##### 



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 1934For the quarterly period ended March 31, 2007oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from

toCommission file number 000-30586
 IVANHOE ENERGY INC.
 (Exact name of registrant as specified in its charter)
 Yukon, Canada
    
    98-0372413(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)Suite 654  999 Canada PlaceVancouver, British Columbia, Canada
    
    V6C 3E1(Address of principal executive office)
    
    (zip code)
 (604) 688-8323  (registrants telephone number, including area code)
 No Changes  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




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##### 



TABLE OF CONTENTS
 PagePART IFinancial InformationItem 1 Financial StatementsUnaudited Condensed Consolidated Balance Sheets as at March 31, 2007 and December 31, 2006
    
    
    3Unaudited Condensed Consolidated Statements of Operations and Accumulated Deficit for the Three-Month Periods Ended March 31, 2007 and 2006
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flow for the Three-Month Periods Ended March 31, 2007 and 2006
    
    
    5Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    29Item 4. Controls and Procedures
    
    
    29PART IIOther InformationItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. Submission of Matters To a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30
 2




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##### 



Part I  Financial Information
 Item 1 Financial Statements
 IVANHOE ENERGY INC.
Unaudited Condensed Consolidated Balance Sheets
 March 31, 2007
    
    
    December 31, 2006AssetsCurrent AssetsCash and cash equivalents
    
    $
    10,793
    
    
    $
    13,879Accounts receivable (net of allowance for doubtful accounts of $116 as at
March 31, 2007 and December 31, 2006)
    
    
    6,541
    
    
    
    7,435Prepaid and other current assets
    
    
    548
    
    
    
    77317,882
    
    
    
    22,087Oil and gas properties and investments, net
    
    
    119,379
    
    
    
    121,918Intangible assets  technology
    
    
    102,153
    
    
    
    102,153Long term assets
    
    
    2,060
    
    
    
    2,386$
    241,474
    
    
    $
    248,544Liabilities and Shareholders EquityCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    7,915
    
    
    $
    9,428Notes payable  current portion
    
    
    2,190
    
    
    
    2,147Asset retirement obligations  current portion
    
    
    600
    
    
    
    Derivative instruments
    
    
    1,159
    
    
    
    49311,864
    
    
    
    12,068Long term debt
    
    
    3,673
    
    
    
    4,237Asset retirement obligations
    
    
    1,396
    
    
    
    1,953Long term obligation
    
    
    1,900
    
    
    
    1,900Commitments and contingenciesShareholders EquityShare capital, issued 241,364,188 common shares;
December 31, 2006 241,215,798 common shares
    
    
    319,004
    
    
    
    318,725Purchase warrants
    
    
    23,955
    
    
    
    23,955Contributed surplus
    
    
    7,012
    
    
    
    6,489Accumulated deficit
    
    
    (127,330
    )
    
    
    (120,783
    )222,641
    
    
    
    228,386$
    241,474
    
    
    $
    248,544
  3




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##### 



IVANHOE ENERGY INC.
Unaudited Condensed Consolidated Statements of Operations and Accumulated Deficit
Three-Month Periods Ended March 31
 2007
    
    
    2006RevenueOil and gas revenue
    
    $
    9,596
    
    
    $
    9,826Loss on derivative instruments
    
    
    (459
    )
    
    
    Interest income
    
    
    120
    
    
    
    389,257
    
    
    
    9,864ExpensesOperating costs
    
    
    3,685
    
    
    
    2,716General and administrative
    
    
    2,872
    
    
    
    2,000Business and technology development
    
    
    2,162
    
    
    
    1,662Depletion and depreciation
    
    
    6,892
    
    
    
    7,847Interest expense and financing costs
    
    
    193
    
    
    
    265Provision for impairment
    
    
    
    
    
    
    75015,804
    
    
    
    15,240Net Loss
    
    
    (6,547
    )
    
    
    (5,376
    )Accumulated Deficit, beginning of period
    
    
    (120,783
    )
    
    
    (95,291
    )Accumulated Deficit, end of period
    
    $
    (127,330
    )
    
    $
    (100,667
    )Net Loss per share  Basic and Diluted
    
    $
    (0.03
    )
    
    $
    (0.02
    )Weighted Average Number of Shares (in thousands)
    
    
    241,231
    
    
    
    224,547
  4




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##### 



IVANHOE ENERGY INC.
Unaudited Condensed Consolidated Statements of Cash Flow
Three-Month Periods Ended March 31
 2007
    
    
    2006Operating ActivitiesNet loss
    
    $
    (6,547
    )
    
    $
    (5,376
    )Items not requiring use of cash:Depletion and depreciation
    
    
    6,892
    
    
    
    7,847Provision for impairment
    
    
    
    
    
    
    750Stock based compensation
    
    
    802
    
    
    
    353Unrealized loss on derivative instruments
    
    
    666
    
    
    
