##### 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 March 31, 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. LOGO)
IVANHOE ENERGY INC.
 (Exact name of registrant as specified in its charter)
 Yukon, Canada(State or other jurisdiction of 
incorporation or organization)
    
    98-0372413(I.R.S. Employer
Identification No.)Suite 654  999 Canada Place 
Vancouver, British Columbia, Canada(Address of principal executive office)
    
    V6C 3E1(zip code)
 (604) 688-8323  (registrants telephone number, including area code)
 No Changes  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o Yes o No
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o (Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o Yes þ No




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##### 



TABLE OF CONTENTS
 PagePART IFinancial InformationItem 1. Financial StatementsUnaudited Condensed Consolidated Balance Sheets as at March 31, 2010 and
December 31, 2009
    
    
    3Unaudited Condensed Consolidated Statements of Operations, Comprehensive Income (Loss)
and Accumulated Deficit for the Three-Months Ended
March 31, 2010 and 2009
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Three-Months
Ended March 31, 2010 and 2009
    
    
    5Notes to the Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    36PART IIOther InformationItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    38Exhibit 10.21Exhibit 10.22Exhibit 10.23Exhibit 10.24Exhibit 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.
 
 Consolidated Balance Sheets
  March 31, 2010
    
    
    December 31, 2009AssetsCurrent Assets:Cash and cash equivalents
    
    $
    136,385
    
    
    $
    21,512Accounts receivable
    
    
    4,802
    
    
    
    5,021Note receivable
    
    
    261
    
    
    
    225Prepaid and other current assets
    
    
    565
    
    
    
    771Restricted cash
    
    
    2,850
    
    
    
    2,850144,863
    
    
    
    30,379Oil and gas properties and development costs, net (Note 2)
    
    
    182,219
    
    
    
    158,392Intangible assets  HTLTM technology (Note 3)
    
    
    92,153
    
    
    
    92,153Long term assets
    
    
    1,183
    
    
    
    839$
    420,418
    
    
    $
    281,763Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable and accrued liabilities
    
    $
    11,638
    
    
    $
    10,779Income tax payable (Note 12)
    
    
    180
    
    
    
    530Asset retirement obligations (Note 5)
    
    
    330
    
    
    
    75312,148
    
    
    
    12,062Long term debt (Note 4)
    
    
    38,449
    
    
    
    36,934Asset retirement obligations (Note 5)
    
    
    349
    
    
    
    195Long term obligation (Note 6)
    
    
    1,900
    
    
    
    1,900Future income tax liability (Note 12)
    
    
    22,817
    
    
    
    22,64375,663
    
    
    
    73,734Commitments and contingencies (Note 6)Going concern and basis of presentation (Note 1)Shareholders Equity:Share capital, issued 333,752,664 common shares
December 31, 2009 282,558,593 common shares
    
    
    549,075
    
    
    
    422,322Purchase warrants (Note 7)
    
    
    33,423
    
    
    
    19,427Contributed surplus
    
    
    18,573
    
    
    
    20,029Convertible note
    
    
    2,086
    
    
    
    2,086Accumulated deficit
    
    
    (258,402
    )
    
    
    (255,835
    )344,755
    
    
    
    208,029$
    420,418
    
    
    $
    281,763
   3




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##### Table of Contents



IVANHOE ENERGY INC.
 
 Consolidated Statements of Operations and Comprehensive Loss
  Three MonthsEnded March 31,2010
    
    
    2009(Note 13)RevenueOil revenue
    
    $
    5,330
    
    
    $
    5,733Gain on derivative instruments
    
    
    
    
    
    
    82Interest income
    
    
    19
    
    
    
    115,349
    
    
    
    5,826ExpensesOperating costs
    
    
    2,275
    
    
    
    2,701General and administrative (Note 2)
    
    
    4,977
    
    
    
    5,879Business and technology development
    
    
    2,511
    
    
    
    2,037Depletion and depreciation
    
    
    2,083
    
    
    
    5,955Foreign exchange gain
    
    
    (4,187
    )
    
    
    (993
    )Interest expense and financing costs
    
    
    4
    
    
    
    1777,663
    
    
    
    15,756Loss from continuing operations before income taxes
    
    
    (2,314
    )
    
    
    (9,930
    )Provision for income taxesCurrent
    
    
    (79
    )
    
    
    (1,645
    )Future
    
    
    (174
    )
    
    
    (253
    )
    
    
    (1,645
    )Net loss from continuing operations
    
    
    (2,567
    )
    
    
    (11,575
    )Net loss from discontinued operations (Note 13)
    
    
    
    
    
    
    (698
    )Net Loss and Comprehensive Loss
    
    $
    (2,567
    )
    
    $
    (12,273
    )Accumulated deficit, beginning of period
    
    
    (255,835
    )
    
    
    (194,183
    )Accumulated deficit, end of period
    
    $
    (258,402
    )
    
    $
    (206,456
    )Net loss per shareNet loss from continuing operations, basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.04
    )Net income (loss) from discontinued operations, basic and
diluted
    
    
    
    
    
    
    Net loss per share, basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.04
    )Weighted average number of Shares (in thousands)Basic
    
    
    307,233
    
    
    
    279,381Diluted
    
    
    307,233
    
    
    
    279,381
   4




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##### Table of Contents



IVANHOE ENERGY INC.
 
 Unaudited Condensed Consolidated Statements of Cash Flows
 Three MonthsEnded March 31,2010
    
    
    2009Operating ActivitiesNet loss
    
    $
    (2,567
    )
    
    $
    (12,273
    )Net loss from discontinued operations
    
    
    
    
    
    
    698Items not requiring use of cash:Depletion and depreciation
    
    
    2,083
    
    
    
    5,955Stock based compensation
    
    
    537
    
    
    
    450Unrealized loss on derivative instruments
    
    
    
    
    
    
    455Unrealized foreign exchange gain
    
    
    (4,373
    )
    
    
    (974
    )Future income tax expense
    
    
    174
    
    
    
    Other
    
    
    192
    
    
    
    91Abandonment costs settled (Note 5)
    
    
    (58
    )
    
    
    Changes in
non-cash working capital items (Note 11)
    
    
    18
    
    
    
    613Net cash provided by (used in)
operating activities from continuing operations
    
    
    (3,994
    )
    
    
    (4,985
    )Net cash provided by (used in)
operating activities from discontinued operations
    
    
    
    
    
    
    897Net cash provided by (used in) operating activities
    
    
    (3,994
    )
    
