates of the transactions.
  19




---



##### Table of Contents



Consolidated Statements of Operations
  Three Months Ended September 30, 2010
    
    
    Three Months Ended September 30, 2009Canadian
    
    
    Increase
    
    
    
    
    
    
    US
    
    
    Canadian
    
    
    Increase
    
    
    
    
    
    
    USGAAP
    
    
    (Decrease)
    
    
    Notes
    
    
    GAAP
    
    
    GAAP
    
    
    (Decrease)
    
    
    Notes
    
    
    GAAPRevenueOil
    
    $
    4,177
    
    
    
    
    
    
    
    
    
    
    $
    4,177
    
    
    $
    7,917
    
    
    
    
    
    
    
    
    
    
    $
    7,917Gain (loss) on derivative instruments
    
    
    
    
    
    
    634
    
    
    (vi)
    
    
    634
    
    
    
    72
    
    
    
    (1,165
    )
    
    (vi)
    
    
    (1,093
    )Interest
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    24,265
    
    
    
    634
    
    
    
    
    
    
    
    4,899
    
    
    
    7,991
    
    
    
    (1,165
    )
    
    
    
    
    
    
    6,826ExpensesOperating
    
    
    1,975
    
    
    
    
    
    
    
    
    
    
    
    1,975
    
    
    
    2,907
    
    
    
    
    
    
    
    
    
    
    
    2,907General and administrative
    
    
    6,055
    
    
    
    
    
    
    
    
    
    
    
    6,055
    
    
    
    4,412
    
    
    
    
    
    
    
    
    
    
    
    4,412Business and technology development
    
    
    3,045
    
    
    
    
    
    
    
    
    
    
    
    3,045
    
    
    
    2,301
    
    
    
    
    
    
    
    
    
    
    
    2,301Depletion and depreciation
    
    
    2,079
    
    
    
    (877
    )
    
    (ix)
    
    
    1,202
    
    
    
    5,308
    
    
    
    (2,887
    )
    
    (ix)
    
    
    2,421Foreign exchange (gain) loss
    
    
    (1,188
    )
    
    
    18
    
    
    (iii)
    
    
    (1,170
    )
    
    
    2,815
    
    
    
    104
    
    
    (iii)
    
    
    2,919Interest and financing
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    177Provision for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948
    
    
    
    (26
    )
    
    
    
    
    
    
    922Total expenses
    
    
    11,972
    
    
    
    (859
    )
    
    
    
    
    
    
    11,113
    
    
    
    18,868
    
    
    
    (2,809
    )
    
    
    
    
    
    
    16,059Loss from continuing operations before
income tax
    
    
    (7,707
    )
    
    
    1,493
    
    
    
    
    
    
    
    (6,214
    )
    
    
    (10,877
    )
    
    
    1,644
    
    
    
    
    
    
    
    (9,233
    )Recovery of (provision for) income taxCurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (618
    )
    
    
    
    
    
    
    
    
    
    
    (618
    )Future
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    8,700
    
    
    
    
    
    
    
    
    
    
    
    8,700479
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    8,082
    
    
    
    
    
    
    
    
    
    
    
    8,082Net loss from continuing operations
    
    
    (7,228
    )
    
    
    1,493
    
    
    
    
    
    
    
    (5,735
    )
    
    
    (2,795
    )
    
    
    1,644
    
    
    
    
    
    
    
    (1,151
    )Net loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,290
    )
    
    
    22,601
    
    
    (x)
    
    
    
    
    (689
    )Net loss and comprehensive loss
    
    $
    (7,228
    )
    
    
    1,493
    
    
    
    
    
    
    $
    (5,735
    )
    
    $
    (26,085
    )
    
    
    24,245
    
    
    
    
    
    
    $
    (1,840
    )Net loss per shareNet loss from continuing operations,
basic and diluted
    
    $
    (0.02
    )
    
    
    
    
    
    
    
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    
    0.01
    
    
    
    
    
    
    $
    Net loss from discontinued operations,
basic and diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.08
    )
    
    
    0.08
    
    
    
    
    
    
    
    Net loss per share, basic and diluted
    
    $
    (0.02
    )
    
    
    
    
    
    
    
    
    
    $
    (0.02
    )
    
    $
    (0.09
    )
    
    
    0.09
    
    
    
    
    