    Other
    
    
    169
    
    
    
    98Changes in non-cash working capital items
    
    
    612
    
    
    
    (1,592
    )2,594
    
    
    
    2,080Investing ActivitiesCapital investments
    
    
    (5,334
    )
    
    
    (4,892
    )Merger and acquisition related costs
    
    
    
    
    
    
    (177
    )Proceeds from sale of assets
    
    
    1,000
    
    
    
    5,350Repayment of advance
    
    
    200
    
    
    
    Other
    
    
    75
    
    
    
    (9
    )Changes in non-cash working capital items
    
    
    (1,006
    )
    
    
    (1,085
    )(5,065
    )
    
    
    (813
    )Financing ActivitiesProceeds from exercise of options
    
    
    
    
    
    
    91Payments of debt obligations
    
    
    (615
    )
    
    
    (622
    )(615
    )
    
    
    (531
    )Increase (decrease) in cash and cash equivalents, for the period
    
    
    (3,086
    )
    
    
    736Cash and cash equivalents, beginning of period
    
    
    13,879
    
    
    
    6,724Cash and cash equivalents, end of period
    
    $
    10,793
    
    
    $
    7,460
  5




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##### 



Notes to the Condensed Consolidated Financial Statements
March 31, 2007
 1. BASIS OF PRESENTATION
 GAAP
 2. CHANGES IN ACCOUNTING POLICIES
 2007 Accounting Changes
 CICA S.1506 S.1530 S.3251 S.3855 S.3861 S.3865
     Financial assets
   6




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##### 



Financial liabilities
       Derivative Financial Instruments
       7




---



##### 



Impact of New and Pending Canadian GAAP Accounting Standards
    S.1535 S.3862 S.3863
 3. OIL AND GAS PROPERTIES AND INVESTMENTS
  As at March 31, 2007Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    TotalOil and Gas Properties:Proved
    
    $
    104,179
    
    
    $
    106,080
    
    
    $
    
    
    
    $
    
    
    
    $
    210,259Unproved
    
    
    4,297
    
    
    
    12,175
    
    
    
    
    
    
    
    
    
    
    
    16,472108,476
    
    
    
    118,255
    
    
    
    
    
    
    
    
    
    
    
    226,731Accumulated depletion
    
    
    (22,851
    )
    
    
    (44,095
    )
    
    
    
    
    
    
    
    
    
    
    (66,946
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    (10,420
    )
    
    
    
    
    
    
    
    
    
    
    (60,770
    )35,275
    
    
    
    63,740
    
    
    
    
    
    
    
    
    
    
    
    99,015HTL and GTL Investments:Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    7,319
    
    
    
    5,054
    
    
    
    12,373Commercial demonstration facility
    
    
    
    
    
    
    
    
    
    
    12,121
    
    
    
    
    
    
    
    12,121Accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    (4,330
    )
    
    
    
    
    
    
    (4,330
    )
    
    
    
    
    
    
    
    15,110
    
    
    
    5,054
    
    
    
    20,164Furniture and equipment
    
    
    531
    
    
    
    114
    
    
    
    80
    
    
    
    
    
    
    
    725Accumulated depreciation
    
    
    (427
    )
    
    
    (60
    )
    
    
    (38
    )
    
    
    
    
    
    
    (525
    )104
    
    
    
    54
    
    
    
    42
    
    
    
    
    
    
    
    200$
    35,379
    
    
    $
    63,794
    
    
    $
    15,152
    
    
    $
    5,054
    
    
    $
    119,379
 8




---



##### 



As at December 31, 2006Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    TotalOil and Gas Properties:Proved
    
    $
    102,884
    
    
    $
    106,171
    
    
    $
    
    
    
    $
    
    
    
    $
    209,055Unproved
    
    
    5,765
    
    
    
    8,279
    
    
    
    
    
    
    
    
    
    
    
    14,044108,649
    
    
    
    114,450
    
    
    
    
    
    
    
    
    
    
    
    223,099Accumulated depletion
    
    
    (21,249
    )
    
    
    (39,372
    )
    
    
    
    
    
    
    
    
    
    
    (60,621
    )Accumulated provision for impairment
    
    
    (50,350
    )
    
    
    (10,420
    )
    
    
    
    
    
    
    
    
    
    
    (60,770
    )37,050
    
    
    
    64,658
    
    
    
    
    
    
    
    
    
    
    
    101,708HTL and GTL Investments:Feasibility studies and other deferred costs
    
    
    
    
    
    
    
    
    
    
    7,020
    
    
    
    5,054
    
    
    
    12,074Commercial demonstration facility
    
    
    
    
    
    
    
    
    
    
    11,700
    
    
    
    
    
    
    
    11,700Accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    (3,789
    )
    
    
    
    
    
    
    (3,789
    )
    
    
    
    
    
    
    
    14,931
    
    
    
    5,054
    
    
    