    
    (4,088
    )Investing ActivitiesCapital investments
    
    
    (25,337
    )
    
    
    (5,209
    )Other
    
    
    (348
    )
    
    
    28Changes in
non-cash working capital items (Note 11)
    
    
    880
    
    
    
    (611
    )Net cash used in investing activities from continuing operations
    
    
    (24,805
    )
    
    
    (5,792
    )Net cash provided by (used in)
investing activities from discontinued operations
    
    
    
    
    
    
    (476
    )Net cash provided by (used in) investing activities
    
    
    (24,805
    )
    
    
    (6,268
    )Financing ActivitiesShares issued on private placements, net of share issue costs
    
    
    136,321
    
    
    
    Proceeds from exercise of options and warrants
    
    
    1,636
    
    
    
    Payments of debt obligations
    
    
    
    
    
    
    (416
    )Other
    
    
    
    
    
    
    479Changes in
non-cash working capital items (Note 11)
    
    
    
    
    
    
    (23
    )Net cash provided by (used in)
financing activities from continuing operations
    
    
    137,957
    
    
    
    40Net cash provided by (used in)
financing activities from discontinued operations
    
    
    
    
    
    
    (554
    )Net cash provided by (used in) financing activities
    
    
    137,957
    
    
    
    (514
    )Foreign Exchange gain on Cash and Cash
Equivalents Held in a Foreign Currency
    
    
    5,715
    
    
    
    (31
    )Increase in Cash and Cash Equivalents, for the period
    
    
    114,873
    
    
    
    (10,901
    )Cash and cash equivalents, beginning of period
    
    
    21,512
    
    
    
    39,265Cash and Cash Equivalents, end of period
    
    $
    136,385
    
    
    $
    28,364Cash and cash equivalents, end of period  continuing operations
    
    $
    136,385
    
    
    $
    26,115Cash and cash equivalents, end of period  discontinued operations
    
    $
    
    
    
    $
    2,249
   5




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##### Table of Contents



Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2010
 1. GOING CONCERN AND BASIS OF PRESENTATION
 Company Ivanhoe Energy
   6




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##### Table of Contents



2. OIL AND GAS PROPERTIES AND DEVELOPMENT COSTS
  As at March 31, 2010Oil and Gas
    
    
    
    
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    
    
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    Corporate
    
    
    Development
    
    
    TotalOil and Gas Properties:Proved
    
    $
    
    
    
    $
    
    
    
    $
    149,491
    
    
    $
    
    
    
    $
    
    
    
    $
    149,491Unproved
    
    
    112,343
    
    
    
    11,274
    
    
    
    15,833
    
    
    
    
    
    
    
    
    
    
    
    139,900112,343
    
    
    
    11,274
    
    
    
    165,324
    
    
    
    
    
    
    
    
    
    
    
    289,391Accumulated depletion
    
    
    
    
    
    
    
    
    
    
    (102,002
    )
    
    
    
    
    
    
    
    
    
    
    (102,002
    )Accumulated provision for impairment
    
    
    
    
    
    
    
    
    
    
    (16,550
    )
    
    
    
    
    
    
    
    
    
    
    (16,550
    )112,343
    
    
    
    11,274
    
    
    
    46,772
    
    
    
    
    
    
    
    
    
    
    
    170,839Development Costs:Feasibility studies and other deferred costs:Iraq and Libya  HTLTM
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    834
    
    
    
    834Egypt  GTL
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,054
    
    
    
    5,054Accumulated provision for impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,888
    )
    
    
    (5,888
    )Feedstock test facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,187
    
    
    
    11,187Accumulated depreciation and impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (526
    )
    
    
    (526
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,661
    
    
    
    10,661Furniture and equipment
    
    
    24
    
    
    
    169
    
    
    
    135
    
    
    
    1,203
    
    
    
    22
    
    
    
    1,553Accumulated depreciation
    
    
    (8
    )
    
    
    (53
    )
    
    
    (92
    )
    
    
    (670
    )
    
    
    (11
    )
    
    
    (834
    )16
    
    
    
    116
    
    
    
    43
    
    
    
    533
    
    
    
    11
    
    
    
    719$
    112,359
    
    
    $
    11,390
    
    
    $
    46,815
    
    
    $
    533
    
    
    $
    10,672
    
    
    $
    182,219
 As at December 31, 2009Oil and Gas
    
    
    
    
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    
    
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    Corporate
    
    
    Development
    
    
    TotalOil and Gas Properties:Proved
    
    $
    
    
    
    $
    
    
    
    $
    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 Costs:Feasibility studies and other deferred costs:Iraq 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
  7




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##### Table of Contents



3. INTANGIBLE ASSETS  HTL TM TECHNOLOGY
 Ensyn TM TM TM TM TM
 4. LONG TERM DEBT
  March 31,
    
    
    December 31,2010
    
    
    2009Convertible note (4.25% at March 31, 2010) due July 2011
    
    $
    39,386
    
    
    $
    38,005Less:Unamortized discount
    
    
    (937
    )
    
    
    (1,071
    )$
    38,449
    
    
    $
    36,934
 5. ASSET RETIREMENT OBLIGATIONS
  As at
    
    
    As atMarch 31,
    
    
    December 31,2010
    
    
    2009Carrying balance, beginning of year
    
    $
    948
    
    
    $
    1,928Liabilities incurred
    
    
    150
    
    
    
    185Liabilities settled
    
    
    (58
    )
    
    
    (118
    )Liabilities transferred
    
    
    
    
    
    
    Accretion expense
    
    
    4
    
    
    
    79Revisions in estimated cash flows
    
    
    (365
    )
    
    
    (1,126
    )Carrying balance, end of period
    
    
    679
    
    
    
    948Less: current portion
    
    
    330
    
    
    
    753Carrying balance, end of period
    
    $
    349
    
    
    $
    195
  8




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##### Table of Contents



6. COMMITMENTS AND CONTINGENCIES
 Zitong Block Exploration Commitment
 CNPC Mitsubishi
 Phase I Zitong Partners Phase II
  Nyalga Block Exploration Commitment
  Long Term Obligation
 TM TM
 Income Taxes
   9




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##### Table of Contents



Pan-China
   Other Commitments
   Lease Commitments
   Payments Due by Year(stated in thousands of U.S. dollars)Total
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    After 2013Lease commitments
    
    
    3,193
    
    
    
    1,480
    
    
    
    1,141
    
    
    
    446
    
    
    
    126
    
    
    