    
    $
    Weighted average number of shares
Basic and diluted (in thousands)
    
    
    334,012
    

    
    
    
    
    
    
    
    
    
    
    334,012
    
    
    
    279,427
    
    
    
    
    
    
    
    
    
    
    
    279,427
  20




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##### Table of Contents



Nine Months Ended September 30, 2010
    
    
    Nine Months Ended September 30, 2009Canadian
    
    
    Increase
    
    
    
    
    
    
    US
    
    
    Canadian
    
    
    Increase
    
    
    
    
    
    
    USGAAP
    
    
    (Decrease)
    
    
    Notes
    
    
    GAAP
    
    
    GAAP
    
    
    (Decrease)
    
    
    Notes
    
    
    GAAPRevenueOil
    
    $
    15,554
    
    
    
    
    
    
    
    
    
    
    $
    15,554
    
    
    $
    19,659
    
    
    
    
    
    
    
    
    
    
    $
    19,659Gain (loss) on derivative
instruments
    
    
    
    
    
    
    15,972
    
    
    (vi)
    
    
    15,972
    
    
    
    (1,020
    )
    
    
    (3,770
    )
    
    (vi)
    
    
    (4,790
    )Interest
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    130
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    2015,684
    
    
    
    15,972
    
    
    
    
    
    
    
    31,656
    
    
    
    18,659
    
    
    
    (3,770
    )
    
    
    
    
    
    
    14,889ExpensesOperating
    
    
    6,577
    
    
    
    
    
    
    
    
    
    
    
    6,577
    
    
    
    8,052
    
    
    
    
    
    
    
    
    
    
    
    8,052General and administrative
    
    
    16,510
    
    
    
    
    
    
    
    
    
    
    
    16,510
    
    
    
    14,126
    
    
    
    
    
    
    
    
    
    
    
    14,126Business and technology
development
    
    
    7,979
    
    
    
    
    
    
    
    
    
    
    
    7,979
    
    
    
    6,104
    
    
    
    151
    
    
    (ix)
    
    
    6,255Depletion and depreciation
    
    
    6,744
    
    
    
    (3,189
    )
    
    (ix)
    
    
    3,555
    
    
    
    17,308
    
    
    
    (9,241
    )
    
    (ix)
    
    
    8,067Foreign exchange (gain) loss
    
    
    (2,289
    )
    
    
    22
    
    
    (iii)
    
    
    (2,267
    )
    
    
    4,501
    
    
    
    (176
    )
    
    (iii)
    
    
    4,325Interest and financing
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    512Provision for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948
    
    
    
    (26
    )
    
    
    
    
    
    
    92235,535
    
    
    
    (3,167
    )
    
    
    
    
    
    
    32,368
    
    
    
    51,551
    
    
    
    (9,292
    )
    
    
    
    
    
    
    42,259Loss from continuing
operations before income tax
    
    
    (19,851
    )
    
    
    19,139
    
    
    
    
    
    
    
    (712
    )
    
    
    (32,892
    )
    
    
    5,522
    
    
    
    
    
    
    
    (27,370
    )Provision for (recovery of)
income taxCurrent
    
    
    (115
    )
    
    
    
    
    
    
    
    
    
    
    (115
    )
    
    
    (1,624
    )
    
    
    
    
    
    
    
    
    
    
    (1,624
    )Future
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    8,700
    
    
    
    
    
    
    
    
    
    
    
    8,700(96
    )
    
    
    
    
    
    
    
    
    
    
    (96
    )
    
    
    7,076
    
    
    
    
    
    
    
    
    
    
    
    7,076Net loss from continuing
operations
    
    
    (19,947
    )
    
    
    19,139
    
    
    
    
    
    
    
    (808
    )
    
    
    (25,816
    )
    
    
    5,522
    
    
    
    
    
    
    
    (20,294
    )Net income (loss) from
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,921
    )
    
    
    24,849
    
    

    (x)
    
    
    
    928Net loss and comprehensive loss
    
    $
    (19,947
    )
    
    
    19,139
    
    
    
    
    
    
    $
    (808
    )
    
    $
    (49,737
    )
    
    
    30,371
    
    
    
    
    
    
    $
    (19,366
    )Net income (loss) per shareNet income (loss) from
continuing operations, basic
and diluted
    