    19,985Furniture and equipment
    
    
    530
    
    
    
    115
    
    
    
    80
    
    
    
    
    
    
    
    725Accumulated depreciation
    
    
    (414
    )
    
    
    (56
    )
    
    
    (30
    )
    
    
    
    
    
    
    (500
    )116
    
    
    
    59
    
    
    
    50
    
    
    
    
    
    
    
    225$
    37,166
    
    
    $
    64,717
    
    
    $
    14,981
    
    
    $
    5,054
    
    
    $
    121,918
    4. INTANGIBLE ASSETS  TECHNOLOGY
  HTL Technology
 Ensyn RTP TM Process TM TM HTL Technology HTL
 Syntroleum Master License
 Syntroleum GTL Technology GTL
  9




---



##### 



5. NOTES PAYABLE
  March 31,
    
    
    December 31,2007
    
    
    2006Non-interest bearing promissory note, due 2006 through 2009
    
    $
    4,721
    
    
    $
    5,336Variable rate bank note, 8.36%, due 2008
    
    
    1,500
    
    
    
    1,5006,221
    
    
    
    6,836Less:Unamortized discount
    
    
    (358
    )
    
    
    (452
    )Current maturities
    
    
    (2,190
    )
    
    
    (2,147
    )(2,548
    )
    
    
    (2,599
    )$
    3,673
    
    
    $
    4,237
 Promissory Notes
  Bank Note
 LIBOR
   2007
    
    $
    1,8452008
    
    
    3,9602009
    
    
    416$
    6,221
 6. ASSET RETIREMENT OBLIGATIONS
 CDF
 10




---



##### 



Carrying balance, beginning of period
    
    $
    1,953Liabilities incurred
    
    
    20Liabilities transferred
    
    
    (3
    )Accretion expense
    
    
    261,996Less: current portion
    
    
    600Carrying balance, end of period
    
    $
    1,396
 7. COMMITMENTS AND CONTINGENCIES
 Zitong Block Exploration Commitment
 Phase 1
 Mitsubishi
 Zitong Partners Phase 2 CNPC
  Income Taxes
  11




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##### 



Long Term Obligation
  Other Commitments
 Former Ensyn Affiliate
  8. SHARE CAPITAL
  Common Shares
    
    
    
    
    
    
    Stock OptionsWeightedAverageNumber
    
    
    
    
    
    
    Contributed
    
    
    Number
    
    
    Exercise Price(thousands)
    
    
    Amount
    
    
    Surplus
    
    
    (thousands)
    
    
    Cdn.$Balance December 31, 2006
    
    
    241,216
    
    
    $
    318,725
    
    
    $
    6,489
    
    
    
    12,370
    
    
    $
    2.34Shares issued for:Services
    
    
    148
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    Options:Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200
    
    
    $
    2.29Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )
    
    $
    3.18Stock based compensation
    
    
    
    
    
    
    
    
    
    
    523
    
    
    
    
    
    
    
    Balance March 31, 2007
    
    
    241,364
    
    
    $
    319,004
    
    
    $
    7,012
    
    
    
    12,287
    
    
    $
    2.32
 Purchase Warrants
   Purchase WarrantsPrice per
    
    
    
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    
    
    ExerciseYear of
    
    Special
    
    
    
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    
    
    Price perIssue
    
    Warrant
    
    Issued
    
    
    Exercisable
    
    
    Issuable
    
    
    Value
    
    
    Expiry Date
    
    Share(thousands)
    
    
    ($U.S. 000)2005
    
    Cdn.  $3.10
    
    
    4,100
    
    
    
    4,100
    
    
    
    4,100
    
    
    $
    2,412
    
    
    (1)
    
    Cdn. $3.502005
    
    Cdn.  $3.10
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    534
    
    
    July 2007
    
    Cdn. $3.502005
    
    U.S. $1.63
    
    
    11,196
    
    
    
    11,196
    
    
    
    11,196
    
    
    
    1,891
    
    
    November 2007
    
    U.S. $2.502005
    
    n/a
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    313
    
    
    November 2007
    
    U.S. $2.002006
    
    U.S.$2.23
    
    
    11,400
    
    
    
    11,400
    
    
    
    11,400
    
    
    
    18,805
    
    
    May 2011
    
    Cdn. $2.93(2)29,696
    
    
    
    29,696
    
    
    
    29,696
    
    
    $
    23,955
 12




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##### 



(1)
    
    In March 2007, the Company agreed that the warrants, which were to have expired on April 15,
2007, would be extended until the earlier of: (i) April 15, 2008; and (ii) thirty days following
the date the closing trading price of the common shares of the Company on the Toronto Stock
Exchange exceeds the exercise price of the warrants for a period of five consecutive trading
days.(2)
    