    
  10




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##### Table of Contents



7. SHARE CAPITAL AND WARRANTS
  Stock OptionsWtd. AvgCommon Shares

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ExerciseNumber
    
    
    
    
    
    
    Purchase
    
    
    Contributed
    
    
    Convertible
    
    
    Number
    
    
    Price(thousands)
    
    
    Amount
    
    
    Warrants
    
    
    Surplus
    
    
    Note
    
    
    (thousands)
    
    
    Cdn.$Balance December 31, 2009
    
    
    282,559
    
    
    $
    422,322
    
    
    $
    19,427
    
    
    $
    20,029
    
    
    $
    2,086
    
    
    
    15,013
    
    
    $
    2.27Shares issued for:Private placement, net of share issue costs
    
    
    50,000
    
    
    
    122,322
    
    
    
    13,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Services
    
    
    280
    
    
    
    799
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (280
    )
    
    $
    2.44Exercise of options
    
    
    912
    
    
    
    3,623
    
    
    
    
    
    
    
    (1,993
    )
    
    
    
    
    
    
    (1,461
    )
    
    $
    3.01Exercise of purchase warrants
    
    
    2
    
    
    
    9
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options:Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182
    
    
    $
    3.16Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation calculated
for stock option grants*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    537
    
    
    
    
    
    
    
    
    
    
    
    Balance March 31, 2010
    
    
    333,753
    
    
    $
    549,075
    
    
    $
    33,423
    
    
    $
    18,573
    
    
    $
    2,086
    
    
    
    13,454
    
    
    $
    2.23
 *
    
    - includes stock based compensation charged to continuing operations as well as discontinued
operations  Purchase WarrantsPrice per
    
    
    
    
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    
    
    
    Exercise
    
    
    CashYear of
    
    Special
    
    
    
    
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    
    
    
    Price per
    
    
    Value onIssue
    
    Warrant
    
    
    Issued
    
    
    Exercisable
    
    
    Issuable
    
    
    Value
    
    
    Expiry Date
    
    Share
    
    
    Exercise(thousands)
    
    
    
    
    
    
    ($U.S. 000)
    
    
    
    
    
    
    
    
    
    ($U.S. 000)2006
    
    U.S. $
    2.23
    
    
    
    11,400
    
    
    
    11,398
    
    
    
    11,398
    
    
    
    18,802
    
    
    May 2011
    
    Cdn. $
    2.93
    (1)
    
    
    32,8832009
    
    NA
    
    
    
    735
    
    
    
    735
    
    
    
    735
    
    
    
    622
    
    
    February 2011
    
    Cdn. $
    4.05
    
    
    
    2,9312010
    
    Cdn. $
    3.00
    
    
    
    10,417
    
    
    
    10,417
    
    
    
    10,417
    
    
    
    11,419
    
    
    February 2011
    
    Cdn. $
    3.16
    
    
    
    32,4112010
    
    Cdn. $
    3.00
    
    
    
    2,083
    
    
    
    2,083
    
    
    
    2,083
    
    
    
    2,580
    
    
    March 2011
    
    Cdn. $
    3.16
    
    
    
    6,48224,635
    
    
    
    24,633
    
    
    
    24,633
    
    
    $
    33,423
    
    
    
    
    
    
    
    
    
    $
    74,707
 (1)
    
    Each common share purchase warrant originally entitled the holder to purchase one
common share at a price of $2.63 per share until the fifth anniversary date of the closing of the
transaction. In September 2006, these warrants were listed on the Toronto Stock Exchange and the
exercise price was changed to Cdn.$2.93.  8. SEGMENT INFORMATION
   11




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##### Table of Contents



Oil and Gas
 Integrated
 TM
 Conventional
  Business and Technology Development
 MOU
  Corporate
 ,
  12




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##### Table of Contents



Segment Information
 Three Months Ended March 31, 2010Oil and Gas
    
    
    Business andIntegrated
    
    
    Conventional
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    U.S.
    
    
    Development
    
    
    Corporate
    
    
    TotalRevenueOil revenue
    
    $
    
    
    
    $
    
    
    
    $
    5,330
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,330Interest income
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    19
    
    
    
    
    
    
    
    5,332
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    5,349ExpensesOperating costs
    
    
    
    
    
    
    
    
    
    
    2,275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,275General and administrative
    
    
    414
    
    
    
    500
    
    
    
    687
    
    
    
    
    
    
    
    
    
    
    
    3,376
    
    
    
    4,977Business and technology development
    
    
    23
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2,486
    
    
    
    
    
    
    
    2,511Depletion and depreciation
    
    
    2
    
    
    
    7
    
    
    
    2,258
    
    
    
    
    
    
    
    (232
    )
    
    
    48
    
    
    
    2,083Foreign exchange loss
    
    
    (8
    )
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    (4,188
    )
    
    
    (4,187
    )Interest expense and financing costs
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    4432
    
    
    
    509
    
    
    
    5,229
    
    
    
    
    
    
    
    2,257
    
    
    
    (764
    )
    
    
    7,663Income (loss) from continuing operations
before income taxes
    
    
    (432
    )
    
    
    (509
    )
    
    
    103
    
    
    
    
    
    
    
    (2,257
    )
    
    
    781
    
    
    
    (2,314
    )(Provision for) recovery
of income taxesCurrent
    
    
    
    
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (79
    )Future
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    
    (78
    )
    
    
    
    
    
    
    (174
    )
    
    
    (1
    )
    
    
    (253
    )Net income (loss) from
continuing operations
    
    
    (432
    )
    
    
    (509
    )
    
    
    25
    
    
    
    
    
    
    
    (2,431
    )
    
    
    780
    
    
    
    (2,567
    )Net loss from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) and
comprehensive income (loss)
    
    $
    (432
    )
    
    $
    (509
    )
    
    $
    25
    
    
    $
    
    
    
    $
    (2,431
    )
    
    $
    780
    
    
    $
    (2,567
    )Capital Investments
    
    $
    17,912
    
    
    $
    4,175
    
    
    $
    2,803
    
    
    $
    
    
    
    $
    225
    
    
    $
    222
    
    
    $
    25,337Identifiable Assets:As at March 31, 2010
    
    $
    112,638
    
    
    $
    12,788
    
    
    $
    57,536
    
    
    $
    
    
    
    $
    102,917
    
    
    $
    134,539
    
    
    $
    420,418As at December 31, 2009
    
    $
    94,594
    
    
    $
    7,597
    
    
    $
    57,528
    
    
    $
    
    
    
    $
    102,878
    
    
    $
    19,166
    
    
    $
    281,763
  13




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##### Table of Contents



Segment Information
 Three Months Ended March 31, 2009Oil and Gas
    
    
    Business andIntegrated

    
    
    Conventional
    
    
    TechnologyCanada
    
    
    Ecuador
    
    
    Asia
    
    
    U.S.
    