    $
    (0.06
    )
    
    
    0.06
    
    
    
    
    
    
    $
    
    
    
    $
    (0.09
    )
    
    
    0.02
    
    
    
    
    
    
    $
    (0.07
    )Net income from discontinued
operations, basic and diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.09
    )
    
    
    0.09
    
    
    
    
    
    
    
    Net income (loss) per share,
basic and diluted
    
    $
    (0.06
    )
    
    
    0.06
    
    
    
    
    
    
    $
    
    
    
    $
    (0.18
    )
    
    
    0.11
    
    
    
    
    
    
    $
    (0.07
    )Weighted average number of
shares
Basic and diluted (in
thousands)
    
    
    325,153
    
    
    
    
    
    
    
    
    
    
    
    325,153
    
    
    
    279,381
    
    
    
    
    
    
    
    
    
    
    
    279,381
 Development Costs
 (viii)
    
    As more fully described under Oil and Gas Properties and Development Costs in Item 8 of
the Companys 2009 Annual Report filed on Form 10-K, under Canadian GAAP, feasibility,
marketing and related costs incurred prior to executing a definitive agreement are capitalized
and are subsequently written down upon determination that a projects future value has been
impaired. Under US GAAP, such costs are considered to be research and development and are
expensed as incurred.
  21




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##### Table of Contents



Depletion and Depreciation
 (ix)
    
    As discussed under Oil and Gas Properties and Development Costs in this note, there is a
difference between US and Canadian GAAP in performing the ceiling test evaluation under the
full cost method of the accounting rules. Application of the ceiling test evaluation under US
GAAP has resulted in an accumulated net increase in impairment provisions on the Companys US
and China oil and gas properties. This net increase in US GAAP impairment provisions has
resulted in lower depletion rates for US GAAP purposes and a reduction in the net loss for the
three and nine months ended September 30, 2010 and 2009.
 Discontinued Operations
 (x)
    
    For the three and nine months ended September 30, 2009, a $22.6 million and $24.8 million
adjustment related to discontinued operations mainly resulting from depletion and impairment
differences as more fully described in note (ii).
 Consolidated Statements of Cash Flow
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
   Special Note to Canadian Investors
 National Instrument 51-101 
Standards of Disclosure for Oil and Gas Activities Special Note to Canadian Investors
 Advisories
   22




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##### Table of Contents



Non-GAAP Financial Measures
    bbl
    
    = barrelbbls/d
    
    = barrels per daybopd
    
    = barrels of oil per dayboe
    
    = barrel of oil equivalentboe/d
    
    = barrels of oil equivalent per daymbbl
    
    = thousand barrelsmbbls/d
    
    = thousand barrels per daymboe
    
    = thousands of barrels of oil equivalentmboe/d
    
    = thousands of barrels of oil equivalent per daymmbbl
    
    = million barrelsmmbls/d
    
    = million barrels per daymcf
    
    = thousand cubic feetmcf/d
    
    = thousand cubic feet per daymmbtu
    
    = million British thermal unitsmmcf
    
    = million cubic feetmmcf/d
    
    = million cubic feet per day
  www.ivanhoeenergy.com www.sec.gov www.sedar.com
  23




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##### Table of Contents



HIGHLIGHTS
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Average daily production (bbls/d)
    
    
    610
    
    
    
    1,413
    
    
    
    760
    
    
    
    1,421Realized oil prices ($/bbl)
    
    $
    74.41
    
    
    $
    61.34
    
    
    $
    74.92
    
    
    $
    50.66Oil revenue
    
    $
    4,177
    
    
    $
    7,917
    
    
    $
    15,554
    
    
    $
    19,659Working capital (continuing operations(1))
    
    $
    46,346
    
    
    $
    33,439
    
    
    $
    46,346
    
    
    $
    33,439Capital expenditures (continuing operations)
    
    $
    20,428
    
    
    $
    5,823
    
    
    $
    60,991
    
    
    $
    17,723Cash flow used in operating activities (continuing operations)
    
    $
    (5,421
    )
    
    $
    (1,066
    )
    
    $
    (13,762
    )
    
    $
    (10,863
    )Net loss (continuing operations)
    
    $
    (7,228
    )
    
    $
    (2,795
    )
    
    $
    (19,947
    )
    