    Each common share purchase warrant originally entitled the holder to purchase one common
share at a price of $2.63 per share until the fifth anniversary date of the closing. In September
2006, these warrants were listed on the Toronto Stock Exchange and the exercise price was changed
to Cdn.$2.93.  9. SEGMENT INFORMATION
  Oil and Gas
  HTL
 TM
 GTL
  Corporate
 .
  13




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##### 



Three-Month Period Ended March 31, 2007Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    2,711
    
    
    $
    6,885
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,596Loss on derivative instruments
    
    
    (459
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (459
    )Interest income
    
    
    22
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    1202,274
    
    
    
    6,896
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    9,257Operating costs
    
    
    1,202
    
    
    
    2,483
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,685General and administrative
    
    
    388
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    2,077
    
    
    
    2,872Business and technology development
    
    
    
    
    
    
    
    
    
    
    2,017
    
    
    
    145
    
    
    
    
    
    
    
    2,162Depletion and depreciation
    
    
    1,614
    
    
    
    4,726
    
    
    
    548
    
    
    
    3
    
    
    
    1
    
    
    
    6,892Interest expense and financing costs
    
    
    87
    
    
    
    5
    
    
    
    7
    
    
    
    
    
    
    
    94
    
    
    
    1933,291
    
    
    
    7,621
    
    
    
    2,572
    
    
    
    148
    
    
    
    2,172
    
    
    
    15,804Net Loss
    
    $
    (1,017
    )
    
    $
    (725
    )
    
    $
    (2,572
    )
    
    $
    (148
    )
    
    $
    (2,085
    )
    
    $
    (6,547
    )Capital Investments
    
    $
    812
    
    
    $
    3,802
    
    
    $
    720
    
    
    $
    
    
    
    $
    
    
    
    $
    5,334Identifiable Assets (As at March 31, 2007)
    
    $
    40,996
    
    
    $
    70,883
    
    
    $
    107,369
    
    
    $
    15,076
    
    
    $
    7,150
    
    
    $
    241,474Identifiable Assets (As at December 31, 2006)
    
    $
    42,158
    
    
    $
    72,970
    
    
    $
    107,186
    
    
    $
    15,081
    
    
    $
    11,149
    
    
    $
    248,544
 Three-Month Period Ended March 31, 2006Oil and GasU.S.
    
    
    China
    
    
    HTL
    
    
    GTL
    
    
    Corporate
    
    
    TotalOil and gas revenue
    
    $
    2,991
    
    
    $
    6,835
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,826Interest income
    
    
    14
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    383,005
    
    
    
    6,837
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    9,864Operating costs
    
    
    1,204
    
    
    
    1,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,716General and administrative
    
    
    373
    
    
    
    345
    
    
    
    
    
    
    
    
    
    
    
    1,282
    
    
    
    2,000Business and technology development
    
    
    
    
    
    
    
    
    
    
    1,310
    
    
    
    352
    
    
    
    
    
    
    
    1,662Depletion and depreciation
    
    
    1,188
    
    
    
    5,424
    
    
    
    1,231
    
    
    
    3
    
    
    
    1
    
    
    
    7,847Interest expense and financing costs
    
    
    62
    
    
    
    45
    
    
    
    1
    
    
    
    
    
    
    
    157
    
    
    
    265Provision for impairment
    
    
    
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7502,827
    
    
    
    8,076
    
    
    
    2,542
    
    
    
    355
    
    
    
    1,440
    
    
    
    15,240Net Income (Loss)
    
    $
    178
    
    
    $
    (1,239
    )
    
    $
    (2,542
    )
    
    $
    (355
    )
    
    $
    (1,418
    )
    
    $
    (5,376
    )Capital Investments
    
    $
    1,274
    
    
    $
    2,717
    
    
    $
    683
    
    
    $
    218
    
    
    $
    
    
    
    $
    4,892
 10. DERIVATIVE INSTRUMENTS
    14




---



##### 



11. SUPPLEMENTAL CASH FLOW INFORMATION
  2007
    
    
    2006Cash paid during the period for:Income taxes
    
    $
    5
    
    
    $
    6Interest
    
    $
    34
    
    
    $
    171Investing and Financing activities, non-cash:Acquisition of oil and gas assetsShares issued
    
    $
    
    
    
    $
    20,000Debt issued
    
    
    
    
    
    
    6,547Receivable applied to acquisition
    
    
    
    
    
    
    1,746$
    
    
    
    $
    28,293Changes in non-cash working capital itemsOperating Activities:Accounts receivable
    
    $
    1,009
    
    
    $
    (1,021
    )Prepaid and other current assets
    
    
    175
    
    
    
    (254
    )Accounts payable and accrued liabilities
    
    
    (572
    )
    
    
    (317
    )612
    
    
    
    (1,592
    )Investing ActivitiesAccounts receivable
    
    
    (115
    )
    
    
    2,076Prepaid and other current assets
    
    
    50
    
    
    
    (15
    )Accounts payable and accrued liabilities
    
    
    (941
    )
    
    
    (3,146
    )(1,006
    )
    