    
    Development
    
    
    Corporate
    
    
    TotalRevenueOil revenue
    
    $
    
    
    
    $
    
    
    
    $
    5,733
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,733Gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82Interest income
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    11
    
    
    
    
    
    
    
    5,816
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    5,826ExpensesOperating costs
    
    
    
    
    
    
    
    
    
    
    2,701
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,701General and administrative
    
    
    138
    
    
    
    518
    
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    4,827
    
    
    
    5,879Business and technology development
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,743
    
    
    
    
    
    
    
    2,037Depletion and depreciation
    
    
    1
    
    
    
    14
    
    
    
    5,274
    
    
    
    
    
    
    
    629
    
    
    
    37
    
    
    
    5,955Foreign exchange loss
    
    
    1
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    (1,016
    )
    
    
    (993
    )Interest expense and financing costs
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    
    
    
    
    25
    
    
    
    4
    
    
    
    177434
    
    
    
    532
    
    
    
    8,541
    
    
    
    
    
    
    
    2,397
    
    
    
    3,851
    
    
    
    15,755Loss from continuing operations
before income taxes
    
    
    (434
    )
    
    
    (532
    )
    
    
    (2,725
    )
    
    
    
    
    
    
    (2,397
    )
    
    
    (3,841
    )
    
    
    (9,929
    )(Provision for) recovery
of income taxesCurrent
    
    
    
    
    
    
    
    
    
    
    (1,636
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (1,645
    )Future
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,636
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (1,645
    )Net loss from
continuing operations
    
    
    (434
    )
    
    
    (532
    )
    
    
    (4,361
    )
    
    
    
    
    
    
    (2,397
    )
    
    
    (3,851
    )
    
    
    (11,575
    )Net loss from discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (698
    )
    
    
    
    
    
    
    
    
    
    
    (698
    )Net loss and
comprehensive loss
    
    $
    (434
    )
    
    $
    (532
    )
    
    $
    (4,361
    )
    
    $
    (698
    )
    
    $
    (2,397
    )
    
    $
    (3,851
    )
    
    $
    (12,273
    )Capital Investments
    
    $
    2,068
    
    
    $
    656
    
    
    $
    1,156
    
    
    $
    55
    
    
    $
    1,274
    
    
    $
    
    
    
    $
    5,209
 9. FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS
  As at March 31, 2010FinancialAvailable-for-
    
    
    
    
    
    
    liabilitiesLoans and
    
    
    sale financial
    
    
    Held-for-
    
    
    measured at
    
    
    Total carryingreceivables
    
    
    assets
    
    
    trading
    
    
    amortized cost
    
    
    amountFinancial Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    136,385
    
    
    $
    
    
    
    $
    136,385Accounts receivable
    
    
    4,802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,802Note receivable
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261Restricted cash
    
    
    
    
    
    
    
    
    
    
    2,850
    
    
    
    
    
    
    
    2,850Financial Liabilities:Accounts payable and accrued liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,638
    )
    
    
    (11,638
    )Long term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,449
    )
    
    
    (38,449
    )Long term obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,900
    )
    
    
    (1,900
    )$
    5,063
    
    
    $
    
    
    
    $
    139,235
    
    
    $
    (51,987
    )
    
    $
    92,311
  14




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##### Table of Contents



Financial Risk Factors
  10. CAPITAL MANAGEMENT
   15




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##### Table of Contents



11. SUPPLEMENTAL CASH FLOW INFORMATION
  Three MonthsEnded March 31,2010
    
    
    2009Supplemental Cash Flow InformationCash paid during the period forIncome taxes
    
    $
    427
    
    
    $
    Interest
    
    $
    805
    
    
    $
    1,865Shares issued for services and capitalized
    
    $
    799
    
    
    $
    Changes in non-cash working capital itemsOperating ActivitiesAccounts receivable
    
    $
    244
    
    
    $
    (658
    )Note receivable
    
    
    (36
    )
    
    
    Prepaid and other current assets
    
    
    123
    
    
    
    (42
    )Accounts payable and accrued liabilities
    
    
    37
    
    
    
    (323
    )Income tax payable
    
    
    (350
    )
    
    
    1,63618
    
    
    
    613Investing ActivitiesAccounts receivable
    
    
    (25
    )
    
    
    32Prepaid and other current assets
    
    
    83
    
    
    
    69Accounts payable and accrued liabilities
    
    
    822
    
    
    
    (710
    )880
    
    
    
    (611
    )Financing ActivitiesAccounts payable and accrued liabilities
    
    
    
    
    
    
    (23
    )$
    898
    
    
    $
    (19
    )
 2010
    
    
    2009Cash and cash equivalentsBank accounts
    
    $
    7,397
    
    
    $
    28,364Term deposit
    
    
    128,988
    
    
    
    $
    136,385
    
    
    $
    28,364
  12. INCOME TAXES
   16




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##### Table of Contents



13. DISCONTINUED OPERATIONS
    Three MonthsEnded March 31,2010
    
    
    2009RevenueOil and gas revenue
    
    $
    
    
    
    $
    1,966Gain (loss) on derivative instruments
    
    
    
    
    
    
    186Interest income
    
    
    
    
    
    
    3
    
    
    
    2,155ExpensesOperating costs
    
    
    
    
    
    
    1,026General and administrative
    
    
    
    
    
    
    68Depletion and depreciation
    
    
    
    
    
    
    1,677Interest expense and financing costs
    
    
    
    
    
    
    82
    
    
    
    2,853Net Loss
    
    
    
    
    
    
    (698
    )
  17




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##### Table of Contents



14. ADDITIONAL DISCLOSURE REQUIRED UNDER U.S. GAAP
  Condensed Consolidated Balance Sheets
  As at March 31, 2010
    
    
    As at December 31, 2009Canadian
    
    
    Increase
    
    
    
    
    U.S.
    