    $
    (25,816
    )Net loss per share, basic and diluted (continuing operations)
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.06
    )
    
    $
    (0.09
    )
 (1)
    
    In July 2009, the Company disposed of its US operations and used the proceeds for its
ongoing projects. To properly reflect this sale in the Companys 2010 unaudited consolidated
financial statements, the results of the US operations have been separately identified in
comparative disclosures as Discontinued Operations.     24




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##### Table of Contents



Changes in Net Loss
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    Change
    
    
    2009
    
    
    2010
    
    
    Change
    
    
    2009Cash itemsOil revenues
    
    $
    4,177
    
    
    
    
    
    
    $
    7,917
    
    
    $
    15,554
    
    
    
    
    
    
    $
    19,659Production volumes
    
    
    
    
    
    
    (4,474
    )
    
    
    
    
    
    
    
    
    
    
    (9,141
    )Oil prices
    
    
    
    
    
    
    734
    
    
    
    
    
    
    
    
    
    
    
    5,036Operating costs
    
    
    (1,975
    )
    
    
    932
    
    
    
    (2,907
    )
    
    
    (6,577
    )
    
    
    1,475
    
    
    
    (8,052
    )G&A less stock based compensation
    
    
    (5,171
    )
    
    
    (1,926
    )
    
    
    (3,245
    )
    
    
    (14,092
    )
    
    
    (2,017
    )
    
    
    (12,075
    )Business and technology development
less stock based compensation
    
    
    (2,877
    )
    
    
    (679
    )
    
    
    (2,198
    )
    
    
    (7,787
    )
    
    
    (1,874
    )
    
    
    (5,913
    )Realized foreign exchange loss
    
    
    (308
    )
    
    
    (279
    )
    
    
    (29
    )
    
    
    (545
    )
    
    
    (476
    )
    
    
    (69
    )Realized derivative instruments gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (612
    )
    
    
    612Net interest
    
    
    88
    
    
    
    164
    
    
    
    (76
    )
    
    
    130
    
    
    
    370
    
    
    
    (240
    )Current income tax provision
    
    
    
    
    
    
    618
    
    
    
    (618
    )
    
    
    (115
    )
    
    
    1,509
    
    
    
    (1,624
    )Total cash changes
    
    
    (6,066
    )
    
    
    (4,910
    )
    
    
    (1,156
    )
    
    
    (13,432
    )
    
    
    (5,730
    )
    
    
    (7,702
    )Non-cash itemsUnrealized (loss) gain on derivatives
    
    
    
    
    
    
    (72
    )
    
    
    72
    
    
    
    
    
    
    
    1,632
    
    
    
    (1,632
    )Unrealized foreign exchange gain (loss)
    
    
    1,496
    
    
    
    4,282
    
    
    
    (2,786
    )
    
    
    2,834
    
    
    
    7,266
    
    
    
    (4,432
    )Depletion and depreciation
    
    
    (2,079
    )
    
    
    3,229
    
    
    
    (5,308
    )
    
    
    (6,744
    )
    
    
    10,564
    
    
    
    (17,308
    )Stock based compensation
    
    
    (1,052
    )
    
    
    218
    
    
    
    (1,270
    )
    
    
    (2,610
    )
    
    
    (368
    )
    
    
    (2,242
    )Future income tax recovery
    
    
    479
    
    
    
    (8,221
    )
    
    
    8,700
    
    
    
    19
    
    
    
    (8,681
    )
    
    
    8,700Provision for impairment
    
    
    
    
    
    
    948
    
    
    
    (948
    )
    
    
    
    
    
    
    948
    
    
    
    (948
    )Discontinued operations (net of tax)
    
    
    
    
    
    
    23,290
    
    
    
    (23,290
    )
    
    
    
    
    
    
    23,921
    
    
    
    (23,921
    )Other
    
    
    (6
    )
    
    
    93
    
    
    
    (99
    )
    
    
    (14
    )
    
    
    238
    
    
    
    (252
    )Total non-cash changes
    
    
    (1,162
    )
    
    
    23,767
    
    
    
    (24,929
    )
    
    
    (6,515
    )
    
    
    35,520
    
    
    
    (42,035
    )Net loss
    
    $
    (7,228
    )
    
    
    18,857
    
    
    $
    (26,085
    )
    
    $
    (19,947
    )
    