    
    (1,085
    )$
    (394
    )
    
    $
    (2,677
    )
 12. MERGER AND ACQUISITIONS
 Richfirst Sunwing
 13. SUBSEQUENT EVENTS
 INPEX
   15




---



##### 



14. ADDITIONAL DISCLOSURE REQUIRED UNDER U.S. GAAP
  Condensed Consolidated Balance Sheets
 Shareholders Equity and Oil and Gas Properties and Investments
 As at March 31, 2007Shareholders EquityOil and Gas
    
    
    
    
    
    
    ShareProperties and
    
    
    Derivative
    
    
    Capital and
    
    
    Contributed
    
    
    AccumulatedInvestments
    
    
    Instruments
    
    
    Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    119,379
    
    
    $
    1,159
    
    
    $
    342,959
    
    
    $
    7,012
    
    
    $
    (127,330
    )
    
    $
    222,641Adjustments for:Reduction in stated capital (i)
    
    
    
    
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Accounting for stock based
compensation (ii)
    
    
    
    
    
    
    
    
    
    
    (387
    )
    
    
    (3,361
    )
    
    
    3,748
    
    
    
    Ascribed value of shares issued for U.S.
royalty interests, net (iv)
    
    
    1,358
    
    
    
    
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Fair value adjustment of derivative
instruments (iii)
    
    
    
    
    
    
    8,570
    
    
    
    (8,552
    )
    
    
    
    
    
    
    (18
    )
    
    
    (8,570
    )Provision for impairment (v)
    
    
    (26,270
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,270
    )
    
    
    (26,270
    )Depletion adjustments due to differences
in provision for impairment (vi)
    
    
    5,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,705
    
    
    
    5,705HTL and GTL development costs
expensed (vii)
    
    
    (11,669
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,669
    )
    
    
    (11,669
    )U.S. GAAP
    
    $
    88,503
    
    
    $
    9,729
    
    
    $
    409,833
    
    
    $
    3,651
    
    
    $
    (230,289
    )
    
    $
    183,195
 As at December 31, 2006Shareholders' EquityOil and Gas
    
    
    
    
    
    
    ShareProperties and
    
    
    Derivative
    
    
    Capital and
    
    
    Contributed
    
    
    AccumulatedInvestments
    
    
    Instruments
    
    
    Warrants
    
    
    Surplus
    
    
    Deficit
    
    
    TotalCanadian GAAP
    
    $
    121,918
    
    
    $
    493
    
    
    $
    342,680
    
    
    $
    6,489
    
    
    $
    (120,783
    )
    
    $
    228,386Adjustments for:Reduction in stated capital (i)
    
    
    
    
    
    
    
    
    
    
    74,455
    
    
    
    
    
    
    
    (74,455
    )
    
    
    Accounting for stock based
compensation (ii)
    
    
    
    
    
    
    
    
    
    
    (387
    )
    
    
    (3,361
    )
    
    
    3,748
    
    
    
    Ascribed value of shares issued for U.S.
royalty interests, net (iv)
    
    
    1,358
    
    
    
    
    
    
    
    1,358
    
    
    
    
    
    
    
    
    
    
    
    1,358Fair value adjustment of derivative
instruments (iii)
    
    
    
    
    
    
    6,378
    
    
    
    (8,552
    )
    
    
    
    
    
    
    2,174
    
    
    
    (6,378
    )Provision for impairment (v)
    
    
    (26,270
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,270
    )
    
    
    (26,270
    )Depletion adjustments due to differences
in provision for impairment (vi)
    
    
    4,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,402
    
    
    
    4,402HTL and GTL development costs
expensed (vii)
    
    
    (11,669
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,669
    )
    
    
    (11,669
    )U.S. GAAP
    
    $
    89,739
    
    
    $
    6,871
    
    
    $
    409,554
    
    
    $
    3,128
    
    
    $
    (222,853
    )
    
    $
    189,829
 Shareholders Equity
  16




---



##### 



FASB SFAS No. 123(R)
 SFAS No. 133
 Oil and Gas Properties and Investments
   17




---



##### 



Ceiling Test Impairments
    
    
    (Increase)U.S. GAAP
    
    
    Canadian GAAP
    
    
    DecreaseU.S. PropertiesPrior to 2004
    
    $
    34,000
    
    
    $
    34,000
    
    
    $
    2004
    
    
    15,000
    
    
    
    16,350
    
    
    
    1,3502005
    
    
    2,800
    
    
    
    
    
    
    
    (2,800
    )2006
    
    
    7,600
    
    
    
    
    
    
    
    (7,600
    )2007
    
    
    
    
    
    
    
    
    
    
    59,400
    
    
    
    50,350
    
    
    
    (9,050
    )China PropertiesPrior to 2004
    
    
    10,000
    
    
    
    
    
    
    
    (10,000
    )2004
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    1,700
    
    
    