    
    Canadian
    
    
    Increase
    
    
    
    
    U.S.GAAP
    
    
    (Decrease)
    
    
    Notes
    
    GAAP
    
    
    GAAP
    
    
    (Decrease)
    
    
    Notes
    
    GAAPAssetsCurrent Assets:Cash and cash equivalents
    
    $
    136,385
    
    
    $
    
    
    
    
    
    $
    136,385
    
    
    $
    21,512
    
    
    $
    
    
    
    
    
    $
    21,512Accounts receivable
    
    
    4,802
    
    
    
    
    
    
    
    
    
    4,802
    
    
    
    5,021
    
    
    
    
    
    
    
    
    
    5,021Note receivable
    
    
    261
    
    
    
    
    
    
    
    
    
    261
    
    
    
    225
    
    
    
    
    
    
    
    
    
    225Prepaid and other current assets
    
    
    565
    
    
    
    
    
    
    
    
    
    565
    
    
    
    771
    
    
    
    
    
    
    
    
    
    771Restricted cash
    
    
    2,850
    
    
    
    
    
    
    
    
    
    2,850
    
    
    
    2,850
    
    
    
    
    
    
    
    
    
    2,850Total Current Assets
    
    
    144,863
    
    
    
    
    
    
    
    
    
    144,863
    
    
    
    30,379
    
    
    
    
    
    
    
    
    
    30,379Oil and gas properties
and development costs, net
    
    
    182,219
    
    
    
    (38,500
    )
    
    (i)
    
    
    164,098
    
    
    
    158,392
    
    
    
    (38,500
    )
    
    (i)
    
    
    139,34621,408
    
    
    (ii)
    
    
    
    
    
    
    
    
    
    
    20,315
    
    
    (ii)(1,029
    )
    
    (iii)
    
    
    
    
    
    
    
    
    
    
    (861
    )
    
    (iii)Intangible assets  technology
    
    
    92,153
    
    
    
    
    
    
    
    
    
    92,153
    
    
    
    92,153
    
    
    
    
    
    
    
    
    
    92,153Long term assets
    
    
    1,183
    
    
    
    
    
    
    
    
    
    1,183
    
    
    
    839
    
    
    
    
    
    
    
    
    
    839Total Assets
    
    $
    420,418
    
    
    $
    (18,121
    )
    
    
    
    $
    402,297
    
    
    $
    281,763
    
    
    $
    (19,046
    )
    
    
    
    $
    262,717Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
and accrued liabilities
    
    $
    11,638
    
    
    $
    
    
    
    
    
    $
    11,638
    
    
    $
    10,779
    
    
    $
    
    
    
    
    
    $
    10,779Income tax payable
    
    
    180
    
    
    
    
    
    
    
    
    
    180
    
    
    
    530
    
    
    
    
    
    
    
    
    
    530Derivative instruments
    
    
    
    
    
    
    22,372
    
    
    (vi)
    
    
    22,372
    
    
    
    
    
    
    
    8,249
    
    
    (vi)
    
    
    8,249Asset retirement obligation
    
    
    330
    
    
    
    
    
    
    
    
    
    330
    
    
    
    753
    
    
    
    
    
    
    
    
    
    753Total Current Liabilities
    
    
    12,148
    
    
    
    22,372
    
    
    
    
    
    34,520
    
    
    
    12,062
    
    
    
    8,249
    
    
    
    
    
    20,311Long term debt
    
    
    38,449
    
    
    
    1,057
    
    
    (iii)
    
    
    39,472
    
    
    
    36,934
    
    
    
    1,225
    
    
    (iii)
    
    
    38,005(34
    )
    
    (iii)
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    (iii)Asset retirement obligations
    
    
    349
    
    
    
    
    
    
    
    
    
    349
    
    
    
    195
    
    
    
    
    
    
    
    
    
    195Long term obligation
    
    
    1,900
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    1,900Future income tax liability
    
    
    22,817
    
    
    
    
    
    
    
    
    
    22,817
    
    
    
    22,643
    
    
    
    
    
    
    
    
    
    22,643Total Liabilities
    
    
    75,663
    
    
    
    23,395
    
    
    
    
    
    99,058
    
    
    
    73,734
    
    
    
    9,320
    
    
    
    
    
    83,054Shareholders Equity:Share capital
    
    
    549,075
    
    
    
    74,455
    
    
    (iv)
    
    
    637,094
    
    
    
    422,322
    
    
    
    74,455
    
    
    (iv)
    
    
    510,784(994
    )
    
    (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
    
    
    18,573
    
    
    
    (2,754
    )
    
    (v)
    
    
    12,872
    
    
    
    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
    
    
    (258,402
    )
    
    
    (88,325
    )
    
    
    
    
    (346,727
    )
    
    
    (255,835
    )
    
    
    (89,171
    )
    
    
    
    
    (345,006
    )Total Shareholders Equity
    
    
    344,755
    
    
    
    (41,516
    )
    
    
    
    
    303,239
    
    
    
    208,029
    
    
    
    (28,366
    )
    
    
    
    
    179,663Total Liabilities
and Shareholders Equity
    
    $
    420,418
    
    
    $
    (18,121
    )
    
    
    
    $
    402,297
    
    
    $
    281,763
    
    
    $
    (19,046
    )
    
    
    
    $
    262,717
  18




---



##### Table of Contents



Oil and Gas Properties and Development Costs
    Shareholders Equity
  APB FASB ASC
   19




---



##### Table of Contents



Condensed Consolidated Statements of Operations
  Three Months Ended March 31, 2010
    
    
    Three Months Ended March 31, 2009Canadian
    
    
    Increase
    
    
    
    
    U.S.
    
    
    Canadian
    
    
    Increase
    
    
    
    
    U.S.GAAP
    
    
    (Decrease)
    
    
    Notes
    
    GAAP
    
    
    GAAP
    
    
    (Decrease)
    
    
    Notes
    
    GAAPRevenueOil revenue
    
    $
    5,330
    
    
    $
    
    
    
    
    
    $
    5,330
    
    
    $
    5,733
    
    
    $
    
    
    
    
    
    $
    5,733Gain (loss) on derivative instruments
    
    
    
    
    
    
    (127
    )
    
    (vi)
    
    
    (127
    )
    
    
    82
    
    
    
    (2,041
    )
    
    (vi)
    
    
    (1,959
    )Interest income
    
    
    19
    
    
    
    
    
    
    
    
    
    19
    
    
    
    11
    
    
    
    
    
    
    
    
    
    11Total Revenue
    
    
    5,349
    
    
    
    (127
    )
    
    
    
    
    5,222
    
    
    
    5,826
    
    
    
    (2,041
    )
    
    
    
    
    3,785ExpensesOperating costs
    
    
    2,275
    
    
    