    
    29,790
    
    
    $
    (49,737
    )
 Oil Production
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Asia(net bbls)Dagang
    
    
    52,420
    
    
    
    125,079
    
    
    
    195,424
    
    
    
    377,451Daqing
    
    
    3,711
    
    
    
    3,995
    
    
    
    12,172
    
    
    
    10,58256,131
    
    
    
    129,074
    
    
    
    207,596
    
    
    
    388,033Average daily production (bbls/d)
    
    
    610
    
    
    
    1,403
    
    
    
    760
    
    
    
    1,421
   25




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##### Table of Contents



Net Revenue From Operations
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,($/bbl)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Oil revenue(1)
    
    $
    74.41
    
    
    $
    61.34
    
    
    $
    74.92
    
    
    $
    50.66Less operating costsField operating
    
    
    (22.15
    )
    
    
    (15.47
    )
    
    
    (19.01
    )
    
    
    (17.06
    )Windfall Levy
    
    
    (11.34
    )
    
    
    (6.32
    )
    
    
    (11.16
    )
    
    
    (2.99
    )Engineering and support costs
    
    
    (1.69
    )
    
    
    (0.73
    )
    
    
    (1.50
    )
    
    
    (0.70
    )Net operating revenue(1)
    
    
    39.23
    
    
    
    38.82
    
    
    
    43.25
    
    
    
    29.91Depletion
    
    
    (33.69
    )
    
    
    (39.74
    )
    
    
    (32.05
    )
    
    
    (40.32
    )Net revenue (loss) from operations(1)
    
    $
    5.54
    
    
    $
    (0.92
    )
    
    $
    11.20
    
    
    $
    (10.41
    )
 (1)
    
    Oil revenue per barrel, net operating revenue per barrel and net revenue (loss) from
operations per barrel do not have standardized meanings prescribed by Canadian GAAP
and therefore may not be comparable to similar measures used by other companies. Please refer
to the Non-GAAP Financial Measures under the Advisories section in the MD&A for more details. Oil Revenue
  Operating Costs
  General and Administrative
   Business and Technology Development
 TM
 Depletion and Depreciation
   26




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##### Table of Contents



Foreign Exchange
  Interest and Financing Costs
  Unrealized Gain (Loss) on Derivative Instruments
  Discontinued Operations
  Provision for/Recovery of Income Taxes
 Asia
 Provisions for current income taxes in the three and nine months ended September 30, 2010,
decreased in comparison to 2009 driven by a one time retrospective change in the first
quarter of 2009 to the minimum depreciation and amortization periods required by Chinese tax
law.
 Business and Technology Development
 Prior to the Company selling its US operating segment in July 2009, as further described in
Note 12 to the accompanying unaudited consolidated financial statements, the Company had
future tax assets arising from net operating loss carry-forwards generated by the business
segment. These future income tax assets were partially offset by certain future income tax
liabilities in the US and by a valuation allowance. As at September 30, 2009, as a result of
the pending sale of the business segment, the Company was no longer able to offset these tax
assets and liabilities. The future income tax assets classified as assets from discontinued
operations were ultimately included in the $23.4 million loss on disposition. Revisions have
since been made to the future income tax liability due to revised projections of taxable
income and the Companys utilization of net operating loss carryforwards.
  27




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##### Table of Contents



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 Contractual Obligations
 Payments Due by YearAfterTotal
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2013Included in balance sheetDebt
    
    $
    38,279
    
    
    $
    
    
    
    $
    38,279
    
    
    $
    
    
    
    $
    
    
    
    $
    Asset retirement obligation(1)
    
    
    1,337
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    1,171Long term obligation
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    Other commitmentsInterest payable
    
    
    1,929
    
    
    
    
    
    
    
    1,929
    
    
    
    
    
    
    
    
    
    
    
    Lease commitments
    
    
    3,055
    
    
    
    313
    
    
    
    1,601
    
    
    
    828
    
    
    
    313
    
    
    
    Zitong exploration commitment(2)
    
    
    11,777
    
    
    
    11,777
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nyalga exploration commitment
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294
    
    
    
    $
    58,571
    
    
    $
    12,090
    
    
    $
    41,809
    
    
    $
    994
    
    
    $
    2,507
    
    
    $
    1,171
 (1)
    