    5,000
    
    
    
    3,3002006
    
    
    15,940
    
    
    
    5,420
    
    
    
    (10,520
    )2007
    
    
    
    
    
    
    
    
    
    
    27,640
    
    
    
    10,420
    
    
    
    (17,220
    )$
    87,040
    
    
    $
    60,770
    
    
    $
    (26,270
    )
   Condensed Consolidated Statements of Operations
  Three-Month Periods Ended March 31,2007
    
    
    2006Net
    
    
    Net Loss
    
    
    Net
    
    
    Net LossLoss
    
    
    Per Share
    
    
    Loss
    
    
    Per ShareCanadian GAAP
    
    $
    (6,547
    )
    
    $
    (0.03
    )
    
    $
    (5,376
    )
    
    $
    (0.02
    )Provision for impairment (v and viii)
    
    
    
    
    
    
    
    
    
    
    (6,450
    )
    
    
    (0.03
    )Depletion adjustments due to differences in
provision for impairment (viii)
    
    
    1,303
    
    
    
    0.01
    
    
    
    285
    
    
    
    HTL and GTL development costs
expensed, net (ix)
    
    
    
    
    
    
    
    
    
    
    (571
    )
    
    
    Fair value adjustment of derivative
instruments (iii)
    
    
    (2,192
    )
    
    
    (0.01
    )
    
    
    (4,304
    )
    
    
    (0.02
    )U.S. GAAP
    
    $
    (7,436
    )
    
    $
    (0.03
    )
    
    $
    (16,416
    )
    
    $
    (0.07
    )Weighted Average Number of Shares under U.S.
GAAP (in thousands)
    
    
    
    
    
    
    241,231
    
    
    
    
    
    
    
    224,547
   18




---



##### 



Pro Forma Effect of Merger and Acquisition
  Three Months Ended March 31,2006Net (Income)
    
    
    Net (Income)Revenue
    
    
    Loss
    
    
    Loss Per ShareAs reported
    
    $
    9,864
    
    
    $
    (16,416
    )
    
    $
    (0.07
    )Pro forma adjustments
    
    
    1,051
    
    
    
    809
    
    
    
    $
    10,915
    
    
    $
    (15,607
    )
    
    $
    (0.07
    )Weighted Average Number of
Shares (in thousands)
    
    
    
    
    
    
    
    
    
    
    229,415
 Income Taxes
 FIN 48
    Condensed Consolidated Statements of Cash Flow
  19




---



##### 



Impact of New and Pending U.S. GAAP Accounting Standards
 SFAS No.
155
 FASB  SFAS No. 159
 SFAS No. 157
 20




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
    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
 21




---



##### 



Ivanhoe Energys Business
 RTP TM HTL Technology HTL EOR E&P GTL Technology GTL
  .
 Corporate Strategy
 Importance of the Heavy Oil Segment of the Oil and Gas Industry
      22




---



##### 



Ivanhoes Value Proposition
      Implementation Strategies
  1.
    
    Build a portfolio of major HTL projects.We will continue to deploy our personnel and
our financial resources in support of our goal to capture opportunities for development
projects utilizing our HTL Technology. We recently signed an
agreement with a Western Canadian oilsands producer for a joint feasibility and testing program using our
HTL Technology for the processing of a unique heavy oil stream from the producers
operations in the Athabasca oil sands. The application contemplated
by this test program complements our main strategy of deploying our
HTL Technology as a strategic tool to acquire and develop heavy oil reserves.2.
    
    Advance the technology.Additional development work will continue as we advance the
technology through the first commercial application and beyond. To optimize the technology
development process, the Company has recently commenced design and construction of a
Feedstock Test Facility (FTF) that has been designed to process small quantities of heavy
oil and will allow us to:
 
    
    Screen and test heavy oil and bitumen feedstocks in cost-effective quantities for current and potential partners,
    
    Produce, assess and evaluate physical liquid products from partner heavy oil and bitumen feedstocks,
    
    Conduct ongoing research and development in order to add to our portfolio of patents through the development and testing of improvements and optimizations, and
    
    Have an HTL showcase that possesses all of the key elements of a commercial facility.
 3.
    
    Enhance our financial position in anticipation of major projects.Implementation of
large projects requires significant capital outlays. We are refining our financing plans
and establishing the relationships required for the development activities that we see
ahead. The Companys recently announced agreement with INPEX Corporation, Japans largest
oil and gas exploration and production company, to jointly pursue the opportunity to
develop a heavy oil field in Iraq complements a number of other initiatives that the
Company has underway that focus on heavy oil basins around the world.4.
    
    Build internal capabilities in advance of major projects.The HTL technical team,
which includes our own staff, specialized consultants including the inventors of the
technology, and our EOR team will be supplemented and expanded to add additional expertise
in areas such as project management.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.
 23




---



##### 



6.
    