    
    
    
    
    
    
    2,275
    
    
    
    2,701
    
    
    
    
    
    
    
    
    
    2,701General and administrative
    
    
    4,977
    
    
    
    
    
    
    
    
    
    4,977
    
    
    
    5,879
    
    
    
    
    
    
    
    
    
    5,879Business and technology development
    
    
    2,511
    
    
    
    
    
    
    
    
    
    2,511
    
    
    
    2,037
    
    
    
    
    
    
    
    
    
    2,037Depletion and depreciation
    
    
    2,083
    
    
    
    (1,093
    )
    
    (ix)
    
    
    990
    
    
    
    5,955
    
    
    
    (3,213
    )
    
    (ix)
    
    
    2,742Foreign exchange (gain) loss
    
    
    (4,187
    )
    
    
    120
    
    
    (iii)
    
    
    (4,067
    )
    
    
    (993
    )
    
    
    (392
    )
    
    (iii)
    
    
    (1,385
    )Interest expense and financing costs
    
    
    4
    
    
    
    
    
    
    
    
    
    4
    
    
    
    177
    
    
    
    
    
    
    
    
    
    177Provision for impairment of intangible asset and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146
    
    
    (viii)
    
    
    146Total Expenses
    
    
    7,663
    
    
    
    (973
    )
    
    
    
    
    6,690
    
    
    
    15,756
    
    
    
    (3,459
    )
    
    
    
    
    12,297Loss from continuing operations before income taxes
    
    
    (2,314
    )
    
    
    846
    
    
    
    
    
    (1,468
    )
    
    
    (9,930
    )
    
    
    1,418
    
    
    
    
    
    (8,512
    )Provision for income taxesCurrent
    
    
    (79
    )
    
    
    
    
    
    
    
    
    (79
    )
    
    
    (1,645
    )
    
    
    
    
    
    
    
    
    (1,645
    )Future
    
    
    (174
    )
    
    
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    (253
    )
    
    
    
    
    
    
    
    
    (253
    )
    
    
    (1,645
    )
    
    
    
    
    
    
    
    
    (1,645
    )Net loss from continuing operations
    
    
    (2,567
    )
    
    
    846
    
    
    
    
    
    (1,721
    )
    
    
    (11,575
    )
    
    
    1,418
    
    
    
    
    
    (10,157
    )Net income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (698
    )
    
    
    1,164
    
    
    (x)
    
    
    466Net Loss and Comprehensive Loss
    
    
    (2,567
    )
    
    
    846
    
    
    
    
    
    (1,721
    )
    
    
    (12,273
    )
    
    
    2,582
    
    
    
    
    
    (9,691
    )Net income (loss) per shareNet Loss from continuing operations, basic and diluted
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    
    
    
    (0.03
    )Net Income (loss) from discontinued operations, basic and diluted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    0.00Net Loss per share, basic and diluted
    
    $
    (0.01
    )
    
    $
    0.00
    
    
    
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    
    
    $
    (0.03
    )Weighted Average Number of shares (in thousands)Basic and Diluted
    
    
    307,233
    
    
    
    
    
    
    
    
    
    307,233
    
    
    
    279,381
    
    
    
    
    
    
    
    
    
    279,381
  20




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##### Table of Contents



Development Costs
  Depletion and Depreciation
  Discontinued Operations
  Condensed Consolidated Statement of Cash Flow
   21




---



##### Table of Contents



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
   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
  22




---



##### Table of Contents



www.ivanhoeenergy.com www.sec.gov www.sedar.com
 Ivanhoe Energys Business
 TM
 TM TM TM TM
 HTL TM can virtually eliminate cost exposure to natural gas and diluent, solve the
transport challenge, and capture a substantial portion of the heavy to light oil price differential
for oil producers. HTL TM accomplishes this at a much smaller scale and at lower per
barrel capital costs compared with established competing technologies, using readily available
plant and process components. As HTL TM facilities are designed for installation near the
wellhead, they eliminate the need for diluent and make large, dedicated upgrading facilities
unnecessary.
 Ivanhoe Energys Business Segments
  Oil and Gas
 Integrated
 TM
 Conventional
   23




---



##### Table of Contents



Business and Technology Development
  Corporate
 ,
 Ivanhoe Energys Corporate Strategy
 Importance of the Heavy Oil Segment of the Oil and Gas Industry
       24




---



##### Table of Contents



Ivanhoes Value Proposition
 TM
 TM
  1.
    
    Virtual elimination of external energy requirements for steam generation and/or power
for upstream operations.
 2.
    
    Relatively small minimum economic scale of operations suited for field upgrading and
for smaller field developments.3.
    
    Elimination of the need for diluent or blend oils for transport.4.
    
    Capture of the majority of the heavy versus light oil value differential.
 TM
 Implementation Strategy  Heavy Oil
   1.
    
    Build a portfolio of major HTLTMprojects.Continue to deploy the personnel
and the financial resources in support of our goal to capture additional opportunities for
development projects utilizing the Companys HTLTM Technology.
 2.
    
    Advance the technology.Additional development work will continue to advance the
technology through the first commercial application and beyond.
 3.
    
    Enhance the Companys financial position in anticipation of major projects.
Implementation of large projects requires significant capital outlays. The Company is
working on various financing plans and establishing the relationships required for the
development activities of the future.
 4.
    
    Build internal capabilities.During 2009, the Company added two key executives; one to
take up the role of President and CEO of its Canadian subsidiary and one to fill the
Corporate CFO role, vacated through retirement. In addition, the Company continued to build
its internal technical capabilities through the addition of senior subsurface engineering
talent as well as senior environmental leadership. These new staff will join existing
execution teams as they advance the Companys first HTLTM projects. The existing
upstream teams consist of a number of experienced heavy oil petroleum engineers and
geologists complemented by a core team of geotechnical experts. The Houston-based
HTLTM technology team is built on a number of engineers that have an extensive
background in chemical and petroleum refining, project engineering and the development and
management of intellectual property. The Company expects to continue filling key positions
as its projects advance.
 5.
    