    Represents undiscounted asset retirement obligations after inflation. The discounted
value ($0.5 million) of these estimated obligations is provided for in the unaudited
consolidated financial statements.(2)
    
    Estimated expenditures to complete Phase II of the Zitong block minimum work program. Sources and Uses of Cash
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cash used in operating activities (continuing operations)
    
    $
    (5,421
    )
    
    $
    (1,066
    )
    
    $
    (13,762
    )
    
    $
    (10,863
    )Cash used in investing activities (continuing operations)
    
    $
    (20,345
    )
    
    $
    (8,524
    )
    
    $
    (58,921
    )
    
    $
    (21,264
    )Cash provided by (used in) financing activities
(continuing operations)
    
    $
    (102
    )
    
    $
    98
    
    
    $
    137,796
    
    
    $
    (444
    )
  Operating ActivitiesIn the three and nine months ended September 30, 2010, cash used in operating activities from
continuing operations, excluding the impact of changes in non-cash working capital, was
higher than in 2009. Reductions in operating costs and current taxes in 2010 were offset by
lower oil revenue and higher G&A and business and technology development costs.
  28




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##### Table of Contents



Investing Activities
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Oil and gas activitiesCanada
    
    $
    3,600
    
    
    $
    3,186
    
    
    $
    26,762
    
    
    $
    9,263Ecuador
    
    
    5,722
    
    
    
    1,333
    
    
    
    15,004
    
    
    
    2,883Asia
    
    
    10,951
    
    
    
    1,179
    
    
    
    18,317
    
    
    
    3,702Business and technology development
    
    
    172
    
    
    
    125
    
    
    
    537
    
    
    
    1,818Corporate
    
    
    (17
    )
    
    
    
    
    
    
    371
    
    
    
    57Total capital expenditures
    
    $
    20,428
    
    
    $
    5,823
    
    
    $
    60,991
    
    
    $
    17,723
 CanadaActivity during the third quarter of 2010 focused on completing the Companys Environmental
Impact Assessment for the Tamarack project. The Class III (+25/-20%) capital cost estimate
based on engineering for the upstream production, surface facilities, the HTL upgrading unit
and infrastructure (power and access) has been completed.EcuadorIn the third quarter, the second appraisal well in Block 20, IP-5b, was drilled to total
depth and cased. The Hollin formation was perforated and steam injection operations were
performed on the well. Subsequent to quarter end, oil was successfully produced from the
IP-5b appraisal well and will be sent to the Companys Feedstock Test Facility.Preparations began for the seismic survey of Block 20. The seismic program is essential to
defining the location and orientation of fault blocks that exist due to the close proximity
of the Andes Mountains, directly west of Block 20.AsiaDrilling at Zitong-1 in Chinas Sichuan Province continued in the third quarter, reaching a
depth of 4,000 meters. Plans to core and open hole test the Xu4 formation were modified due
to the high formation pressures. The well casing and drilling program was amended to allow
for casing to be set and cemented in the Xu3 formation before drilling continues. The Company
started drilling Yixin-2 in August 2010, reaching a depth of 2,860 meters by the end of
September. The fracture stimulation program continued at Dagang and preparatory activities
commenced to drill two development wells.In the Nyalga basin of Mongolia, preparations for a five well drilling program commenced and
preparations for a seismic acquisition program commenced.Financing ActivitiesIn February and March 2010, the Company raised $135.8 million, net of issuance costs, through
a private placement of 50 million Special Warrants at price of Cdn $3.00 per Special Warrant.
Each Special Warrant was converted during the first quarter of 2010, for no additional
consideration, into one common share and one-quarter of a share purchase warrant of the
Company.
 Capital Structure
 September 30,
    
    
    December 31,2010
    
    
    2009Short term debt
    
    $
    38,279
    
    
    $
    Long term debt
    
    $
    
    
    
    $
    36,934Shareholders equity
    
    $
    329,290
    
    
    $
    208,029
   29




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##### Table of Contents



Outlook for 2010
 TM TM
  International Financial Reporting Standards (IFRS)
   
 Item 4. Controls and Procedures
     30




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##### Table of Contents



Part II OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 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
 
   IVANHOE ENERGY INC.By:
    
    /s/ Gerald D. Schiefelbein

Name: Gerald D. SchiefelbeinTitle:   Chief Financial OfficerDated: November 9, 2010
  31