    Capture value from other company assets as we complete the transition to a heavy oil
focused company.Revenue from existing operations in California and China will be utilized
to fund growth of the business. Non-heavy oil related investment opportunities in our
portfolio will be leveraged to capture value and provide maximum return for the Company.
 Executive Overview of 2007 Results
  Three-Month PeriodsEnded March 31,2007
    
    
    2006Oil and gas revenue
    
    $
    9,596
    
    
    $
    9,826Net loss
    
    $
    (6,547
    )
    
    $
    (5,376
    )Net loss per share
    
    $
    (0.03
    )
    
    $
    (0.02
    )Average production (Boe/d)
    
    
    2,035
    
    
    
    2,013Net operating revenue per Boe
    
    $
    32.27
    
    
    $
    39.25Capital investments
    
    $
    5,334
    
    
    $
    4,892Cash flow from operating activities
    
    $
    2,594
    
    
    $
    2,080
 Financial Results  Change in Net Loss
  Favorable(Unfavorable)2007
    
    
    Variances
    
    
    2006Summary of Net Loss by Significant Components:Cash Items:Net operating revenues:Oil and Gas Revenues:
    
    $
    9,596
    
    
    
    
    
    
    $
    9,826Production volumes
    
    
    
    
    
    $
    134Oil and gas prices
    
    
    
    
    
    
    (364
    )Realized gain on derivative instruments
    
    
    207
    
    
    
    207
    
    
    
    Less: Operating costs
    
    
    (3,685
    )
    
    
    (969
    )
    
    
    (2,716
    )Total net operating revenues
    
    
    6,118
    
    
    
    (992
    )
    
    
    7,110General and administrative, less
stock based compensation
    
    
    (2,159
    )
    
    
    (473
    )
    
    
    (1,686
    )Business and technology development,
less stock based compensation
    
    
    (2,073
    )
    
    
    (450
    )
    
    
    (1,623
    )Net interest
    
    
    (19
    )
    
    
    157
    
    
    
    (176
    )Total Cash Variances
    
    
    1,867
    
    
    
    (1,758
    )
    
    
    3,625Non-Cash Items:Unrealized loss on derivative instruments
    
    
    (666
    )
    
    
    (666
    )
    
    
    Depletion and depreciation
    
    
    (6,892
    )
    
    
    955
    
    
    
    (7,847
    )Stock based compensation
    
    
    (802
    )
    
    
    (449
    )
    
    
    (353
    )Impairment of oil and gas properties
    
    
    
    
    
    
    750
    
    
    
    (750
    )Other
    
    
    (54
    )
    
    
    (3
    )
    
    
    (51
    )Total Non-Cash Variances
    
    
    (8,414
    )
    
    
    587
    
    
    
    (9,001
    )Net Loss
    
    $
    (6,547
    )
    
    $
    (1,171
    )
    
    $
    (5,376
    )
  24




---



##### 



Net Operating Revenues
  Quarters ended March 31,Net Boes
    
    
    Percentage2007
    
    
    2006
    
    
    ChangeChina:Dagang
    
    
    120,676
    
    
    
    117,915
    
    
    
    2
    %Daqing
    
    
    5,640
    
    
    
    5,579
    
    
    
    1
    %126,316
    
    
    
    123,494
    
    
    
    2
    %U.S.:South Midway
    
    
    51,773
    
    
    
    46,075
    
    
    
    12
    %Spraberry
    
    
    4,693
    
    
    
    5,941
    
    
    
    -21
    %Others
    
    
    379
    
    
    
    5,653
    
    
    
    -93
    %56,845
    
    
    
    57,669
    
    
    
    -1
    %183,161
    
    
    
    181,163
    
    
    
    1
    %
    China
  PRC Windfall Levy Measures Windfall Levy
  25




---



##### 



U.S.
     Three-Month Periods Ended March 31,2007
    
    
    2006U.S.
    
    
    China
    
    
    Total
    
    
    U.S.
    
    
    China
    
    
    TotalNet Production:Boe
    
    
    56,845
    
    
    
    126,316
    
    
    
    183,161
    
    
    
    57,669
    
    
    
    123,494
    
    
    
    181,163Boe/day for the period
    
    
    632
    
    
    
    1,403
    
    
    
    2,035
    
    
    
    641
    
    
    
    1,372
    
    
    
    2,013
 Per Boe
    
    
    Per BoeOil and gas revenue
    
    $
    47.69
    
    
    $
    54.51
    
    
    $
    52.39
    
    
    $
    51.86
    
    
    $
    55.35
    
    
    $
    54.24Field operating costs
    
    
    14.72
    
    
    
    14.78
    
    
    
    14.76
    
    
    
    15.52
    
    
    
    11.50
    
    
    
    12.78Production tax and Windfall Levy
    
    
    1.21
    
    
    
    3.75
    
    
    
    2.96
    
    
    
    1.32
    
    
    
    
    
    
    