    Build the relationships needed for the future.Commercialization of the Companys
technologies demands close alignment with partners, suppliers, host governments and
financiers.
  25




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##### Table of Contents



Executive Overview of First Quarter 2010 Results
          26




---



##### Table of Contents



Three months endedMarch 31,2010
    
    
    2009Oil revenues
    
    $
    5,330
    
    
    $
    5,733Net loss from continuing operations
    
    $
    (2,567
    )
    
    $
    (11,575
    )Net loss from continuing operations
per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.04
    )Net loss and comprehensive loss
    
    $
    (2,567
    )
    
    $
    (12,273
    )Net loss per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.04
    )Average production (Boe/d)
    
    
    804
    
    
    
    1,456Net revenue (loss) from operations per Boe
    
    $
    (0.05
    )
    
    $
    (0.09
    )Cash flow provided by (used in) operating
activities from continuing operations
    
    $
    (3,994
    )
    
    $
    (4,985
    )Cash flow provided by (used in) operating activities
    
    $
    (3,994
    )
    
    $
    (4,088
    )Capital investments (continuing operations)
    
    $
    (25,337
    )
    
    $
    (5,209
    )
  27




---



##### Table of Contents



Financial Results  Change in Net Loss
  Favorable(Unfavorable)2010
    
    
    Variances
    
    
    2009Summary of Net Loss by Significant
Components:Cash Items:Net operating revenues:Oil Revenues:
    
    $
    5,330
    
    
    
    
    
    
    $
    5,733Production volumes
    
    
    
    
    
    $
    (2,549
    )Oil prices
    
    
    
    
    
    
    2,146Realized gain (loss) on derivative instruments
    
    
    
    
    
    
    (537
    )
    
    
    537Operating costs
    
    
    (2,275
    )
    
    
    426
    
    
    
    (2,701
    )General and administrative, less
stock based compensation
    
    
    (4,460
    )
    
    
    1,055
    
    
    
    (5,515
    )Business and technology development,
less stock based compensation
    
    
    (2,492
    )
    
    
    (483
    )
    
    
    (2,009
    )Net interest
    
    
    19
    
    
    
    76
    
    
    
    (57
    )Current income tax provision
    
    
    (79
    )
    
    
    1,566
    
    
    
    (1,645
    )Total Cash Variances
    
    
    (3,957
    )
    
    
    1,700
    
    
    
    (5,657
    )Non-Cash Items:Unrealized gain (loss) on derivative instruments
    
    
    
    
    
    
    455
    
    
    
    (455
    )Foreign Exchange Gain
    
    
    4,187
    
    
    
    3,194
    
    
    
    993Depletion and depreciation
    
    
    (2,083
    )
    
    
    3,872
    
    
    
    (5,955
    )Stock based compensation
    
    
    (537
    )
    
    
    (87
    )
    
    
    (450
    )Future income tax expense
    
    
    (174
    )
    
    
    (174
    )
    
    
    Discontinued operations (net of tax)
    
    
    
    
    
    
    698
    
    
    
    (698
    )Other
    
    
    (3
    )
    
    
    48
    
    
    
    (51
    )Total Non-Cash Variances
    
    
    1,390
    
    
    
    8,006
    
    
    
    (6,616
    )Net Loss
    
    $
    (2,567
    )
    
    $
    9,706
    
    
    $
    (12,273
    )
  Revenues and Operating Costs
 China
  Three Month Periods Ended March 31,2010
    
    
    2009Net Production:Boe
    
    
    72,396
    
    
    
    131,078Boe/day for the period
    
    
    804
    
    
    
    1,456Per BoeRevenue
    
    $
    73.63
    
    
    $
    43.74Field operating costs
    
    
    18.45
    
    
    
    18.95Windfall Levy
    
    
    11.20
    
    
    
    0.95Engineering and support costs
    
    
    1.77
    
    
    
    0.7131.42
    
    
    
    20.61Net operating revenue
    
    
    42.21
    
    
    
    23.13Depletion
    
    
    31.05
    
    
    
    40.23Net revenue (loss) from operations
    
    $
    11.16
    
    
    $
    (17.10
    )
  28




---



##### Table of Contents



Production Volumes
 Three-Month Periods Ended March 31,Net Boes
    
    
    Percentage2010
    
    
    2009
    
    
    ChangeChina:Dagang
    
    
    67,794
    
    
    
    128,478
    
    
    
    -47
    %Daqing
    
    
    4,602
    
    
    
    2,600
    
    
    
    77
    %72,396
    
    
    
    131,078
    
    
    
    -45
    %
  Operating Costs
  PRC Windfall Levy Measures
  General and Administrative
  Three Months Ended2010 vs. 2009Favorable (Unfavorable) Variances:Oil ActivitiesCanada
    
    $
    (276
    )Ecuador
    
    
    18Asia
    
    
    (291
    )Corporate
    
    
    1,451$
    902
  29




---



##### Table of Contents



Canada
  Ecuador
  Asia
  Corporate
  Business and Technology Development
  Foreign Exchange
  Net Interest
   30




---



##### Table of Contents



Unrealized Gain (Loss) on Derivative Instruments
  Depletion and Depreciation
  China
  Provision for/Recovery of Income Taxes
 China
  Business and Technology Development
  Discontinued Operations
   31




---



##### Table of Contents



Financial Condition, Liquidity and Capital Resources
 Sources and Uses of Cash
  For the Three Months Ended March 31,2010
    
    
    2009Net cash provided by (used in) operating activities from
continuing operations
    
    $
    (3,994
    )
    
    $
    (4,985
    )Net cash provided by (used in) investing activities from
continuing operations
    
    $
    (24,805
    )
    
    $
    (5,792
    )Net cash provided by (used in) financing activities from
continuing operations
    
    $
    137,957
    
    
    $
    40Net increase in cash and cash equivalents
    
    $
    114,873
    
    
    $
    (10,901
    )
   
    
    Inability to attract strategic investors to our projects,
 
    
    Volatility in the public debt and private and equity markets,
 
    
    Increases in interest rates or credit spreads, as well as limitations on the
availability of credit, that affect our ability to borrow under future potential credit
facilities on a secured or unsecured basis, and
 
    
    A decrease in the market price for our common stock.
 Operating Activities
  Investing Activities
  Three-Month Periods EndedMarch 31,(Increase)2010
    
    
    2009
    
    
    DecreaseOil and Gas ActivitiesCanada
    
    $
    17,912
    
    
    $
    2,068
    
    
    $
    (15,844
    )Ecuador
    
    
    4,175
    
    
    
    656
    
    
    
    (3,519
    )Asia
    
    
    2,803
    
    
    
    1,156
    
    
    
    (1,647
    )US
    
    
    
    
    
    
    55
    
    
    
    55Business and Technology Development
    
    
    225
    
    
    
    1,274
    
    
    
    1,049Corporate
    
    
    222
    
    
    
    
    
    
    
    (222
    )$
    25,337
    
    
    $
    5,209
    
    
    $
    (20,128
    )
  32




---



##### Table of Contents



Canada
  Ecuador
 TM
 Asia
  Business and Technology Development
  Corporate
  Financing Activities
  Outlook for 2010
 TM
    33




---



##### Table of Contents



Contractual Obligations
  Payments Due by Year(stated in thousands of U.S. dollars)Total
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    After 2013Consolidated Balance Sheets:Long term debt
    
    $
    38,449
    
    
    $
    
    
    
    $
    38,449
    
    
    $
    
    
    
    $
    
    
    
    $
    Asset retirement obligation
    
    
    990
    
    
    
    330
    
    
    
    
    
    
    
    160
    
    
    
    
    
    
    
    500Long term obligation
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,900
    
    
    
    Other Commitments:Interest payable
    
    
    2,209
    
    
    
    1,301
    
    
    
    908
    
    
    
    
    
    
    
    
    
    
    
    Lease commitments
    
    
    3,193
    
    
    
    1,480
    
    
    
    1,141
    
    
    
    446
    
    
    
    126
    
    
    
    Zitong exploration commitment
    
    
    24,761
    
    
    
    24,761
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nyalga exploration commitment
    
    
    1,926
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,926
    
    
    
    Total
    
    $
    73,428
    
    
    $
    27,872
    
    
    $
    40,498
    
    
    $
    606
    
    
    $
    3,952
    
    
    $
    500
 Off Balance Sheet Arrangements
   34




---



##### Table of Contents



Outstanding Share Data
  Quarterly Financial Data In Accordance With Canadian and U.S. GAAP (Unaudited)
 QUARTER ENDED2010
    
    
    2009
    
    
    20081st Qtr
    
    
    4th Qtr
    
    
    3rd Qtr
    
    
    2nd Qtr
    
    
    1st Qtr
    
    
    4th Qtr
    
    
    3rd Qtr
    
    
    2nd QtrTotal revenueCanadian GAAP
    
    $
    5,349
    
    
    $
    4,999
    
    
    $
    7,991
    
    
    $
    4,844
    
    
    $
    5,824
    
    
    $
    19,525
    
    
    $
    26,159
    
    
    $
    (3,249
    )U.S. GAAP
    
    $
    5,222
    
    
    $
    2,263
    
    
    $
    6,826
    
    
    $
    4,280
    
    
    $
    3,783
    
    
    $
    24,920
    
    
    $
    40,800
    
    
    $
    (15,453
    )Net income (loss) from
continuing operations:Canadian GAAP
    
    $
    (2,567
    )
    
    $
    (11,915
    )
    
    $
    (2,795
    )
    
    $
    (11,444
    )
    
    $
    (11,577
    )
    
    $
    (16,321
    )
    
    $
    4,822
    
    
    $
    (18,547
    )U.S. GAAP
    
    $
    (1,721
    )
    
    $
    (12,385
    )
    
    $
    (1,151
    )
    
    $
    (8,985
    )
    
    $
    (10,158
    )
    
    $
    (27,188
    )
    
    $
    20,206
    
    
    $
    (30,201
    )Net income (loss) from
discontinued operations: (net of tax):Canadian GAAP
    
    $
    
    
    
    $
    
    
    
    $
    (23,290
    )
    
    $
    66
    
    
    $
    (697
    )
    
    $
    2,341
    
    
    $
    5,240
    
    
    $
    (3,184
    )U.S. GAAP
    
    $
    
    
    
    $
    41
    
    
    $
    (689
    )
    
    $
    1,151
    
    
    $
    466
    
    
    $
    (18,212
    )
    
    $
    5,618
    
    
    $
    (2,780
    )Net income (loss) per share
 continuing operationsCanadian GAAP
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.08
    )U.S. GAAP
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.00
    )
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.11
    )
    
    $
    0.08
    
    
    $
    (0.12
    )Net income (loss) per share
 discontinued operationsCanadian GAAP
    
    $
    
    
    
    $
    
    
    
    $
    (0.09
    )
    
    $
    0.00
    
    
    $
    (0.00
    )
    
    
    0.01
    
    
    
    0.02
    
    
    $
    (0.01
    )U.S. GAAP
    
    $
    
    
    
    $
    
    
    
    $
    (0.00
    )
    
    $
    0.00
    
    
    $
    0.01
    
    
    
    (0.06
    )
    
    
    0.02
    
    
    $
    (0.01
    )
  Transition to International Financial Reporting Standards (IFRS)
 IFRS
 First Time Adoption of International Financial
Reporting Standards
   35




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
     36




---



##### Table of Contents



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. Removed and Reserved
 
 Item 5. Other Information:
  37




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##### Table of Contents



Item 6. Exhibits
 EXHIBITNUMBER
    
    DESCRIPTION10.21
    
    
    Special Warrant Indenture dated as of January 26, 2010 among the Company, Macquarie Capital
Markets Canada Ltd. and Cibc Mellon Trust Company.10.22
    
    
    Share Purchase Warrant Indenture dated as of January 26, 2010 among the Company, Macquarie
Capital Markets Canada Ltd. and Cibc Mellon Trust Company.10.23
    
    
    Special Warrant Indenture dated as of February 25, 2010 among the Company, Macquarie Capital
Markets Canada Ltd. and Cibc Mellon Trust Company.10.24
    
    
    Share Purchase Warrant Indenture dated as of February 25, 2010 among the Company, Macquarie
Capital Markets Canada Ltd. and Cibc Mellon Trust Company.31.1
    
    
    Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification by the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
    By:
    
    /s/ Gerald D. Schiefelbein

Name: Gerald D. Schiefelbein
Title:   Chief Financial Officer
   38




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description10.21
    
    
    Special Warrant Indenture dated as of January 26, 2010 among the Company, Macquarie
Capital Markets Canada Ltd. and Cibc Mellon Trust Company.10.22
    
    
    Share Purchase Warrant Indenture dated as of January 26, 2010 among the Company,
Macquarie Capital Markets Canada Ltd. and Cibc Mellon Trust Company.10.23
    
    
    Special Warrant Indenture dated as of February 25, 2010 among the Company, Macquarie
Capital Markets Canada Ltd. and Cibc Mellon Trust Company.10.24
    
    
    Share Purchase Warrant Indenture dated as of February 25, 2010 among the Company,
Macquarie Capital Markets Canada Ltd. and Cibc Mellon Trust Company.31.1
    
    
    Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  39