    0.42Engineering support
    
    
    5.21
    
    
    
    1.14
    
    
    
    2.40
    
    
    
    4.04
    
    
    
    0.74
    
    
    
    1.7921.14
    
    
    
    19.67
    
    
    
    20.12
    
    
    
    20.88
    
    
    
    12.24
    
    
    
    14.99Net operating revenue
    
    
    26.55
    
    
    
    34.84
    
    
    
    32.27
    
    
    
    30.98
    
    
    
    43.11
    
    
    
    39.25Depletion
    
    
    28.19
    
    
    
    37.41
    
    
    
    34.55
    
    
    
    20.37
    
    
    
    43.90
    
    
    
    36.41Net revenue (loss) from operations
    
    $
    (1.64
    )
    
    $
    (2.57
    )
    
    $
    (2.28
    )
    
    $
    10.61
    
    
    $
    (0.79
    )
    
    $
    2.84
 General and Administrative
  2007 vs.2006Favorable (unfavorable) variances:Oil and Gas Activities:China
    
    $
    (62
    )U.S.
    
    
    (15
    )Corporate
    
    
    (795
    )(872
    )Less: stock based compensation
    
    
    399$
    (473
    )
 Corporate
  26




---



##### 



Business and Technology Development
  2007 vs.2006Favorable (unfavorable) variances:HTL
    
    $
    (707
    )GTL
    
    
    207(500
    )Less: stock based compensation
    
    
    50$
    (450
    )
  Depletion and Depreciation
  China
   U.S.
  HTL
  Financial Condition, Liquidity and Capital Resources
 Sources and Uses of Cash
  27




---



##### 



Operating Activities
  Investing Activities
  Financing Activities
  Outlook for 2007
  Contractual Obligations
  Payments Due by Year(stated in thousands of U.S. dollars)Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    After 2010Consolidated Balance Sheets:Note payable  current portion
    
    
    2,190
    
    
    
    1,626
    
    
    
    564
    
    
    
    
    
    
    
    
    
    
    
    Long term debt
    
    
    3,673
    
    
    
    
    
    
    
    3,261
    
    
    
    412
    
    
    
    
    
    
    
    Asset retirement obligation
    
    
    1,996
    
    
    
    15
    
    
    
    749
    
    
    
    490
    
    
    
    22
    
    
    
    720Long term obligation
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    
    
    
    
    Other Commitments:Interest payable
    
    
    530
    
    
    
    313
    
    
    
    213
    
    
    
    4
    
    
    
    
    
    
    
    Lease commitments
    
    
    3,742
    
    
    
    783
    
    
    
    963
    
    
    
    768
    
    
    
    643
    
    
    
    585Zitong exploration commitment
    
    
    188
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    14,219
    
    
    $
    2,925
    
    
    $
    5,750
    
    
    $
    3,574
    
    
    $
    665
    
    
    $
    1,305
 Off Balance Sheet Arrangements
  28




---



##### 



Outstanding Share Data
  Quarterly Financial Data In Accordance With Canadian and U.S. GAAP (Unaudited)
 QUARTER ENDED2007
    
    
    2006
    
    
    20051st Qtr
    
    
    4th Qtr
    
    
    3rd Qtr
    
    
    2nd Qtr
    
    
    1st Qtr
    
    
    4th Qtr
    
    
    3rd Qtr
    
    
    2nd QtrTotal revenue
    
    $
    9,257
    
    
    $
    11,137
    
    
    $
    14,015
    
    
    $
    13,084
    
    
    $
    9,864
    
    
    $
    8,651
    
    
    $
    8,907
    
    
    $
    6,645Net loss:Canadian GAAP
    
    $
    (6,547
    )
    
    $
    (11,323
    )
    
    $
    (4,388
    )
    
    $
    (4,405
    )
    
    $
    (5,376
    )
    
    $
    (8,885
    )
    
    $
    (2,113
    )
    
    $
    (1,031
    )U.S. GAAP
    
    $
    (7,436
    )
    
    $
    (18,255
    )
    
    $
    (5,422
    )
    
    $
    (2,329
    )
    
    $
    (16,416
    )
    
    $
    (7,545
    )
    
    $
    530
    
    
    $
    (2,083
    )Net loss per share:Canadian GAAP
    
    $
    (0.03
    )
    
    $
    (0.05
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )U.S. GAAP
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
    $
    (0.07
    )
    
    $
    (0.03
    )
    
    $
    0.00
    
    
    $
    (0.01
    )
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Item 4. Controls and Procedures
    29




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##### 



Part II  Other Information
 Item 1. Legal Proceedings:
 Item 1A. Risk Factors:
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
 Item 3. Defaults Upon Senior Securities:
 Item 4. Submission of Matters To a Vote of Security Holders:
 Item 5. Other Information:
 Item 6. Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certification by the Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification by the Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    W. Gordon Lancaster
 30




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##### 



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification by the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 31